# AI SaaS Strategy: TAM Expansion and Revenue Stacking

**Podcast:** The Twenty Minute VC (20VC): Venture Capital | Startup Funding | The Pitch
**Published:** 2026-02-12

## Transcript

The idea that software as a category is dead is ludicrous to me.
It's tough out there.
It's gonna be hard.
Welcome to the technology industry.
I just think we have to give up on TAM.
I think we just have to let the revenue show us the path to TM.
I think every category that I know of outside of engineering and product is at existential risk of shrinking seats.
It's the venture capital equivalent of you can't get fired for buying IBM.
You can't get fired for sticking money in with a 1x preference on the consensus winner.
This is classic top of the bubble stuff.
This is 20 VC with me, Harry Stebbings.
Now today we have Rory, Jason, and one very special guest.
We have Mike Cannonbrooks, co-founder of Atlassian joining us for my favorite show of the week, the show where we discuss the single biggest news items that have happened in the last seven days of tech.
This was an incredible one.
I want your feedback.
Let me know what you think of this show.
Harry at 20bc.com.
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I am so excited for this, guys.
We have a very special guest joining the trio in Mike Cannon Brooks.
Mike, thank you so much for joining such a phenomenal group of intellectuals.
Thanks for having me.
We saw Anthropic release updates, which wiped billions off the stock market.
I want to start with Anthropic predicts 149 billion in ARR in 2029, under the most optimistic scenario.
The question that we ask ourselves is: is this just the collective budgets of enterprises all going to anthropic?
And how do we think about that?
Let's mention it out quickly.
150 billion for anthropic.
Let's just say if they make that number.
OpenAI's estimate for the same year I checked is 180.
So call it 350, 380 between them.
You know, total worldwide software business is 700 billion.
So it would be a pretty big chunk unless you expand the TAM.
It's the same old discussion.
If you don't believe in TAM expansion and it's a zero-sum game, then if two companies are going to do 400 billion, and we could probably assume Microsoft, who's already at 200 billion, gonna roll off and die, then yeah, they're gonna have to take the money away from the rest of us.
But clearly the bet is CAM expansion, otherwise it gets really hard.
Mike, can I ask you a meta question?
I'm sure you've thought about does all this anthropic revenue at some point companies only have so much budgets, especially CIOs and down.
At some level, do you compete with that budget on product engineering?
I know it's a boost for you, but on the other hand, there's only so much budget to get extra seats, to get extra licenses.
Do you feel any any meta competition from that or or none at all?
Let me take that second.
I think you also have to work out the revenue stack here.
Because like we use anthropic a lot.
It's one of one of our biggest models.
We use multiple models, which I think is what most good SaaS vendors are doing within their customers' choices, right?
Like we use a lot of Gemini, a lot of anthropic.
We have a whole bunch of Lama and Mistral running and stuff internally, and a bunch of OpenAI, right?
And our job is to pick the best model for the best cost, the best quality outcome and the best feed.
Then we have a whole gateway that's constantly bouncing that.
But when we spend money on anthropic, don't forget, we pay AWS, and then AWS pay anthropic.
So if someone spends a million dollars on the Elassian platform, and we spend $200,000 on AI bills or something, pick a number that's nowhere near that high proportionately, but that goes to AWS revenue, and then AWS spend what 150,000 on anthropic revenue.
Don't forget, like the individual revenue number is not necessarily counting the whole stack, right?
And they have to buy a bunch of chips and stuff.
So the revenue stacking here gets a bit complicated because there is a whole set of layers underneath this, right?
There's no doubt that's a big number though.
Do we compete with the model providers?
I think this is one of the big questions over the long term, right?
I don't know we've yet worked out for all the model providers what they're going to do.
We use a lot of Gemini, pretty deep partner with Google, but obviously you could argue, I don't know, Google Docs and Confluence are somewhat competitive.
There are two ways you can write a piece of text and collaborate on it and change it.
Mega Corps and tech competing on one level and partnering on other levels.
That's there's nothing new in that, I don't think.
Um I think we have to be good, right?
The question for underneath that is can they all afford to shut down their models, right?
That they get so good they'll only use themselves.
I don't I don't believe they will given the competition from the other three, four before we get to China on models or anything else, right?
So I'm not particularly worried about that.
We have to compete with everybody that's providing our customers with the same value that we're providing them, right?
In some era.
There's 150 billion for Anthropic.
It's a lot of CIO budget.
It does make you wonder.
The more I read, the more I get confused where that money is really coming from.
Um but I think to Rory's point, it depends on your question of whether it's zero sum, right?
Like I don't think any of this is going to be zero sum.
Like people say, oh, well, that's gonna so swap software.
And I'm like, well, is it really swapping for software?
If your business is getting more productive, you're building more products and services, your your quality is going up, your speed is going up, whatever, you're gonna spend money on different things.
The technology budget of most companies over the last 30 years has gone up massively, I would argue, since 30 years ago when they were buying keyboards and mice and stuff like that.
I don't think that's gonna stop.
I think the interesting thing about that, there's a ton in answer to unpack, but I just want to highlight the you have to be good sentence.
Because when we're going to talk about all the oh, what happens to SaaS and all that, I think Mike's big picture comment we should remember every time.
It turns out if you want to make a lot of money, you have to be good.
And you have to compete with everyone else for the same dollars.
And my guess is that will be a recurring theme.
It's not impossible to succeed, you just quote unquote have to be good.
There's such a lot of complexity here, because you're right, you have the margin stacking.
So, so you know, a classic example is you look at anthropic, it's doing a billion dollars in revenue.
You look at cursor, it's doing a billion dollars in revenue, but it's pretty much the same billion dollars.
So you have to think about the margin stacking.
Then on the other hand, you have to say to yourself, if anthropic hypothetic was doing a hundred billion dollars, and all of it was through third-party ISVs that were also adding value and getting more money on that, it would point to the end market would have to expand a lot.
If everyone's gonna eat and grow, you're gonna have to buy into big TAM expansion.
And you're right, Mike, software's grown nicely over the years.
My guess is for this kind of growth, you probably need more than the trend line of the last 20 years.
You probably need some acceleration on top.
Just because the numbers are so big.
If Anthropic goes from four and a half billion to a hundred and fifty bill, in a world where you know Microsoft does 200 billion, you're basically saying to a rounding error, Antropic is another Microsoft, OpenAI is another Microsoft, and that's two more Microsoft's, which are pretty voracious mouths to feed out of the same pile of cash.
It's there better be more money coming, or it's gonna get pretty kind of short around here.
An obvious one is when you look at the IT spend, you know, you get six, seven hundred billion of software.
But the stunning thing is you have a billion plus or minus of sorry, trillion of consulting services type stuff.
And if some of the software can eat that, that's a pretty big slug of extra budget that's available for a more efficient product.
It's finding the extra money is the thing.
Do you not think that consulting services part actually goes up?
I think one of the most profitable categories right now is your essentials on the implementation and integration of some of these systems in the largest enterprises in the world.
I tweeted this.
I said I think they will be more revenue generative than the foundation model companies in the next two to three years, as they often are in early stages of kind of cycles.
But actually, I think that would grow, not shrink.
No, Rory?
That kind of stuff, maybe yes.
The you know the consulting to help you implement AI, yes.
The consulting to help you morph your code base from Fortran to Blood, the a market we've been looking at a lot is all the consulting spend around systems integration.
You know, SAP, Oracle, Net Suite.
A lot of that is pretty rote stuff.
And you know, it makes coding look hard.
And there's a lot of automation that we think you'll see there.
So again, it's the same thing.
It's the swings and roundabouts.
Places where it grows and places where you're gonna get scrunched.
Listen, we we all need these consultants, whether they're FDEs or Accenture, we all we all need them, right?
We need well, I think we need them more in the age of AI.
The only thing that I find lost in this in the simplistic version of the argument is they have to be smarter than they used to be.
The average agency, traditionally in the more enterprise, Mike, there were a lot of partner agencies that were helping doing big deployments, right?
Of Jira and Confluence.
I'm sure they had to be smart, but not quite train the agent from scratch smart.
And maybe Atlassian's a bad example, but I can tell you only a handful of folks that we work with are really smart enough.
Like, this is why customer success is dead, because all these B2B companies are trying to convert their CS teams to FDEs, and I don't think even 10% of them can do it.
They can't really be like product engineers.
They don't need to code.
So I wonder if we have enough consultants out there to really do this to fully lubricate this.
I like the argument that we're heading into the death of consulting because we're going to run out of consultants.
The ones that are smart enough to do it enough.
We'll have to make a new factory.
Mike's taking no prisoners here.
Okay.
It's open season.
But the thing that's gonna stop that is look, their economic incentive, the software provider, is to make this adoptable by ordinary people.
If the only people who can roll out your shit are wizards, then you're gonna run out of wizards and then you're gonna run out of revenue.
To have mass adoption, you're gonna need mass simplification.
We will build those guardrails, right?
We do.
Most of our customers deploying agents, the agents that they deploy themselves when they start are relatively simplistic.
They are small automations and pieces of software that make some business process go a little quicker.
And you could argue, well, it's a very minor improvement.
And I said, no, but it's a major leap in their learning, and they're learning and they're controlling and they're letting them out slowly and they're getting understanding what they can and can't do as the technology improves and as they find more business processes that they can automate with software, right?
We can call it an agent, we can call it whatever we want.
That's a pretty normal, I would say, corporate adoption pattern.
And we're super early in that cycle, right?
Like these companies are they'll tell you some sort of fantastic AI story, but they're not like having millions of agents run right over their bank account.
How do you genuine commentary?
Because that all makes sense to me.
And I I've said this to guys before I think one of my weaknesses of VC sometimes I can be too incrementalist.
That makes sense to me, is how I'd adopt it, right?
How do you square that with you know the Wall Street slash VC buzz that you know the entire SaaS industry was meant to implode in the last two weeks, and the and and new company agents are gonna take over everywhere?
How do you like?
I don't want to put you on the spot on that last thing in particular, but how do you unless you want to?
I've been on the spot for a while.
Put them on the spot, Rory.
Come on.
24 years of being on the spot.
It's a good idea.
Okay, I just didn't want to be rude to our guests, but I'm I'm game.
Genuinely, how do you respond to the madness of the last three weeks where people were like, you know, the entire software industry is going away and being replaced by AI?
Because my LPs are asking me, how do you think about SaaS today?
You know, what's your what's your thoughts on that?
I've said it a few times.
I don't think software is dead.
I think software is alive and kicking.
I think it's confusing to a lot of people in the software industry, and maybe that's normal, like to take the most generous view.
Will every single software in SaaS company make it through the next five to 10 years?
Absolutely not.
Will a lot of them continue to grow and prosper through that five to ten years?
Absolutely.
Is that any different to the last 10 years?
No.
I keep saying internally, the competitors we had in 2005 and 2010 and 2015, I went and pulled all these old documents.
A whole bunch of those companies don't exist.
They've been merged, acquired, gone out of business, and we have a set of competitors today that are new and upcoming, and we have to compete with those.
That is the history of the technology industry, and that's gonna keep going.
The idea that software as a category is dead is ludicrous to me.
I'm like, wait a second.
It's very efficient for businesses to buy pre-canned solutions of technology.
They don't write everything with assembly, and they're probably still working.
But can I throw in one micro thought?
I view Atlassian, and I'm just a student, I I didn't found it, as above the fold.
And what I mean is you're not seeing seat reduction.
Product and engineering is a beneficiary of AI spend, right?
Whether it's vibe coding or however, we mobile, we are creating radically more software than six months ago.
Like any curve, if you look at for mobile, like it's exploding, right?
At least for a while, I think that benefits Atlassian because I need more tools, right?
I need to track more issues, more tickets, more everything.
I think there's plenty of other spaces that are being decimated.
I mean, if you're traditional support software like Zendesk, the old Zendesk is growing zero percent.
Like we are cutting humans.
And uh to go to Rory's point, I think there's some folks that are above the fold, and there's there's a few that like anthropic that are so far above the fold, we need to figure out how to scroll above the top of the monitor.
But I think more are below the fold, more are seeing hits, and I actually think product and engineering is is an island of stability today.
The idea that maybe you see teams with fewer engineers, but when I rock into leaders, I you know, I was at Replit the other day at 300 million in revenue, 300 people.
There's like 11 people in go to market.
It's probably like the old days at Atlassian, right?
But a lot of engineers, like they're not shrinking the size of their engineering team, but everything else looks pretty lean.
We're product and engineering and software teams is a significant part of our business.
40%, it's a big part of our business.
Service in general is a big part of our business.
So your argument about Zendesk service collection is a very large business.
It's our largest at-scale business growing very fast, faster than the overall company.
And that is IT service management, HR service management is like our fastest functional area, right?
Going inside there, financial service management, just general employee service management.
We just shipped a customer service offering in October.
So, like we're wading into those waters.
This is crazy, right?
This doesn't make any sense.
No, the business is growing really, really well, right?
We have to provide that software layer that makes that cheaper.
There's no doubt about that, right?
Like that's that's our job to do.
I think the generalized view that customers are going away in these times, like certainly for some businesses, yes, you can say that, like some software businesses.
The industry-wide phenomenon, which I think is what Rory was asking, doesn't make any logical sense to me, right?
And again, we're either an example of the whole industry or we are somehow unique.
And people seem to argue one or the other depending on the point they're trying to make.
So it's very difficult.
The one point I would make is again, we're accelerating our cloud revenue, which is a 26% quarter growth rate at well north of five, six billion at the moment, and we grew our RPO by 44%.
That's also accelerated for the third quarter in a row.
Now, what is RPO?
That is customers who are buying three million dollars worth of software for three years, something like this.
Two million of that goes into our balance of the future, right?
We book a billion dollars in revenue, ultra simplistic CFOs and accountants understand how it works, but that's a close enough proxy.
Those others are customers making three-year bets.
So now we have people arguing, ah, but in year four, it's all gonna fall apart.
And I'm like, really?
These customers aren't stupid.
Comments.
One is because of the um AI and open AI and Anthropic, we now all have experts on RPO.
So everyone has everyone knows RPO now.
Once someone signs 100 billion in RPO, everyone has to figure it out.
But going back to your comment, the software word is overused, because you're right.
The the people, oh, it's the death of software, but on the other hand, we're gonna talk in a while.
Harvey just raised a wonderful sum of money at a high price, and that's clearly software.
So software is dead, it's a stupid statement, right?
And we should discard it, right?
But on the other hand, your comment, yes, there's always an element of change, and you know, if you look at your competitors every five years, you know, some folks go to the wall.
The argument here would be somewhere in the middle.
It would say when technology doesn't do a step function change, you probably have an organic death rate of five, 10% a year, because that's the way capitalism works, and the winners like you guys come to the top.
But every 10 or 15 years, there's an architectural shift in software where it just gets so new that instead of being a 5% death rate, you go through a two-year period where there's a 50% death rate.
I'm just picking numbers out of my ass, right?
And that at least is a credible discussion.
And so to make it kind of tactical to you, do you think that the software you guys write with LLMs is quantum different than what you did before?
Or do you see it as a step function change in the kind of software you make or just an organic progression?
Do you does that make sense?
It's it's both.
It's both.
So the way that we are building software, and I think the irony is often forgotten here that apparently we're some sort of cavemen sitting around just banging on clicky clacky keyboards and writing assembly code, and we haven't figured out that LLMs are pretty good at writing code and can speed us up.
We've got 10,000 people in RD.
This is amazing, right?
I'm like, sweet, we can build a lot more stuff a lot better.
Do we have some pockets of the company where people just sit in Claude Code all day, every day and write cool stuff?
Yes.
But I don't know, there are many software companies probably sitting around in their RD department still working the old way, right?
Some won't make it fast enough, totally agree with you.
You have to build new things.
Some of those will work, some of those probably won't work.
It gets very simplified in people's minds that like you're just bolting on AI features.
I'm like, no, I'm building it.
I have a very, very large team at this stage building an entire substrate of context and search and chat, not to sell, but because I have to.
And I have a very large infrastructure team at this point managing AI costs.
You guys all went on about inference costs, it's gonna crush us, et cetera.
I'm like, actually it's going the other way, right?
Our inference costs are going down.
And we're very good at adopting new models, but we're also good at about knowing the features that need the old models that get very cheap.
Yep.
Some of our features are a thousand times cheaper to run than when we introduced them today.
And the feature still works really well as an AI feature.
So guess what we're good at?
Optimizing infrastructure, right?
Our cogs has gone down, right?
Our gross margin has gone up last six or seven quarters.
And we've deployed a lot of AI, right?
My question is then are we just throwing the babies out with the bathwater?
Because we've got your Mondays, your duos, your work days, your hub spots, the SASIK is real.
I'm just trying to understand.
Should I just call it quits and sell my Monday and my duo and just accept defeat?
Like they ain't coming back, or like they coming back.
Like, we have a brilliant saying on this show, Rory always says it wonderfully.
Harry says that's great, but um, what what about me?
I'm like, help me out here.
I'm looking at all my positions.
We exist to help Harry manage his portfolio.
It's a living.
That's right.
Well, apparently AI can just AI, just listen to this podcast repeatedly and it'll do the trading for you and you'll be fine.
There's no doubt we have a sexual rotation out of software, right?
Been on many, many therapy calls with many software CEOs and other things.
Like it's it's tricky to understand how that changes and re-writes and everything else.
In my view, that's definitively fear-driven at the moment, and fear overrides it.
Generally, fear comes from somewhere real as well, though, right?
Like, so will every single one of those names be bigger in five years' time than today?
Probably pretty hard to say if you listed a basket of 20 companies, they're all dead.
Will the overall average be higher?
I would argue yes.
The fear-driven sort of average software price at the moment is there, but also you get all sorts of financial effects like people are buying chips, you know, the software versus semi-charts been around a lot, right?
Like it's this thing, and guess where those chips are going?
Well, those chips are going into data centers to make AI inference to do all sorts of wonderful APIs, and eventually that's delivered through applications at some layer, and we're working out where the profit stack and the revenue stack gets redistributed, as we've talked about beforehand.
Maybe I've got my Atlassian numbers wrong, forgive me.
But atlassian had a pretty good quarter.
I know Mike probably doesn't want to talk about this, but somehow we got down it.
But Elassian's growing 23% and RPO's up 44%, right?
That's pretty good.
But more importantly, it's accelerating.
Atlassian is doing better.
The problem with so many peer companies, and these are the best founder-led companies, almost all the public SaaS and BDP companies are founder-led, right?
Very few are is they're not, they're not, they're still decelerating.
And how long do you get the LLMs are open to everybody?
You had a year, you know, Claude 3.5, 3.7 were really good.
Like you've had seven months since then.
Do you get 12 months?
Do you get 18 months?
Like, how long do we give you to recapture some growth and some revenue from the AI revolution?
Because Atlassian's got this layer, but it's also got growth.
If you if you spent the last year with 50,000 engineers building all this this great stuff, and now your growth is in the teens, maybe heading down to 10%.
I mean, better COs than me, but that's the one where worry, I think you should tell your LPs you're worried.
And it's more of the public folks have seen no re-acceleration than half.
More of them have seen persistent deceleration, and we're gonna see more this quarter.
And I wish it wasn't the case.
My life would be better if it wasn't.
My life would be better if SaaS was on autopilot, like it was through 2022.
But you gotta show me the money in 2026.
At some point, all that infrastructure spend goes to inference, has to go to software.
You've got to show a connection to that spend, or you may not have a reason to do that.
Some of that goes to new companies that arrive, right?
You nailed it.
The problem with looking at the overall SaaS growth rate now is we haven't had any good ones to the top of the funnel, right?
So the the the survivor growth rate's going down, because you know, we looked at this once and it was 30% for about a decade and a half.
But when you went into it, that's because anyone who goes to your to your point, Jason, when you go below 10, you get the red card.
You're sent off.
You're told, you know, you go off to PE land.
But they were dropping another one in at 60% growth on the top.
So it stayed roughly 30% median growth rate for a decade and a half.
And now there's been nothing good coming in.
You know, you're just seeing the bad side.
And and in fact, you've you've had a lot more.
I would argue there's a whole series of phenomena.
Maybe it's a great post to break apart.
Software IPOs for the last five years have not been a category of new companies introduced, right?
And to be fair, if you go talk to a Figma employee, my friend Dylan's having a fun time over there.
They're a good example of a company who's like, I think they're gonna do great in the current environment, right?
But you're probably not setting an example where a lot of other private company CEOs, you had Cliffy on a little while, another good friend of mine actually lives like two blocks down that way.
He's a little bit less motivated having seen what's going on, right?
I wouldn't be rushing today to IPL there.
Well, number one factor is you don't have those 60, 70, 80% growers that take the average up, right?
Because you've got you do have this one.
Number two, you've had private equity, and again, a totally valid part of the capital markets come in and hoover up a ton of companies over the last five years.
I'll give you an example.
In COVID in 2020, we formed a group of SaaS CEOs.
I think there were 16 of us that got together.
We'd meet on Zoom every single week, right?
At one stage, 10, 11 of us were public, maybe more.
We all had earnings calls, and you know, it was a really good therapy group for a while.
I think it's like me, Eric from Zoom, Aaron from Box, Toby from Shopify.
That's it.
We're all that's left, right?
Because almost all of them have been bought by private equity or big tech.
Big tech's getting a lot better at buying stuff historically, right?
Like, so all of these phenomena lead to this weird average system, and you have companies going pro staying private a lot longer, right?
They've got a lot more capital.
Poor Cliffy, Mel.
Candle would have gone public a lot longer in an old era.
They don't need to nowadays as much, right?
The stripe guys, same thing.
But that means when you look at a public company, you're like almost seeing this like the survivor bias of not small enough to get bought by private equity, not large enough to get bought by big tech, no new companies coming in.
It's it's hard to work out what that average should be, actually, right?
But that's not saying that's not happening.
I think this is where these are all a set of forces that are happening simultaneously.
We will see how much this case.
There's one more effect that we're not talking about, which is some of those SaaS companies, and again, people have argued it's us, and we're like, wait a second, that 44% RPO growth is not coming from people paying $20 off Google Ads.
Some of those have been affected also by the changes in like marketing channels and other things that AI have talked about.
That isn't again.
I would argue if you're a multi-decade company, you get used to this, right?
You've you've moved your marketing to TikTok or some other way of the business model, right?
And you get these chasms in marketing that have opened up.
Some of those have also become a lot more challenged.
So there's a lot of different forces happening here, right?
It's often oversimplified by people.
Fundamentally, though, software customers, are they gonna buy more in the future?
Yes.
We mentioned that new companies bringing uh enterprise value and expanding budgets.
Harvey, we mentioned, raised in December, raised 200 million, had an 11 billion dollar price.
It must be quite nice every month to fundraise.
It's just like a nice head of like ego, isn't it?
Oh, another 200 million dollars from venture investors.
The nice bunch of secondary.
Nothing wrong with that for employees.
It drives a lot of this is secondary.
It drives a lot of it.
Okay, let's let's talk about this.
How do we think about this deal?
They're gonna end the year, supposedly at a close to 600.
The growth is pretty phenomenal from 200 today.
How do we think about this?
First of all, let's just pick the obvious point.
It was fun that it happened this week.
Because if you think of what also happened this week is Claude Code produced a plug-in, 13 plugins, and one of the plugins was the legal plug-in.
And that's one of the things that's alleged to have caused the SAS apocalypse.
Oh my god, the old school vendors, Thomson Reuters, and some of these guys declined, right?
While at the same time, a company who, if you square it one way, is just quote unquote a GPT wrapper or a Claude Code wrapper, raised 200 million dollars at 11 billion.
So literally, this the the kind of whiplash in terms of the thinking here is hilarious, right?
I think all software is dead except this software, which is pretty close to the plug-in from Claude, but at the same time it's worth 11 billion dollars.
So it it just went so a fair amount of inconsistency there in the worldview.
That's just worth pausing on.
Other than that, look, we've discussed it's actually very similar to discussion how an open evidence.
This is the lead company in the AI for law firm space, obviously Lagorus, number two.
They're boat killing it.
You're seeing mass adoption, and the million dollar question, and you cited what you think they'll do at year end.
All you know for sure is what they're doing today at 190 million a year.
The question here is total TAM.
In other words, if you can compound for three or more years at this kind of rate, you'll do amazing.
And if you top out based on the number of, you know, M-Law lawyers in the US, which isn't as large as you'd think, you could find yourself TAM constrained.
And that's the bet.
Because they're clearly going to get arbitrary number.
60% of the market share with Lagora getting 40, I don't know, 50-50, something like that.
So it's really a question of how big is the TAM and when do they hit it?
Yeah, but Rory, do you're like you're if they do if they're going from 200 to 600 in one year, so that's tripling, if they're magically able to double the next year to 1.2, we're paying 10 times two year forward revenue, right?
Yeah.
For an asset that, unlike Atlassian, I can't go buy it.
So there's scarcity on top of it, right?
I just think we have to give up on TAM.
I think we just have to let the revenue show us the path to TAM.
But if the numbers are there, I think I think if Harvey does 200 to 600, it showed us the money on TAM.
So it was why do you think we should give up on TAM?
Just because it goes from 200 to 600 doesn't mean we should give up on TAM.
It just means that it could have been.
It's a reason to say no.
It's a reason to say no to Databricks growing 56% at 5.5 billion, right?
Or 65%.
65% of 5.5 billion.
Sometimes you gotta lean into it.
I don't know.
TAM is a I I've always struggled with the concept of TAM, right?
Because our whole job in technology is to change TAM.
Actually, actually.
Like if you think about it, that the TAM of technology has changed as a whole for 50 years.
I think Harvey is a is a fantastic business.
But let's not forget, if anyone's been involved in legal proceedings or uh court cases, or even just dealt with a lot of lawyers, they're not an efficient part of an industry.
And they deal with a lot of text.
So you'd argue that there's a ripeness to do that.
And credit to this this company.
Maybe Harvey is a GPT rapper.
But you know what?
They're a GPT wrapper that's got a product that their customers like.
They've got a go-to-market model that's clearly working in a market that probably doesn't have a lot of competition to start with.
Good job building a piece of technology that customers want and hence a valuable business.
Whether it's worth 11 billion or whatever, okay, great.
But like it's growing 300% a year at 190 ARR.
Fantastic business.
Totally great.
And I want to come back on two things.
One is because I realize as I replay it, I was using the word GPT wrapper.
That's not a phrase I would use.
It was a phrase that was applied to the sector, and then people simultaneously were doing this.
And I'm pointing out the just you know the divergence.
You can't it can't be bought at the same time.
If you're doing a deal like this, and I think it's an amazing deal, and we have a deal in a related space.
I I don't buy the GPT rapper appellation, is my point.
I don't think it's a useful phrase.
My point was it was wonderful and funny that it happened the same week Claude was deemed to be able to annex the entire legal market just by issuing a plug-in.
So my point is those were two different contradictory ways of looking at the world.
Oh, I entirely agree.
And I think what I was sorry, I was trying to poke fun at the GPT wrapper, right?
If Atlassian's just an orchestrator of humans, right?
All of software is just a process wrapper.
We take some business process and we deliver a better UI to do that, or a way to repeatably do said process and we we make money doing that, right?
Has Harvey got a sustainable competitive advantage that will just be eaten up?
That is entirely, I assume, what their leadership team is sitting about thinking is like we've got customers and distribution, and that is in itself an advantage, right?
Like those customers presumably are pretty sticky right now.
Do they keep adding value to their customers with more GPT wrapping, or do they add more and more bits of the legal process into the UI, into the technology?
I suspect that's exactly what they're doing, and that's what they're getting paid for, right?
Any law firm can pick up Anthropic and go build their own Harvey.
Are they?
No.
But I think I think the important question to ask is like risk adjusted and opportunity costs adjusted.
Is this a good place to put my dollars?
And when you go back to Jason's argument, I'm totally with you, and I'm not shitting on them at all, Mike.
Yeah, fuck me.
I've created a podcast.
These guys have created $600 million at the end of this year.
So who the fuck am I to throw shade?
But ultimately, I can put my money in Atlassian's Day, which respectfully is obviously as you know, down to very low levels, and I can put my money there today, or I can put my money in Harvey, which needs to triple and then double, and then I pay 10x.
I totally agree.
I'm not arguing whether you should put a dollar in A or B, and there'll be mispricings up and down the stack, right?
I'll give you an example from history, which I'm sure the Excel guys wouldn't mind.
So when the Excel guys invested in Atlassian, right, was all secondary, they put 60 million bucks in 2010.
And they bid highest of the five VCs, can I just say they're also the narcissist and had the one-page term sheet and all sorts of other things.
But when they put in that, we I know we have their model, we've known them for 15 years.
Rich just stepped off the board in December after 15 years of amazing service, right?
Well beyond Excel's investment.
And that they're legendary people, as far as I'm concerned.
Their expectation was that Jira would grow and confluence collectively, I think 30% the year after they invested, then 20%, then sort of peter out at 15%.
So by 2013, instead we did 50, 60, 70 or something.
And they were like, what?
And we are still growing Jira at faster than their three-year terminal rate 15 years later.
Now, are they stupid and did they get the TAM wrong?
No, the business just was a lot better than they even they understood.
They were trying to get two to three times their money.
They made a hundred times their money.
But you're looking back at a success example, right?
That they probably did a bunch of those deals that didn't work around us, right?
It's very hard to predict what the management team of Harvey are going to do in building out their business over the next some years.
So I assume the smart people that are putting this money in believe that management team can build a business that gets to on current SaaS rates, 11 billion dollars, they'd have to be what four times Ford revenue to four billion in revenue or something, three billion in revenue.
I think your comment is correct as the entrepreneur, but I also think Harry's comment was correct as the investor.
Because look, when you're talking about companies that are raising at 11 billion, there's no useful sentence that says this is a bad company.
They're freaking amazing companies.
But as Harry points out, we're not here to say you're amazing because you build a big company.
The Harvey team are amazing because they built a big company.
I didn't build a big company, I'm not amazing on that dimension.
But in terms of capital allocation, you have to say to yourself, and compare the two scenarios.
You were a powerful company, they'll stick in 60 million.
My guess is the revenue multiple, well, sub 10, right?
Growth rate thinking back.
I can tell you what it wasn't.
What's look at Harvey's at 190 ARR now, 11 billion?
That's 50 times.
I can tell you it wasn't 50 times, Mike.
No, no, I was gonna say it's probably 10 to 12 times Ford revenue.
But we were an unusual company.
We were like 50 million revenue with 20 million profit or something.
And that's a deal that outperformed on the growth rate.
And as a result, as you say, a 3X became a 50 to 100x.
And then when you look at another deal where you're paying, you know, you just gotta say to yourself, you're paying 50 times run rate revenues.
It's growing much faster than you were growing at the time.
And then how do you uh to Harry's point, how do you think about the risk return on that?
And it boils down to you just have to have, you were able to beat their model by just growing a 30% instead of 20.
What do you have to do to beat the model when you're paying 50 times?
The answer is you have to peg that growth rate at well known to three, 400% a year for three or four years.
Yeah, you can't argue with the math.
When we started this podcast, I was actually fairly skeptical of AI replacing humans.
Not because I didn't think it would happen when I started vibe coding, but because I thought too many VCs talked out of their rear.
Oh, you know, we're gonna replace AI's gonna destroy all jobs.
And I thought this is a bunch of people who haven't done any any work and they're just reading Twitter all day.
But my mind has changed over time.
Is and so what I mean is when you look, it's not gonna be true in all categories, but when you say, listen, there's 200 billion a year spent in the US on non-partner lawyers, associates, and paralegals.
200 billion a year, okay?
Six months ago, you could say it'd be ridiculous to think Harvey's gonna make a dent in that.
Maybe it's not ridiculous now.
And so if that growth stays, if it stays, if it can literally grow at the pace it is, what you're seeing is it's happening.
To Rory's prior points, it can't come out of the legacy software budgets.
It can't come out of the old uh the old TAM for Bitbucket or whatever, or legal software of the old days.
And so my point is it's not all gonna prove itself.
Some of these will flame out, but that amount of growth is spectacular.
And at some point, like anthropic, you prove it.
Like the growth is so stellar, you have proven that you have captured a mass amount of TAM that was uncapturable before.
And so as an investor, I would just put my money in at some point.
I totally agree.
Let me make the argument against not because I think it's correct, but because it is the other argument.
And I, you know, I sit there as an investor thinking about it.
If you look at they have 200 million, 190 million in revenue, right?
In ARR, 100,000 active users.
That's 2K per active user.
That's under what Westlaw gets from a lawyer, that's not replace the labor revenue.
That's nice next generation tool revenue.
And the point is, if you're only getting 2,000 times a lawyer, there's 1.3 million dollars in America, some of them are in-house, some of them do weird things like patent that can buy Harry's product, four or five hundred thousand lawyers that are in, you know, AMLAL, big law people who would be a buyer for this.
It's a billion billion two marketplace.
If you're only getting two grand per head, the mat won't work.
Now, Mike's right.
In the end, my point is this, and this is why it gets back to Harry's saying, to make this a big ass company, you have to take that two grand and turn it into five grand and ten grand per lawyer by by eating the work.
And it's doable.
And Mike's right.
The whole last 50 years has been software does more.
Software does not be a good one.
I don't think it's gonna be true, agenda.
I think it's gonna, because this is what I'm already seeing.
It's not that.
It's 50 to 100 because you get rid of the humans.
Now, listen, we're in a weird niche, but I can tell you, because I know the GTM agent category really well.
I know everything.
Yeah, they're all 50 to 100 grand because you get rid of the people.
If you compare a pipe drive or, you know, a Trello clone for CRM to in the old days for eight, $12 to an agentic product that gets rid of humans.
I'm not saying for sure this is what happened to Harvey, but 50 to 100 grand if you can get rid of half of your associates or two thirds of your associates.
Agreed.
It's and you'll just pay it because they won't quit.
They don't want raises, they don't complain about weekends, they don't have all the issues.
Uh our agent closed a hundred K deal the other day on a Saturday night.
It doesn't complain.
They want family lives, these associates and law firms.
You just get rid of those humans and the coordination problem.
We're just gonna make more software, have the same number of humans and have the same coordination problem and keep buying Atlassian stuff.
The same argument in law here.
Maybe you just automate more, right?
No, it's totally different.
We we are building more software than ever, and we need the humans, and no one is reducing their engineering team.
No, the world is so competitive today.
You can't wait every four years for a release like the old days.
So so that category, every other category may shrink.
That's okay, that's that's coherent at least.
What you're saying is if you're selling to engineers, no, seriously, because we've talked enough that we know what we're gonna say.
You're right.
What you're saying is every engineering category and software won't be caught.
We'll use the tills to just make more software.
But every non-engineering area like law, like AI SDRs could be automated away.
So the head count goes down there.
That's what you're saying.
I think every category that I know of outside of engineering and product is at existential risk of shrinking seats.
You workday said it.
Um, everyone else is saying it.
We're seeing substantially, I mean, workday just founder had to go back.
They said we said even at workday, we're seeing headwinds on seats because people just aren't hiring across the fortune, you know, the Fortune 500 like they used to.
They're seeing but we are in a renaissance of software.
We are building so much software.
It is unbelievable.
It's fascinating that on this on this podcast, the product and engineering firms are gonna win, so we're a winner.
We're above the fold, which I love that as well.
This is that in itself is an old school term, Jason.
The fold doesn't exist anymore.
I know, but I think Zoom, I mean HubSpot Monday, even Zoom are below the fold.
A few things.
Firstly, your holiday party with your lack of belief in humans is gonna be amazing, right?
You're sitting around drinking wine with all your agents that are closing sales.
Come to our office holiday.
It echoes it.
Hey, at least nobody can get drunk and make an ass of themselves if they're all agents.
At least we won't be dealing with that.
I mean, there's advantages there, but there's a lot in Harvey that's fascinating.
The question is two things.
One, legal firms generally build time, so it's hard for them to increase their profit margin by billing more and less time.
So I don't know how that affects this particular industry.
I'm not an expert at all on legals, but I'm just saying there's some interesting their pricing, right?
I don't know how legal services are going to be value-based priced or something.
They're literally the ultimate selling of hours, photocopying and all that sort of stuff.
So we'll see how that works for the billing model.
And maybe Harvey helps them with that or doesn't help them with that.
Secondly, I think you're I like to think about things that are demand or supply constrained, right?
It's a particular function input or output constrained, and that makes a big difference in how I think AI will be applied to it.
It's one of the interesting schemas to put to it.
So you've talked about customer service or legal.
I would argue those are input constrained domains.
I have a whole lot of fantastical lawyers at Atlassian, in-house council, you know, uh a group.
They're input constraint.
If I make them more efficient, or if Harvey makes them more efficient, they can't like create more legal problems.
There is a certain set of problems, just like customer service.
Your customers ask a hundred questions a day.
You need a certain amount of service to help them out well.
If you have twice as many customers, you'll probably have 200 questions a day.
So it is it's based on some other ratio.
The difference with something like software or engineering is it's creation, right?
It's how much can you make, right?
The the roadmap is never finished.
You can keep creating more.
So some domains in a company have like a constraint on the input is fixed and you're doing a certain amount.
Now, sales and marketing are kind of in this middle ground, which is fascinating because ostensibly sales is sort of input constrained by a TAM, but you can build new products and new ways of going to market.
So we sometimes jump across these categories and it's not super helpful because they're very different in the world.
I think genuine that's super helpful because I remember when we were looking at the systems integration automation category.
One of the things that we realized, and you got to in a second, and it took us a few days, is like if we automate the process of installing SAP, installing Salesforce, installing NetSuite, it's not like the company's gonna buy two helpings of Net Suite because it got cheaper.
They're just gonna spend less money doing it.
And those are inherently less magical markets than the stuff where the intelligence allows just whole new things to come.
I think that input output thing is actually a very useful way to think about where the magic upside might be.
But AI may also let us have more inputs.
For example, one of the few organizations of our size uses Agent Force, okay?
But we ran an experiment.
Mark said, use Agent Force to go after the leads.
It's not worth anybody's time to do.
And so we did that.
We unleashed Asian force on all of our leads, everyone to come to an event to sponsor us to anything that it wasn't worth a human's time to come back, and it worked.
And that's like radically more inputs.
That's like five to six times more inputs.
And there's a lot of loyal legal things that aren't worth taking to your lawyer.
Like, I can't wait four days for a sales contract to be reviewed.
I can't do this.
And there may be Jevons Paradox or whatever in every category.
Like it may explode.
And like we've all have terrible customer support so often, but when you have a magical customer support experience with AI or human, you want more of it.
Like you'll consume mass.
If I could get help all day long with a product, I would be in that agent all day long.
Like helping me, helping me vibe, not just vibe code, vibe use my product.
So we make JV in every every category.
Customer support is one I just cannot get my head around.
And I I know that sounds ridiculous and very uh basic, but when you look at the sheer number of players that have been funded to huge extremes.
And we saw C Ara's 50 million plus quarter taking to over 150 million there on now.
I thought of that straight away when we're thinking about net additive versus replacing things.
Is this eating Zandask's lunch?
Is this adding news that never had customer support before?
Is this taking on jobs that weren't being done before?
How do we think about that?
I'm waiting for Mike because I didn't know it, but he has a customer support product coming out.
It's already out.
It's doing very well.
Um I can't tell you how well it's doing, but it's doing very well.
Our service collection business, like our service collection business can go public by itself, right?
It's a it's a big business that's growing.
It would have great numbers.
Jason would be writing great posts on it.
Jason says it needs four billion to go public, Mike, just as Nathwi.
For a banger, for a banger, Harry.
For a buying, banger IPO for a banger IPO.
Yeah, back to the question, Mike.
It's a textual-based field in that voice and other things can can quickly be approximated to text now with AI and vice versa, right?
So let's assume it's a it's a conversation-based area.
It's probably three to seven percent of every business in the world on service and support.
Your bank, your insurance company, your car company.
Every company has this.
And then you get internal support and service, right?
Most of the service collection revenue is on the internal basis, right?
Twitter, X now, whatever has like 300, 400 service desks running on service collection, right?
But that's not all internal service.
So the idea of any team helping some other team in a business or any team helping their customers is ripe for making it efficient, right?
All the things you talked about, Jevons Paradox is totally true, but it's also a measurable input and efficiency play.
So I can say I spend X, your product can very easily make X less.
Is the less that I'm the money I'm saving more or less than I'm paying for your product, there's high ROI, it's a sellable thing.
We go around the loop, right?
I think it's a great category.
Whether the category will grow or not is a different question.
The hard part is in year two and year three, the savings are baked into the business.
So you have to be delivering continual value to the company.
And that's going to be really interesting when we get through this set of changes in the service market most broadly, right?
You got ServiceNow and Austin others at the top end.
You've got a lot of legacy providers out there.
There's still tons of legacy providers of service.
And then you've got lots of customer service companies.
Mark has Service Cloud over there.
I think some people still use that.
There are a lot of tools in this space.
You know, Zendas probably went private for a reason.
Zendesk says they have like 300 million plus of AI support revenue.
It's just a legacy business.
That category is tough, right?
So they've got two streams going.
They the agentic pieces exploding.
The only thing I would say, and you asked why why the category is exploding.
I just think there's it's interesting.
There's just two threads helping for support.
Maybe not at last name, but overall for the for some of the players is one.
Um, I mean, if you look at pay, is it PAVE?
I think that's how you pronounce it.
It's an HR startup that tracks like 300,000 startups.
Yeah, no category has been more decimated and hiring than support.
No one's hiring.
Like it's radically down.
So that money is going into agentic products, okay?
Traditional support.
And then a great AI support tool can do radically more than a legacy tool.
Like I think software in the AI age, and this is why I think so many SaaS leaders are struggling today, mature ones, is there's no more aha moment.
There's no more moment when you walk in, and yeah, maybe Sierra spent a month configuring your demo, but literally it answers questions like you've never seen answered before in your enterprise.
You want to buy that product.
And uh most SaaS products didn't change for a decade, and we fell out of the aha moment.
And so there's budget, there's aha moment, and there's like the most humans were cutting ever.
It is a it is a great moment.
And and then the final point, not to ramble, but we've talked about it before.
But the super interesting thing about support is it becomes a Trojan horse to do everything else because when that's the main agent, if that is the main agent you're working with, you'll start using it for sales help or for research or for marketing or for other things, and these become more horizontal agents.
So, but man, the hiring is uh it's it's over in the space.
And bringing it back to Harry's question, Harry, I think we're all saying bluntly, you're wrong because you were doing the I don't get this market, I don't know why people have funded 10 companies.
And I think what you're hearing, and I think it's true, is that it's not a single market at a high level of you know, people help help working with other people, you can say it's all the same, but internal help desk is different than external help desk.
One thing we saw, we had a pre-LLM AI company that B2B external support has a different rhythm than B2C.
B2C is lots and lots of small interactions.
B2B, you might have a long-lived interaction with multiple people internally in your one of Mike's best customers has a P1 bug.
You don't just have one person involved, you have yeah, six or seven people involved, you're reaching across departments.
The internal workflow to manage that support is very different than thousands of people ringing about, you know, how do I change a password uh internally or externally, how do I get my ticket to the whatever concept, right?
So there's differences there, there's difference in company size.
So I think actually, and then there's difference in modalities because you got people who lead with chat, you got people who lead with voice, and yeah, they're converging, you got people who lead with video.
I I think that I think there's a lot of different sub-markets rather than one big mega market, is my gut.
And I think it's just like just like Harvey, though, there's some interesting things that it tells us about how AI is changing the world.
There's no doubt that the overall service category is probably gonna have not a lot of growth in humans, let's just say, working in that field.
However, it's a very short-term field anyway, right?
Like I know my my sister worked in in in telephone banking in the mid-90s for a bank year, right?
And everyone was there for a year or two.
They train you, do it any move.
It was not a career job, it was it had a high turnover already.
So that's that's different to like lawyers, where they've done many, many years of training and they've got 40 years of career, you know.
So it's an interesting job field.
It's pretty different, firstly.
Secondly, one of the interesting things that we see both internally, I have a few examples of agents internally, but I've got a number of customers who've seen the phenomenon as well.
Is your AI and your agents that are helping people to in the case of answering a question?
And service needs to be much more broadly thought about than just customer service, like I lost my wallet in the Uber kind of stuff.
But the AI that's answering the question is as good as things you have written down.
So some teams you see are employed are deploying agents and then writing a lot more documentation, and their documentation is getting a lot more stepwise because it's less about the humans reading it, then it's the agent that reads that doc and then answers the question.
So you may end up with in some areas more writers and less people answering questions to get an overall better support response, right?
We have a lot of examples of this in a service collection.
The more knowledge you hook it up to, the better answers it gives.
It's sort of logical.
Some businesses don't have all this knowledge documented because it was in the heads of the people who did the service.
So that's one interesting effect of AI probably applies elsewhere.
The last thing I will say is service collection is one of the areas where most agents are deployed, right?
In terms of AI agents.
And it's confusing in service because we talk about human agents that answer questions, and then we have AI agents that either answer the question or help the human to answer the question faster in the complex scenarios and B2B, especially that that Rory talked about.
It's far higher deployed in that category agents for us.
Of any of our collections, I think it's the highest proportional deployment.
The reason is because those agents are taking actions.
Service traditionally, someone's coming in to ask a question.
If you think about HR service management, like, can I take these people out for lunch when I'm in the Indian office?
Uh I want to apply for leave, or parental leave, whatever it is, right?
You're asking some sort of HR based question.
There is answers to the question, yes, you can, and then there is actions taken.
Hey, I'm gonna go and file this expense claim, or I'm gonna go and do that.
The AI and service that's most interesting to customers often is not, we always talk about the cost saving aspect of it.
It's the ability for it to actually go and do things to make my business quicker, right?
If it goes and files the parental application or it resets your password, the canonical IT sort of service thing, the actions that AI can take more accurately, the automations that we used to call them, now they're agentic automations and workflows, that expands massively, which means you not only get your question answered, you get your job done, and that business moves a little quicker.
So your TAM argument, what's the TAM on that?
Like it's not really a thing we had before, right?
It's less about the better than the humans.
Sorry.
It enables that business to be quicker than the other.
If the whole form gets filled out for you for parental leave and everything, and I don't have to do anything and it's all automated, it's better, it's better.
Totally understand that.
Rory, let me punch back at you, my friend.
We, as we said, live in a resource allocation world or mindset where we have the choice to invest in categories and companies.
There have been 14 companies in the last two years that have been created that have now raised over 100 million dollars.
You then have traditional players like ServiceNow, Atlassian, Salesforce, the list goes on, Zendesk, Intercom, I can go on and on and on.
And then we have the new generation of very fast and public companies, Ala Navan or Ala Airwalls, who are building their own systems.
And there is a generation of technology first companies that are building their own customer support systems to deal with very intricate and complex needs.
When we live in this risk-adjusted opportunity cost world, I don't feel that is a good place to put your dollars when I'm competing against Mike, Mark, and the 14 companies in the last two years that have raised over 100 million dollars with Brett from Sierra.
I don't think that's a good place to be investing.
And I agree, I think, look, we looked at a number of companies that were behind Sierra and Decagon and came to the conclusion that a direct head-to-head against those companies when you're a smart, it's just a little bit too hard.
You kind of go, there's all the airs out of the room with Sierra at the high end.
I think Dekagon has executed well.
It's that classic, it's a big market, but you don't, you never want to find yourself third in a sub-segment.
You can be winning an adjacent section, and then you can get unlucky because the big dog can come in and decide to annex your adjacent section, and that's just stuff that happens.
But agreed, there is going to be overfunding in all these sectors.
And you know, a lot of it is we're all trying to pick our points.
And if you look back in five years from now, you'll probably find that one of the biggest source of errors was: oh, we invested in the number one or two player in this little space here, but it turns out that this little space wasn't a thing.
This big space was a thing, and the adjacent competitor just says, I now bundle this in and do it as part of what I do.
Suddenly Mike decides he wants to be king of Service Cloud and he just rolls over us because he just adds it to every one of his customers.
So I I hear you.
I think that it, by the way, probably explains I want to go back to it probably explains the Harvey financing.
Because when you have all the dynamics that you just outlined, it's arguable, despite the tam comment I made, that the best risk-adjusted bet, and we're seeing it happen is screw it, I'm just gonna pay the winner at any price, because if you're in the winner, it's the venture capital equivalent of you can't get fired for buying IBM.
You can't get fired for sticking money in with a one X preference on the consensus winner, which is why this market is way more consensus up and down the stack than it's ever been in terms of venture.
There's not a whole ton of people trying to be contrarian out there.
There's a whole bunch.
The stat I tell my partners that blows me away is of the newly minted unicorns in Q1 of last year, by Q4, 40% of them already had one or more up rounds.
In other words, the money is saying once you are a winner, king make, double king make, treble king make, pile on top.
It's too hard to t pick the guy at 50 pre that might make it, just pile into the guy who's made it, even if it's at twelve billion, worst case is a one X.
I think what you're gonna be amazed by is uh every time we get one of these new technology disruptions, everyone gets very frothy and yells and screams a lot.
It's gonna change the world.
It usually does.
That means a lot of capital is raised and deployed, and a whole bunch of it turns out to be torched because VCs are very individual thinkers that they pile into the two winners, and then the next 10 companies and probably the next 15, and a whole bunch of those don't really work very well, and it takes five or six years for us to figure that out.
Technology just changed the world, a handful of winners are made.
A lot of money is lost.
Ned, money is made more than lost in the transition to said new technology, and this has never happened before.
This is a totally new phenomenon.
We're in the era of AI, everything's new and different, and that they're not a herd of sheep following the potential next winner.
And will will that will that Harvey round pay off?
To the point of Rory, one thing that they don't say is a lot of VCs want the loose side on the wall.
So when you walk into the office, on the wall is a nice logo that says, Oh, you invested in open AI.
You invested in anthropic.
Well, if you put money at 350 billion, probably not doing the VC thing of getting under $4 million round, but you get the logo on your wall.
That's important, I think, from the VC marketing point of view, isn't it?
Oh, we can put early investor on our buyers if we buy some Atlassian today, can't we?
That's right.
Yeah.
Early in 2026.
I feel vindicated, by the way.
Thank you for that, Mike and Rory.
I appreciate that you conceded that I was right on the customer support argument.
That's awesome.
Uh-huh.
I would love to finish on one thing, which is the Super Bowl ad.
We got to finish on this, which got the essay back from Sam, and then the CMO of OpenAI being like betrayal, treacherous, epic disaster, whatever the kind of words were.
How do we think about this and the response?
That's confirmed the facts.
OpenAI was going to do one ad.
I'm not quite sure what that was again.
Remind me, please.
Then Anthropic ran an ad trail that they were going to run an ad that basically said, you know, we don't have ads in our AI, we're good, you're bad.
And they ran that ad, versions of that ad.
And then OpenAI kind of pivoted and ran a very, you know, you can just build things rava ad in the actual Super Bowl.
Is that the kind of chain of events here, Harry?
The chain of events really is anthropic ran an series of ads blaughing at OpenAI for having ads, slightly ironic in that way.
And then Sam and that CMO basically came back with these like epic tweet.
The tweet.
I think everyone getting angry is a sure sh a sure sign.
That's hard to say, a sure shine of tension.
Yes.
But actually, Brian Kim from Andreas and Horitz just did a really good piece with basically said, of course they're going to run ads.
It's a consumer product, and less than five percent of consumers ever pony up for kind of subscription products.
So if you're going to be the consumer product, they're going to run ads, and that's ChatGPT.
And if you're going to be the enterprise product, you're not going to run ads, and that's Claude.
95% of people watching that game must have gone.
What are these people talking about?
And why is this?
Why are we taking away from bad Bunny for these morons to talk about something I don't even know what's going on, man?
Back to the prior discussion, you know, when these technology revolutions happen and everyone pours in the capital and tortures a whole bunch of it.
One thing that is again unique about this era is the purchasing of Super Bowl ads to try to, I guess, justify ego, I think is is largely what's going on here.
Let's face it, it's human beings.
They've got a lot of capital, so they make Super Bowl ads.
Again, never happened in the history of technology before, except pets.com.
I thought you were talking about the AI.com, the guy that bought the domain for 70 million bucks, spent $8 million on an ad and then is selling open claw.
And I'm like, that is also a weird business, but like maybe.
Rory's comment that the what do they call them online nowadays?
The normies, the regular people who just wanted to watch the Super Bowl, are like, what the hell is this about next?
Give me the Doritos commercial.
Getting to know you, Mike.
It's the way your tone doesn't change when you move from fact-based comments to acute sarcasm with literally no variation in tone.
Takes a while to adjust to, but you're so right, man.
When you said it's never happened again, we all flash back to 99, we flash back to crypto.
This is you know, this is classic top of the bubble stuff.
You have 200 million bucks burning a hole in your pocket, and you're like, I can I can put spend five million and be in the national agenda.
I'm in the Super Bowl.
You know why this claw the ad was weird though?
I'll tell you what was weird about it for what it's worth is um look, anthropic is, I mean, it's I mean, it's a generational generational company, it changed coding, it changed everything.
But the only place anthropic is weak is consumer.
I mean, I'm one of the seven people that uses Claude instead of Chat GPT as a consumer app, okay?
So of all the things they could have done in the Super Bowl, say the the engineer's pal, the the product guy's buddy, all the things they could say, how we revolutionize product creation, they talk about the one area they fail.
Which is saying we won't put ads in an app nobody uses for this use case.
It was some sort of meta dig because it's it's it's advertising for its worst product.
It's nothing but a dig.
It makes no sense.
Actually, I saw a smart tweet that made the point.
The redeeming argument on this is we're actually not talking to the 95%.
It was two people exchanging signals to each other and each other's employees in the valley using five million dollars of money to send a signal.
This is anthropic reinforcing their we're the you know, we are the enterprise good guys here.
And they're really messaging to maybe 10,000 engineers they might want to hire.
And literally the other 325 million people involved are just we're just talking about it.
It could just be recruiting.
And plus our head of safety quit this week, so let's mass that over with the supervisor.
It's all just positioning.
It would be so much cheaper to buy a billboard on the one-on-one.
But it does to back to the original discussion, Harry.
I think what's what's interesting there is it's the sign of the times.
I'm not sure we can call it a sign of the top.
I don't think that's probably true at all.
It's the sign of the times.
Look deeper at it, right?
If you're burning a billion dollars a week and people are gonna keep funding you, the ads are cheap.
They don't make any difference, right?
Your CMO doesn't have a constrained capital efficient like profit EPS calculation right now.
One day they will.
Right now, they do not.
So right now, everyone is maximalist.
They're trying to be in every single category all the time.
What's fascinating is you go to the Assassin's Software World, you have financializing going on a lot because they can't afford to be maximalists because those, you know, those those pesky public market investors are making valid questions around hey, profitability and growth and all these things.
And you have a lot of categories that are raising tons of money and don't have that problem.
Hence you get these ads as one example of that.
That will normalize.
It does every time.
I think we're automatically assuming that Super Bowl ads are, I'll say frivolous, sign at the top, not actually effective.
Like Wix, for example, which is obviously incredibly hit in the public markets.
I spent an hour and a half with that CMO the other day who's bought six different Super Bowl outbuts over the years.
This year, he bought two, one for base 44 and one for Wix.
And he's like, the impressions that you get from Super Bowl, the effectiveness of this advertising channel is immense.
I I entirely.
I I don't think either of them were like top of market, we've got a billion dollar.
I think we're brilliant uses of capital.
Okay.
I'm I'll answer that, and then I want to come back to Mike's point because I think there's something more important in that point.
But on your point, if it was a brilliant use of capital, you'd see it happen consistently across the cycle.
But in fact, you want to see tech startups doing it when they have money to burn.
But that's true of all marketing, Ruri, I can tell you.
It's true of all markets.
When when they don't have capital burnt out marketing is the first thing that gets cut.
Therefore, what it is is a good way to spend the marginal dollar when you've already spent it on everything else.
But I want to come back on Mike's point, because I actually think it's a more serious point in there.
You made a comment on these guys are not financialized.
And the public SaaS companies are financialized.
And I think there's a bigger comment in that.
Maybe it applies to you.
When I was thinking about these fights between public company and incumbent and private company next generation player, I think one of the biggest things is the public companies have this constraint, you know, having to make EPS, having to grow, whereas the private companies are in, you know, as you say, no marginal costing is taking place.
And do you think that impacts public companies in general ability to compete?
Or do you think it makes them more efficient?
Man, so many great topics.
First, I think Super Bowl ads, just just very quickly, Super Bowl ads are priced that way because that's what people pay.
Efficient market in Super Bowl ads, surely.
Doritos pay eight million bucks because it sells a bunch of Doritos.
It's a good investment.
Is it like the best user capital?
Probably.
Why do Doritos and beer companies advertise all the time?
So for some businesses, like Wix, I would argue, it's a totally sensible investment.
For others, it's completely ego.
The CEO wants a Super Bowl ad, so they go back one.
Ego stuff happens when capital is not being efficiently spent in a business, right?
And both of these two things happen in every Super Bowl, probably in summer.
Crypto whatever.
I think there is an interesting argument of public companies, and maybe why I mean I know things I shouldn't know, I guess, but good public company CEOs are often founders, as you've pointed out a few times, because you're trying to take a long-term view and manage the short term.
You are trying to do both.
We have massive investments in AI.
We have to deliver public company results, and that's the job is to do both.
If we just focus on the public company results part in the very short term, we will not have a good business in five years' time from now because we won't be investing in building AI.
But that takes usually necessarily away from something you could otherwise be doing today, and that's the balance of capital allocation in any of these businesses, right?
Microsoft has to do it, everybody has to do it, right?
Capital allocation is not easy.
But a good leader, I think will allocate capital to those investment areas and allocate enough capital and then tell a story about why that capital is being invested.
Right?
We spend a huge amount of money on RD, we spend a huge amount on AI.
I would argue if you're a public company today and you're not spending a lot of money on fundamental kind of new RD around AI and your product category, you're probably in trouble.
Now you can't see that in any public company accounts, right?
It's very hard to actually see where they are allocating their RD dollars, but I would guarantee you a lot of them are moving more and more and more towards thinking how is AI going to change my world?
How am I gonna hire in this era?
How am I gonna do this?
And you have to tell a story to your investors and your shareholders, your stakeholders, your employees, about why that's gonna make a difference.
Why are you gonna be relevant and competitive in the AI era?
Doesn't mean you need to make a foundational model, but you have to be relevant and competitive, and you have to actually do both.
Now, Rory, I think you're trying to make the point that maybe there's a world where the free capital in the private markets makes it impossible for those spends in the public.
I I don't I don't think that's the case.
You've had Adobe's and Microsoft be public for an awful long time.
You have to make tough choices, you have to make capital allocation choices, you have to bet on the future to some extent, and not every company is going to get that right.
But I don't think that's impossible at all.
I think it's it's what you have to do.
Great answer, because yeah, reading the commentary after your last result, you know, listing the things that people bust your charts on, and you know, they're giving you grief about SOC based compensation, and then you're looking on the private side, and you're like, these guys are doling out SBC like it's candy, and no one even calculates it.
I'm glad to see that it's not doing your head in, as we'd say in England, because it's almost like both teams are playing the same game, but one of them has to play it with different rules, which must be a little irksome.
Yes, but the the difference in rules again.
I I've said this to a few people.
We're a better company because we're a public company.
Like we have become a better business, right?
We're better at forecasting, we're better at planning, we're better at executing.
What we have to do is not replace forecasting and planning, executing for strategy.
I think that's where it gets wrong, is where you just focus on that piece of the business.
You still have strategically compete and grow and go into new areas, invest and build things, right?
You absolutely have to do both of those things.
Managing the finances of that is is very challenging at the moment, right?
For all the reasons you pointed out, totally agree with the challenge that that that's going on.
Secondly, it's very hard for investors to see winners in that process right now, right?
If I say it as generically as possible, I think that's the challenge, right?
Is because where is that money going?
What are those people building?
What is the talent?
What is that likely to change your strategic positioning with customers over the next few years that you have sustainability and durability?
That's very hard to see at this current time for investors, right?
If you look at any list of AI winners and losers as uh above the fold, let's call it, every list is different.
That alone tells you people are like, I don't know, somewhere over here.
That's our job.
That's my job.
I'm not complaining about that for a second.
My job is to tell a great story about why we're a winner and then make us a winner and do both at the same time, and I have to fund that.
You gotta enjoy that, or you should be doing a different job.
I love you, and I'm so grateful to you for being a friend, being awesome, being so good.
If the numbers they're so good, but the stock price is down so much.
Do you think you're doing a good job telling that story then?
Oh, that's a great question.
Depends on your that's this gets to the CEO scorecard, right?
We had a fantastic quarter.
Our numbers in almost every category are great delivery of our goals.
External current time judgment of the delivery of those goals leading to future value is not in a good spot.
There's no doubt about that.
And we're working hard to change that, right?
We have the same business we had a year ago.
We will still have a great business in a year and two years.
And my job is to make sure we have a great business in five years' time.
There's a mental health aspect of it for staff and things like this, and then there's uh we just got a lot of work to do.
Let's let's let's get back to work and just go do that, right?
And we, if we keep delivering great results, we're not short in the back of England here, but like at some point, you're like, I don't know, we got we gotta do what we gotta do, right?
And you gotta also adjust.
I said this in my in my shareholder letter.
We spent a lot of time writing our showder letter.
You gotta accept reality as well.
Sometimes I see people, and as I said, I do a lot of at the moment.
There's a lot of SAS CEO therapy going on.
One of the things I've told a few people is dude, you just gotta accept reality and then and then go build something, go do something, right?
You can't pontificate about the technology, oh, about creation and everything else.
Guess what?
Part of creation is destruction.
You gotta go build value for customers, you gotta go build new products and technologies and services.
The way I see it, we're gonna create our way out of this problem.
We're not gonna like hide in a hole and like wait for it to go away.
And part of that is accepting the reality of what's changed and also what's changed in a positive way.
That always seems very negative.
We can build things way faster and way better than we ever have been able to before.
If we re-founded Atlassian today, with 350,000 customers, 50,000 enterprise customers, a couple of billion bucks in the bank, and 10,000 people in RD, and a great distribution engine to get to all those customers and deliver new value, you'd be like, it's a pretty good starting point to start a business, right?
Like, let's just go build some stuff, right?
You're right, Mike.
When you talk about creating value, we as three VCs know exactly how you feel.
Yeah, we are the value creators.
Just to be clear, it's clear when Harry's being sarcastic.
Okay.
I think it's a good, I think what Mike said is great.
I think though I would say, I don't know what you think of your.
I mean, your your SaaS group's pretty elite, Mike, but I would say maybe only the best SaaS B D B C I knows are really up for that.
A lot of them are introspecting.
A lot of them.
I talked to one that quit at the end of the year at hundreds of millions of revenue and said, I was told AI wasn't important in our space.
That was that was the goodbye message.
And so not everyone has it in them to go through to to push through this next wave.
Maybe only the best, maybe only the best do.
I mean, you're you're one of the best, right?
We don't have to rank you.
And that and that's okay, right?
I think we shouldn't pass judgment on that.
I totally agree.
It's not even the best at a world.
Totally.
Look, it's the same in our industry.
Some people decide I've done enough, I'm 50.
Some people I've done enough, I'm 40.
You only got one life.
Someone really want to go to Bali at 50.
I I'm totally with your mic on that one.
It's like actually, it's a better call.
If you don't have it in you to do it, I actually admire more the person who says you guys should get someone else than hanging on, waiting to get the head shot.
Just call it.
I actually agree.
That's a that's a harder call to make, right?
That that's a very difficult decision.
Yeah.
In our business, one partner said to me years ago, he said, our business is a learning business.
And the day you stop learning is the day you should say to your partners in about a year and a half, you should be replacing me.
Because you can't take the money and not play the game.
And I agree with you guys.
I let those go.
Actually, so you should tell those guys who aren't feeling it.
It's really simple.
Congratulations, you've made life-changing money.
You don't have to do it anymore.
How's your number two?
Because he's in charge now.
Uh bring back that founder who left.
Are you working harder, Mike, than you have in the last few years?
Are you working harder?
Am I working harder than I have in the last three years?
Yeah.
Well, my co-founder, God love him.
We had a whole bottle of wine, not full last.
You know, he retired a year and a half ago.
So that that makes like, you know, that's a big adjustment after 20 23 years.
And he has he's full of gratitude, which is really nice.
He understands, right?
That creates more work.
And there's no doubt the year are man.
Man, I start working at 5 a.m.
every day at the moment, right?
Yes.
Yes.
People are working harder now than they had before.
100% true, right?
Because of the disruption and the speed and the change and everything.
And that's I think that's not a bad thing.
That's that's a normal thing.
That's an okay thing, right?
The question is, do you enjoy it?
And do you have enough balance?
Again, I am the worst person to be a therapist to any of these CEOs and SaaS founders.
But I do tell them, like what you're saying, those people are making the choice is balance, right?
Do you have enough time with your kids?
Do you get out in the trees?
Do you walk around?
Do you do some excess?
Whatever it is that's your jam in terms of balance, stop doing that for a year or two, you're gonna be in trouble.
I believe like I've done this long enough.
You can't shortcut those things.
Secondly, are you enjoying it?
And don't just tell me yes in one second.
Wait, think, go away, take a weekend, drink a bottle of wine, drink a green tea, whatever is your thing.
Are you enjoying what you're doing?
Would you choose this job again today?
Because it's tough out there, it's gonna be hard.
Welcome to the technology industry.
If you're not enjoying it, no harm, no foul, go do something you do enjoy, right?
Move to a different arena if you want to use the, you know, we throw that around all the time in the tech industry.
The enjoyment is sometimes forgotten in the the ego, the need to win to disrupt, to grow, those sorts of things.
Like you said, if you built a great business, a couple of hundred ARR, whatever it is, do it decently.
Like, you know, give your team time, give your company time, make no, you know, there's a thoughtful way to do any of these sorts of things, but I think it should be seen as a mark of you know, amazing human achievement.
The problem is if Mike said that to most of the people I know they'd quit.
Are you really enjoying it?
Do you love do you love every minute of your job as founder CEO?
Are you getting enough time with your kids?
Are you walking enough?
If not, you should.
I mean, a little facetious, but but not completely, right?
But not completely.
I'm not I'm not being polyanner at all, right?
Like there are parts, there are days that suck, there are times that suck, but over some average of a 90 day one year, Rory's point, you got one life.
We we got into this, we enjoyed creating things, we enjoyed building teams and businesses and delivering value to customers, not in the trite like way, but literally sitting down with customers and seeing what they do with your shit is awesome.
And you're like, man, that's so cool.
Hey, let's go do some more of that, right?
You've got to enjoy that part of the job.
It doesn't mean every part of the day or the job is gonna be easy.
It doesn't mean you don't sit there with your team and go, how the fuck are we gonna deal with this?
Right?
These guys are coming over the wall, but if you don't enjoy that, I don't know, there's some analogy that every era is going to be different.
The echoes are the same, but there's different ways to your point of learning.
You gotta learn, you gotta think about how you're gonna compete.
You're not sitting there with bows and arrows if people are coming with the machine guns.
But I do think you can be balanced.
I do think it's important.
Don't you think all founders are a little crazy?
Yes.
Yeah, how can you be balanced if you're crazy?
Like there's no bad, like you're because you're gonna be miserable or bored or you're not building, you know.
I don't think Elon doesn't look too happy to me.
All the good founders are crazy.
There are some people who have unique choice sets in whatever way you enjoy what it is that you do, and you choose to be intentional with your own time.
I spend a ton of time with my kids because it's super fun and it's super different, and they're awesome little human beings, and I'm trying to grow them into awesome big human beings, right?
And help them on on whatever journey they're on.
That is enjoyment.
I think it makes me a better CEO to do that.
I don't spend 60 hours a week with my kids.
You know what I mean?
They're sleeping and this and that and other things, but I don't spend a hundred hours a week at work, right?
Now, when we were younger, we did, and that's the evolution, but you have to learn to do that.
I think if you spend 100% of your time at work, you make worse decisions.
But you have to do the job, right?
And the balance is really tricky.
The intentional time management is really tricky.
Do I spend as much time with my mates as I used to?
No.
Right?
We catch up once a quarter, we do this and that.
Like, so there is things you got to trade off.
All I'm saying is if you don't do any of that outside work because you're like this era, I've got to knuckle down and do 100% of this this right now.
I don't think that's sustainable.
Maybe that's just not for me.
It's not.
Every time I give that speech to my I've got to do, and she just looks at me and says, Stop.
You're just gonna go insane, and then you're gonna become irrational, and then you're gonna make bad decisions.
So we're going for a hike for the next hour and a half.
And I just say, Okay, ma, I'm going.
And Harry's moving into the kills to tell us we're too old and we're gonna get rolled over by him.
Well, I I do think that, but that's a little bit rude, and we have a guest at Rory, so I wouldn't say that with our guest, obviously.
No, I uh I actually have a secret for you, Mike, which is just work with your great mates.
Yeah, I have become great mates with Rory and Jason, and I now get dedicated time with them every single week.
What a joy for me.
I agree.
Any of the best things that we've done, and we've had a series of fantastic leadership teams, really good friends that I still hang out with.
I had a whole bunch of them, you know, over the Christmas period, old time Atlassian leadership team people that came to join us.
They're amazing people.
We've been in various trenches and scuffles and fights together.
We've had some victories, we've had some losses.
Do you get enjoyment from that?
Part of it.
You're winning more than you're losing, great.
And you go back and you can have people that you can have a uh a cup of tea with 10 years later, man.
Like we we did a good job there.
You know what I mean?
Like there's a part of the human tribal getting together that you're a leadership team wherever you are in whatever business, that has to be part of your enjoyment, right?
And you have to create that.
And it's hard to create, don't get me wrong.
Like it's it's tricky.
You can treat people as employees and mercenaries, or you can say, hey, we got a challenge to do, and we're a group of people in a room, we're trying to deal with this challenge.
We need help.
We all need help to do that from each other.
One last thing.
I this may not end up on the show, but I someone actually, my son-in-law sent this to me.
Have you heard the Death of Software song on Spotify?
Isn't that on a Monday?
Tickers are flashing in red.
There's a man in a Petagonia's beside me wishing that software was can you pull up a chart for me?
I'm back when the money was free.
When 20 times sales was a bug.
Then why we finish we finish every show with that rendition?
It's like our halo song.
It's your anthem for the era, right?
It's uh depressing country song about the love of tickers, is uh, you know.
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While HSBC manages your corporate banking needs, Deal helps you build the global team behind it.
Two minutes can change your startup's trajectory.
The pitch by deal is a global startup competition where founders pitch their company in just two minutes for a chance to win a $1 million investment.
You'll compete with startups from around the world and get in front of experienced judges who back ambitious teams.
If your startup is ready for its next step, take your shot.
Apply at deal.com forward slash 20vC pitch.
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Once deal helps you hire your global team, Framer gets them wowed on the way in.
Your marketing website sets the tone for your brand, let's face it.
And it's the one touch point every single one of your customers has.
So if you're struggling to make small changes and simple updates, you're falling behind.
And that's why so many companies, from early stage startups to Fortune 500s, are turning to Framer.
Framer is an enterprise grade, no code website builder that works like your team's favorite design tool, and it's used by companies like Perplexity, Miro, MixPanel to move faster.
Designers and marketers can fully own the site with real-time collaboration, a robust CMS built for SEO, and advanced analytics that include integrated A B testing.
So you're not just shipping pages, but you're maximizing what works.
And when you're ready to ship, changes go live in seconds with one click, publish, without relying on engineering.
Plus, Framer is built for scale with premium hosting, enterprise grade security, and 99.99% uptime SLAs.
Whether you want to launch a new site, test a few landing pages, or migrate your full.com.
Framer has programs for startups, scale-ups, and large enterprises to make going from idea to live site fast.
Learn how you can get more out of your dot com from a Framer specialist or get started building for free today at Framer.com slash 20 VC for 30% off.
30% off of Framer Pro Annual Plan.
That's Framer.com slash 20VC for 30% off.
Framer.com slash 20 VC rules and restrictions may apply.