# AI Enterprise Shift, VC Exit Risks, and Market Valuations

**Podcast:** The Twenty Minute VC (20VC): Venture Capital | Startup Funding | The Pitch
**Published:** 2026-03-26

## Transcript

massive market overreaction to a proof of concept.
Give me an effing break if I'm Sequoia or whatever.
If you're a software product and you don't think AI is going to disrupt not just how you build, but what you build, then you actually probably want to actively short it.
I think every VC is stressed right now.
Let's be honest.
Who the hell is going to buy them if they don't IPO?
I just worry there's some ratio of potential acquirers divided by unicorns.
And I think we're at the lowest ratio of our careers.
I just don't believe the hyperscalers are going to buy these companies.
Basically, it's win or die.
That's a risk.
I would have a code red on this.
This is 20VC with me, Harry Stebbings.
It's my favorite show of the week.
Jason Lemkin, Rory O'Driscoll, and the biggest news in tech.
Anthropic, are they eating OpenAI's lunch when it comes to enterprise?
Ramp data suggests so.
Jeff Bezos seeks $100 billion for his latest project.
SpaceX at $2 trillion after TerraFab.
The debrief on Grok's $20 billion deal to NVIDIA, and much, much more.
But before we dive into the show today, are you a founder working non-stop to raise your next round?
Are you an investor doing all you can for your portfolio companies to help them stand out?
Funding and scaling a vision is challenging.
Banking should not be.
HSBC Innovation Banking caters to tech and healthcare founders all over the world who need a really great banking partner that matches their pace, offering fast onboarding, product packages designed for your business, and capital solutions built for high-growth startups.
and the VCs investing in them.
With HSBC Innovation Banking's rapid onboarding, you can get access to your new accounts and facilities quickly, so your team can stay focused on building and scaling what's next.
You'll be paired with your own dedicated team of venture ecosystem veterans who have the network and experience to guide companies in your specific sector, at your specific stage.
And behind that support is this real strength, HSBC's $3 trillion balance sheet and global network that provides this stability and international reach needed to grow your operation with confidence to see how hsbc innovation banking can support you whether you're on day one or day a thousand visit innovationbanking.hsbc to learn more and connect with an innovation banking specialist that's innovationbanking.hsbc while hsbc manages your corporate banking needs deal helps you build the global team behind it Founders scale startups faster on Deal.
Grow without borders.
Deal handles the hard parts of global hiring, so you can stay focused on growth.
Set up payroll for any country in minutes.
Hire anyone, anywhere, and get visas handled fast.
Deal takes care of onboarding, HR, IT, EOR, benefits, and compliance.
Everything your startup needs to scale quickly.
All done, fast, in one place.
And that's why 37,000 fast-growing companies trust Deal to move really fast and get back to building.
Visit deal.com slash 20VC.
That's deal, D-E-E-L.com slash 20VC.
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 touchpoint 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 Perplex...
Xity, 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 migrateyourfull.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 .com from a Framer specialist, or get started building for free today at You have now arrived at your destination.
Guys, it is so good to be back.
We had a lot of shit go down this week.
I think there's a couple of places we could start to the arbiter of economic justice and revelations, which is Ramp, who revealed recently with, I think they're about 0.5% to 1% of US GDP transactions or whatever it is that Eric used as the statement to validate themselves.
Ramp data suggested that Anthropic now captures 73% of all spending among companies buying AI tools.
10 weeks ago, it was 50-50 with OpenAI.
Early December, it was 60-40 in OpenAI's favor.
Are we seeing Anthropic run away with the enterprise lunch, so to speak?
Just to start with the facts, they actually said 73% of new spending.
Right.
And the same graph shows OpenAI is still actually ahead of Antropic in terms of total spend.
But the marginal buyer in the last six weeks, eight, 10 weeks has massively shifted, which is obviously the most leading indicator.
You know, people in the market today for a new AI went 70% Antropic.
So just in the interest of being precise.
Yes, that's the claim from Rampt.
I thought the OpenAI response of the snarky comment about extrapolating from a lemonade stand was just a bad look, right?
First of all, it kind of doesn't really understand statistics.
I would argue Ramp is probably a pretty accurate statistical reflection of especially digital company spend in the US.
I think they have got a pretty diversified customer base and they probably have decent data and they've got good data scientists.
OpenAI trying to be snark, I think, was a mistake.
I think it does represent the facts, which is in the last three months, there's been a shift in the zeitgeist.
And I do believe that the marginal user, the marginal person opting for AI today, or even people switching today, the switchers are moving towards Claude, and they're moving away from OpenAI.
Doesn't mean it's the end of the world, but sometimes the first thing you got to do in dealing with a problem is to face the hard facts in the face.
And I think the data was good, and the conclusion is real.
If Anthropic now is maybe a $22 billion run rate, the revenue does tie to these two conclusions, too.
It certainly isn't inconsistent with it, right?
I think it's possible they're both right.
Like OpenAI and RAMP are both right.
And what I mean is, in some ways, this felt to me like the cursor debate.
Because if we walk into our portfolio companies, barely anyone's using cursor today.
In my own portfolio, and people said it on Twitter, too.
Like, cursor's dead.
No one's using it.
They've all moved to Claude Code.
And I would say in that...
ecosystem it's true and maybe if if a lot of ramp state is still biased toward tech they might see this same trend i mean claude has if you just look at why everything's accelerated since december it is opus four five and after it is crystal clear as soon as opus came out it was another step function that was under discussed everyone's pr's exploded everything got better but for the normal world They live in ChatGBT, so I don't want to say for sure that the cursor experience isn't happening here.
So my point is they both could be right.
What I don't like is how OpenAI is acting wounded, to Rory's point.
I don't like it.
When we started this pod, OpenAI seemed invincible, no matter what Anthropic did.
It seemed, and everything, you can just smell this era, this air of desperation.
Oh, we're going to keep headcount flat to manage costs, to we're doubling headcount, to we're going really deep on agentic commerce, to we're basically canceling, and Walmart says it doesn't work.
It feels very inconsistent.
And when I thought about this, the one thing that I love about Anthropic is it's very consistent about its ICP and goals.
It has been very consistent.
We know what it stands for.
We know what it's trying to do.
Yeah, it launches new features.
I mean, it's got its new, like, open, this next version of OpenClaw launched.
yesterday as we record this, but you know what's coming with Claude and Anthropic.
OpenAI, I'm getting whiplash from everything.
And the Debbie Downerism, going to last week, we talked about the air invincibility at GTC and NVIDIA.
It doesn't smell like that at OpenAI today, does it?
It's just like a downer to be around.
And I don't want to try their products.
Because of it, honestly, to Rory's point, I actually don't want to try their new products.
And I literally, last night, I'm DMing with our chief AF, so we're trying the new Claude app.
launched but it ain't gonna happen we i don't want to hang out with debbie downers if we if we just kind of put that into Strategic takeaways in terms of their pivot, now Sora is getting folded into ChatGPT rather than being a standalone app.
Hardware ambitions are being deprioritized, and they're really kind of trying to consolidate efforts.
Stopped having such a diverse product set.
And then also to your point on headcount, they now plan to nearly double headcount to 8,000 by the end of the year, having said before that they were actually going to keep it flat.
You know what it feels like to me in all seriousness?
It felt like when we started this podcast.
quite a while ago, but not a year ago, I don't think, that OpenAI was an exception to the rule.
You could have massive founder turnover.
You could have massive management team turnover.
You could have unusual, the amount of drama with kicking Sam Altman out and then bringing him back in a dysfunctional board.
And like, it seemed to be the exception that made the rule that if you had so much momentum, like you could overcome it.
Now I feel like the downside is rearing its mind of inconsistency.
This inconsistency is damaging the company today in space.
We can see the downstream impacts of that massive turmoil.
And I'm going to come in here and try and say something positive.
But start by pointing out, if we do go back to those first 10 podcasts, they announced the hardware deal with Johnny Ive.
If you recollect, I was like, this will never ship.
I said at the time, and I actually said right when he was on a high, that I don't envy Sam because the press only has two stories.
We love you.
We hate you.
And once they've written, we love you, there's only one story left.
So they're just moving through the to-do list.
We've done the we love you, Sam.
Now we hate you, Sam.
And he has brought it on.
You spend a year talking to the prince of fill in the blank, the president of France, instead of staying at home and shipping product.
Eventually, things get defocused, right?
But things are never as good or as bad as they seem.
That's just one of my rules.
It was never as good as people taught a year ago.
They still own the consumer business.
So job one is figuring out how to monetize that and make that a great-ass business.
It's hard to believe that there isn't something.
The advertising efforts seem to be struggling now, but that's job one to figure out.
And then you're right, job two is to figure out enterprise in particular coding.
I mean, they're doing finally the right stuff, you know, perhaps a year, year and a half later.
But it's still clear to me that if you just take a big, deep breath and you were running that organization, focus on the two or three things, get a little more sensible on your financial trajectory, you still have a comfortable chance to be the winner.
In other words, to exit two, three years from now as the largest market cap standalone foundation model player, right?
You blow it for another year and you won't.
You know, what's interesting is...
There's sort of two things going on here that I see in the data, right?
If you look at open routers data.
It has exploded since the start of the year.
So what that is saying is folks are aggressively switching between models for cost and output, especially cost.
Like that's saying there are a large set of customers who are optimizing when to use Kimi and when to use Haiku and when to use Mini and that that model has exploded, right?
And we can see it in a lot of our more mature customers.
I mean, companies that are trying to optimize their spend.
On the other hand, so much of us have said, listen, I mean.
Claude, Sonnet, and Opus since 4.5 and 4.6 are so good.
I want to stick there.
Like if you're not deep into coding or vibe coding, you don't see how much better it is in the last 90 days.
And I have no desire to screw around when something gets their hooks.
It's so good.
And so I want to build all my scaffolding.
I want to build my apps.
I want to build my AI agents about something that isn't just good, but now is epically good.
And so even with the open router data, like I think what I mean is there's these two things happen.
On the one hand, the soft costs are very low to pick a different model.
But on the other hand, there are high soft costs for managing the outputs and QAing it and qualifying it and making it great.
And I don't want to do anything except Sonnet and Opus now.
I don't want to spend any time on it.
It's not worth the soft costs.
And I think that's where the panic is.
They can smell that they're losing that, even as cost-sensitive customers will rotate through the cheapest possible thing.
I think true.
And I think it speaks to that, you know, you have these discussions, you know, do you want to be first to market or do you want to be second and you know more and you don't, you know, pioneers get hours in the back and all those cliches.
But I think the real truth is if you are first to market with the right product, you grab that early mind share and market share and then it's theirs to lose and just contrast the two markets.
It's pretty clear the two potential mega markets here are the consumer market, where OpenAI grabbed Mindshare with ChatGPT.
And despite they haven't monetized it yet, no one's really taken that away from them at scale.
And then the other mega market is not just enterprise, but with enterprise coding.
And you're right, Jason.
The scary thing is...
maybe six, 12 months ago was up for grab.
Today, your description is right.
It's half up for grabs.
People are starting to lock in.
And if OpenAI allows Claude to become the default for another year and the perceived best for another year, I don't think you get to show up after a whole bunch of people have made enterprise decisions and say, oh, now we finally got our shit together.
We're good too now, I promise.
Please pick me.
There is a moment.
There is a tide in the affairs of men, as Shakespeare says.
And this has been the last six months of coding locking, the recognition that coding is the mother load app within the enterprise spend.
And you're right.
If you let Claude run away with that for another six or 12 months, you've probably sacrificed value that you'll never get back.
Let me just give you one small example, like because the models are so much better since December.
So since then.
We have built an AI VP of marketing and AI VP of customer success for real.
And they're really, really good.
But here's the meta point.
Our APV of marketing defines every day, every single marketing activity.
It wakes up in the morning and gives us Slack updates.
It runs our weekly team meetings.
Our APVP of success, we have like 200 sponsors for Saster and all the humans would quit because it was too much work.
It does it 24-7 and the sponsors love it, okay?
It runs on Sonnet 4-7 and maybe a little bit of Opus.
There is no way we're going to switch the model.
Yeah.
This is dialed in.
It works.
Now, we're going to have to deal with QA when it goes to 4.8 and 5.1.
There's a little bit of QA, and it does change.
But my God, these apps, which we rely on every day, there's no way we're going to switch them to Codex.
Because it took us weeks to dial it in, and you have to train it, and you have to do it.
And now that they're great, when there's a certain level, I'm not saying that other folks won't, but that is a lock-in since the latest models that I think deserve a Code Red.
We will not invest the time after we've done because they're so good, the models today.
So that's a risk.
I would have a code red on this.
I agree.
And again, just.
Donning my economics of industry hat.
You're an individual enterprise, right?
Maybe if you were a SaaS vendor of these products to a thousand enterprises, you might have a big enough engineering team where you might be what you are six, 12 months from now to evaluate new models.
But you're right.
You've built a business that worked for you.
Unless they're extorting you on token costs, it ain't broke.
So you ain't going to want to fix it six months from now.
I agree.
And that's why every...
Just like on the consumer side, every time you lock in muscle memory, I mean, I'm using Claude all the time now in co-work, but I will admit when I'm doing my random research for this thing, I still go to chat GPT.
I'm used to it.
I got a lot of stuff in there.
Every time you lock in behaviors like that and let them settle in for six, 12 months, you're losing lifetime value that's non-trivial.
There are applications, and we just stick to B2B and AI for a while.
There are applications that are very sensitive to token costs.
Even things like support are super sensitive, right?
Because they're using so many tokens.
But I got to tell you, there are so many applications like the ones I described that were not that sensitive to token costs.
If you use $200, $400, $2,000, $10,000 of tokens for a month, it just doesn't matter.
And so there's the open router world where costs are super sensitive, but there are plenty of applications that will deliver.
epic value on these LLMs where it's not worth it.
You want to reduce my token cost from $2,000 a month to $1,500?
Leave me alone.
Leave your Kimmies and all these leads.
I don't care.
Like, I got 99 problems.
This isn't on one of them, right?
And there are going to be more of those apps than we think.
You're exactly right.
One of the things I've been thinking about for us.
for our software apps investments is just having this mental model of, you know, what's the token spend as a percentage of revenue?
And you're exactly right, Jason.
There's a ton of really interesting apps that, you know, for 5%, 7%, 8% of revenue on tokens are building huge value, which my sense at least is very different than the coding apps where you might be at 40% or 50%.
And if you're at 5% of revenue and you're growing really quickly, you've got a lot of better things to be doing with your life than over-optimizing the models.
Maybe even more.
Yeah, exactly.
Maybe even more, maybe even 20%.
I think that metric, I've actually meant to do this work.
And if someone has done it out there on internet land, I'd love to see it.
Just looking at a couple of hundred AI apps and just literally looking at the AI token spend as a percentage of revenue across them all.
I'd love to know what the pattern is because I totally see very different percentages depending on the token intensity.
SpaceX, TerraFab.
potentially $2 trillion.
We're reaching new heights.
We started off at $1.2 trillion, $1.5 trillion.
Now TerraFab and the $2 trillion number is being mentioned.
Roy, why don't we start with some context from you?
You're the best at providing succinct context.
Okay.
I mean, the big picture context is that Elon made an announcement that they're going to build a fab, effectively build the equivalent, I think almost 70% of the value of all of TSMC.
in the US near the Gigafactory because across the chip need for Tesla and potential chip need, I'm picking my words carefully, for SpaceX to the extent that they build data centers in space, he doesn't think TSMC will be able to make enough chips to support his needs.
And therefore, continuing a pattern of vertical integration, which they've had for an extended period of time, they're going to build a fab, right?
Not just any fab, but the most advanced modern fab on the planet, for probably CapEx cost of $25 billion.
That's the announcement.
And it's not clear the ownership, by the way, but I think the usage, the idea, I saw some number like 20%.
It's kind of some kind of joint Tesla-SpaceX venture.
20% of the volume in the end will go to Tesla.
80% will go to SpaceX and data centers.
So that's the story.
The second piece of context is, Harry, you said SpaceX now being talked about at $2 trillion.
Let's be clear what you're saying about that is.
I'm going to push back strong.
Polymarket said the probability of SpaceX being worth $2 trillion on the IPO went up to 50%, 60% from a lower number, right?
And that's what Harry is attributing information signal to.
I would point out that Tesla stock didn't move.
So if this really is, even if it's 80% SpaceX, 20% Tesla, in the market, nobody blinked, right?
We're actually significant money is changing hand.
So I am significantly more skeptical that...
Six months from now, people are going to attribute another $400 billion of value to a statement that I'm going to build a fab.
Unless they saw your math, the 80-20, and really thought of all the value going to SpaceX, right?
I mean, yes.
Okay.
So again, it's back to the same eternal Elon discussion.
At every point in time, with every one of these companies, you have things he's already done that you can value on a revenue multiple, things that have been announced already in process, and there are various stages of doneness.
And in that case, you have to assign a probability to getting it done.
And if the probability is 100%, then announcing a fab means you're worth a fab.
If the probability is 1%, then announcing a fab means you're worth 1% of the fab.
And everybody gets to pick their percentage in that continuum, right?
Right now.
I mean, TSMC itself is just over a trillion in market cap.
It's like basically saying if it really popped up by $400 billion of value, it's like basically saying TSMC has spent 30 years building the most modern fabs out there.
You've announced that you're going to do the same.
You do have customers for those chips in the main.
So I'm going to give you a 50% probability of getting it done.
It's a pretty high Elon attributed probability number.
But do you think that's unfair?
I wouldn't bet against it.
I mean, I always struggle to describe this.
He is the person who's achieved more than anything else entrepreneurially in the world today, period, full stop, on hard engineering problems far beyond any piece of software, right?
So that is, is it rational to say that if anyone can do it, he can?
Yes, because he'd done it two or three times with cars, with rockets.
Not irrational from that perspective.
You still have to say, is his record on timing of being right about when things happen and when they come?
a little more spotty.
I actually just went into chat GPT and said, make me a chronological list of every prediction from Elon about full self-driving.
And then I did another one, make me a chronological prediction of every prediction from Elon about when Starship will be flying and will be able to reach Mars.
It's a long line of it's going to happen three years from now in the case of FSD.
So I think with the caveat that we're dealing with the most accomplished entrepreneur of at least the last 30 years, maybe one of the top two or three ever.
You still have to say his record of predicting timeliness on terms of these things is somewhat – it takes a lot longer than you think up front.
And you've got to figure out as an investor how you factor that into the valuation.
And everyone's entitled.
The beautiful thing about markets is everybody gets to play their own way.
I'll tell you what was interesting to me.
I watched yesterday on YouTube.
They had a Jay Leno where – He was the first one to test the new Tesla Semi.
Okay.
And the team from Tesla came over, Franz, the head designer and the head PM for Tesla Semi.
And they were talking about it and they were talking about energy.
And the designer said, yeah, we strongly believe across all of Tesla, the future is fusion.
It is fusion to power our trucks.
It's just, we believe the fusions from the sun.
There's no point in doing it on earth.
And we will soon power all of our semis through fusion.
And this is a thoughtful lead designer saying this vision that has been there and they believe it.
I think it's a great story that can happen, that we're going to build more power than I guess exists in the world today.
And 80% of it's going to space.
80% of these chips that come out of this are going to space to power fusion.
You can mock that or say it's going to take nine more years than we thought.
But it does create a pretty powerful vision for the IPO and beyond and beyond.
Now you see it all coming together for SpaceX for real for the first time, rather than we've got internet satellites and spaceships.
Like it sort of made sense.
But when we're harnessing the entire sun, because it's pretty doable, because we've built a lot of it already, starting to sound cheap at $2 trillion.
Look, someone can be 10x more accomplished than you as...
an entrepreneur, a human being.
But when you're investing money, you're still entitled to say, what probability do I say ascribe to that 10x more accomplished person being able to do the next thing?
And therefore, you have to look at this and say, for how long will this be supported by a future statement?
And when will it be worth something on 20 times free cash flow?
But you know why it's interesting?
If you really believe in DCF and free cash flow for real in the public markets, and I still get confused.
If Starlink really has 53% profit margins and is wildly profitable, the fact that this extends the Starlink vision five orders of magnitude, it's actually a reason to say, hey, if I believe in this at all, my DCF has gone up.
How much?
I don't know.
It's gone up because Starlink is so profitable at scale, like jaw-droppingly profitable, right?
Two comments.
First of all, big picture, you are correct.
The reason Elon can do it and no one else can is he's going to articulate these big step-function stories where, as one investor in one of many of his companies pointed out to me, and it's a great point he made of this, they're not like software companies that incrementally grow every year.
They're kind of step-function technical challenges.
that you accomplish maybe every five or seven years.
And then you harvest on that while you're building the next step function challenge.
And then that gives the next lift.
And I mean, I think Starship is a great example of that.
You had the, hey, I launch rockets and all I do is get government contracts.
And then you're like, no, I launch rockets.
And now I have a cellular service for remote cellular.
And now the next turn of the crank is maybe if I can get.
Starship working, you can have cellular for everywhere and data centers in space.
So you are right.
These are big, chunky visions, each of which, if realized, gives you an extra pick a number, 100 billion, 200 billion, 300 billion of net present value of thing.
So I agree.
No one else can tell the story.
No one else is credible to tell those stories.
You've still got to go back to what's the probability of happening?
When does it happen?
And what's your cost of capital between now and there?
Yeah.
And I would just argue if you're the classic optimistic analyst, Wall Street analyst, you can probably justify Harry's two trillion valuation by saying the odds that this occurs are 80 percent, but we're ascribing only a 30 percent chance it happens on time.
There's an 80 percent chance.
And within five years, it achieves similar profit margins to Starlink.
And you roll it all back and you can justify two billion over one point X trillion.
Right.
I think you could do it on a spreadsheet.
And that bet will be available to you.
And how about it?
well in the week of bold hundred billion dollar bats and why the are we doing seed stage staff investing jason jeff bezos seeks a hundred billion dollars to buy and ai transform manufacturing wall street journal broke this one jeff bezos raising 100 billion dollars manufacturing transformation fund and acquire companies across semiconductors space defense eject ai into their operations and make them much more efficient he's apparently been touring singapore and the middle east to charm some sovereign wealth funds to give him the money how did we think about this again it was another week of I feel irrelevant at the early stage.
I think it's a great classic Indian Creek Island investment.
So you're sitting in Miami and you're a couple hundred million dollar home.
I love you, Jason.
You've got.
Jassy and team running the hard business, you don't have to do that that much.
Luckily, they're doing the hard work.
And now I get to think big.
I get to think big at Carbone or on the yacht.
And I don't want to go small anymore.
And I've already done it.
You know, I've already built Amazon.
So you know what I want to do?
I'm going to remake some industries.
You know, I was with my friends at Pure Vita getting our smoothies.
And we're all going to remake.
industries.
And this is the Indian Creek Island bet.
And I get it, right?
You don't want to screw around anymore at Billionaire's Bunker.
You just don't want to.
Do you think he'll be able to raise $100 billion?
He could just sell stock.
If he wants $100 billion, he can get it himself.
So I'm sure he'll get some significant slug of capital.
The only problem is SoftBank seems tapped out.
They're hitting their debt limits, they just announced this week, right, that they're flashing above their covenants.
So I don't think he would announce it if there wasn't a – that he didn't believe he could do it, right?
So you got to announce a decent probability.
I want to come back to what you said, Jason.
I thought that was actually very insightful, the Indian Creek comment, right?
And you do see this of, you know, I did it the hard way.
I'm now 50.
I'm 60.
I'm not 22 anymore.
I've got more money and less time.
So I'd like to insert myself further along in the value creation process to make it happen quicker is the logic.
You're right.
Because I was reflecting back.
AI is this cool new technology that could transform all loads of industries.
Just like 20, 30 years ago, the internet was this cool new technology that could transform a whole load of different industries.
Right.
And if you think you had really, and when Jeff Bezos was starting out, there was three different plays you could make.
You could say, hey, internet's going to transform retail.
Let's focus on retail.
I should build software and sell it to retailers so they can kind of move on to the internet, build Shopify.
The second thing you could do is say, hey, the internet is going to transform retail.
I should buy Walmart because I'll kick ass and I'll make them become an internet company and I'll do it that way.
Or the third you can do is to say, I'm going to do the hard thing for the most amount of money.
I'm going to transform retail myself by building a full stack retailer.
I'm going to call it Amazon and I'm just going to kill everyone.
And the last one was, it turns out, the $2 trillion opportunity.
from zero.
So your IRR is from effectively no money and you make a couple of trillion bucks from a value creation perspective.
Shopify, roughly a couple of hundred billion dollars, agreed, because that's the best e-commerce.
technology provider.
And to be fair to Walmart, if you had half a trillion dollars lying around at the time, you could have scored a double because it finally adopted the internet.
And you make a 2x on a lot of money, and you make half a trillion bucks.
Because now Walmart's got a market cap plus or minus of a trillion dollars, and they're very much a winner in the internet age.
And I was just thinking, those are the three games that you play.
And back when you're 25 and you have incredible drive, You don't have half a trillion dollars lying around.
You do Amazon.
But you're exactly right.
If you're in Indian Creek and you're like, oh, I don't have 25 years of, you know, working out of a desk.
I'm like a 2X on, you know, taking 100 billion and buying a bunch of companies and injecting AI into them like I could have injected Internet into Walmart.
Maybe that's the play.
But it's inherently less.
disruptive and more financial engineering than doing either of the Shopify play or the Amazon play.
I agree.
I like the framing.
It's what you do when you have too much money to want to do it the hard way.
If you talk to billionaires today.
that aren't pulling their hairs out because they're running public SaaS companies, okay?
The vibe is similar.
They want to do something huge in AI right now.
They don't necessarily want to run it themselves.
They don't want to be CEO again, right?
But they're very motivated to do one of these plays.
So we're going to see a bunch of these plays.
It's what everybody wants to do.
It's logical.
It's logical from Billionaire Island.
It's logical.
I love seeing Sergey Brin rock up to a random hackathon in Miami.
I'm not sure if you guys saw this.
Yeah.
But in Miami, he came out at the end.
was a judge or whatever standing on ceremony of a very...
grassroots hackathon in a random part of Miami.
Maybe the only place left in the country hospitable to billionaires.
So we're going to watch it accelerate.
Oh my God, the oppressed species of billionaires.
No, no, I do think, you know, when I think about this, the New York QSBS and other stuff, we don't have to do it.
What I do think when you saw Sergey there, right, and he didn't even move to the billionaire bunker, he moved to a different part of Miami Beach.
But I do think what we're missing is I think that it is the only place, may become the only place in the U.S.
over the next- couple of years that is welcoming billionaires.
Texas does, but Austin even doesn't.
Austin has mixed views, but say what you will.
And then I know it's, I mean, it's terrible.
The OnlyFans guy, I mean, very, very controversial subject matter, but where did he live?
Pompano Beach, Florida.
Okay.
Florida said, be a billionaire here.
Okay.
And so we're underestimating.
It's not just taxes with the surrogate.
It is.
You may only feel comfortable if you're Bezos or Sergei in Miami soon.
Why would you feel comfortable in California or Washington in New York?
Seriously, why would you feel comfortable?
Maybe Utah.
I would feel you just don't want to be attacked constantly.
No human being wants to feel that way.
You want to go where people will let you just be yourself and raise $100 billion or do whatever.
Like, leave me alone.
Let me live.
And that's what I think people are missing with the golden goose.
They're making billionaires uncomfortable.
And it's not just the money.
It's being uncomfortable.
That's Sergey.
He ain't coming back except for staff meetings and hackathons in Mountain View.
He's gone.
I'll tell you yesterday, I'm here in Utah.
And I saw Ryan Smith yesterday.
I love him.
Right.
Founder of Qualtrics.
OK, people love Ryan.
And he took his money and bought the Jazz as well as hockey team.
And he had a rough first year with the Jazz because he traded some top players.
But they love him here.
They love Ryan here.
And in the Bay Area, anyone, people are vilified.
The billionaires are vilified.
Why would you stay?
And it's only going to accelerate.
So here's the thing.
It's hard to predict the outcome.
I really don't think adding QSBS to New York is going to lead to the exodus that the people wanted to do.
We can talk about why, but they did it in California and that alone didn't work.
But when you are uncomfortable living somewhere, you leave.
And it is Ryan Smith is beloved here in Provo where I am today.
Sam Altman is vilified and Dario gets a pass maybe because he gave away 80%.
But who the hell wants to live where you're vilified?
Who the hell wants to live there?
Could put Sam some slack.
He apparently has no open AI to give away.
Howard Marks left.
I mean, he's old, but he did leave.
You want to be where you're comfortable.
Speaking of the world-hating billionaires, Grok announced essentially the debrief on the $20 billion deal to NVIDIA.
Less than $100 million in ARR being acquired.
Jonathan, the founder, is going to make about $950 million after what will be a double taxation.
Quite a costly thing, taxes, in terms of the IP and team acquihires that we've seen.
Then Chamath also reportedly made $950 million, to which he responded on Twitter.
He made much, much more.
How did we think about the analysis of this breakdown?
I think there's three different things you said we'd talk about, and I think you should break them apart.
One is, how often do you see this kind of sub-$100 million ARR revenue businesses going for this kind of value?
Then the second thing is, what was the structure and why does it result in double taxation?
And then maybe the third thing is, why does poor Chamath need to tell us he's rich all the time?
It's okay, we believe you're rich.
You may have made other people poor, but we stipulate that you are rich.
And even you are smart.
You did a great deal here.
Let it go, poor guy.
Therapy will help.
But let's go back to the first one.
Because the first question you asked in the notes, which you always ignore when it comes to the show, is when do you see this kind of transaction price as if revenue doesn't matter?
That was the question, right?
When does someone pay $20 billion for $100 million in revenue?
And I was thinking about that.
It's easy.
The answer is when the value to the acquirer is so high and they have the market cap to do it.
And NVIDIA, with a $5 trillion market cap, can pay $20 billion for something that's valuable.
And there is another good example I thought of at scale, because it happens a lot at small scale.
There are loads of tech M&A where some shitty little company is doing less than a million in revenue.
Someone buys it for 100 million, which is 100, 200x revenue multiple, but we don't make a noise about it because it's just so small.
And the reason they're doing that is because they can run it through their channel, and they can convert that million in revenue into 20, 30, 40 million very quickly, or it has strategic value to them.
The number of times it happens at 20 billion is low, but WhatsApp is the other great example of that.
Facebook paid $16 billion for WhatsApp, and it didn't have a dime of revenue.
It was a great deal, and it's still a great deal.
So it does happen.
But there's only a few number of buyers who can afford to do that.
The Grok one, you know, they just announced at GDC last week that it's going into production.
So that's different.
OK.
And I'll tell you what I find interesting in general for venture.
So they had 100 million in revenue.
They proved the concept.
They prove it sort of works.
And Jensen said within a year, we can get this into production.
That's worth.
Right.
And so it illustrates how weird M&A is so weird.
This deal probably was a multiple of the last round.
The last round was at six point nine billion.
This is less common these days, but classically rounds would be two to three X the last of a growth round.
OK, that that has collapsed for some reasons recently.
But my first startup was acquired for exactly three X around.
Literally, our acquirer downloaded our certificate of incorporation, found our per share price, and showed up unsolicited with an offer 3x, okay?
That's what I think happened here.
What is so weird, though, is that it's a reminder that so much of M&A, one way or another, is focused on revenue multiples, either directly or potentially.
And then they're just abandoned after the deal.
They're just, you're worth 10.2x ARR, and then we fire the sales and marketing team after the deal closes and roll it up into our core product.
It's an odd thing.
Necessary, but odd, right?
There's so many weird ways they are valued.
Agreed.
And it's a weird thing because there's often this huge gap between what you work standalone might be $2 or $3 billion.
What you work to acquire might be $20 billion.
And it's a question of how does that $17 billion of value get allocated?
And obviously, sometimes the buyer is trying to grind you down to $1 more than your standalone value.
And then sometimes, like in this case, they're like, hey, we will pay you.
A fair amount of what it's worth to us, which is way more than your worth on a standalone basis, but kind of segueing to the next thing.
In return for that, you're going to use this structure, which is wildly tax inefficient, but it's the only way for us to get this thing done quickly and without government review.
Which is the next thing to say here, which is the other point you're trying to make is that the CEO, I mean, no one's going to cry for someone who made $950 million.
And they're not even a billionaire, so no one will hate them.
So that's great.
I mean, it's actually a win.
Another 50 million and Jason, the pitchforks would be out.
But these transactions are very tax inefficient because what happens is the company.
sells the assets to Nvidia, books a gain because the assets were in the books at a sub a billion and now they're getting sold for 20 billion.
So you have to pay tax at the company level on that.
And then you dividend or redeem the money out and individual investors have to pay tax on the gain.
So it's fairly inefficient.
So you're probably wasting plus or minus four or five billion bucks on a $20 billion transaction because of double taxation.
And it's probably to the founder, Jonathan, it's roughly 60% effective tax rate.
And you can't hold Nvidia stock.
You're cashed out, right?
Like there's a lot of it.
There's so many inefficiencies in this deal.
One, you don't even get the IP, right?
You don't get the company.
You don't get anything.
And it's a 60% tax rate to the founders and no ability to roll over the stock.
You know, avoiding antitrust, is it worth it?
Probably for the $950 million.
But man, this has got to be the most inefficient thing ever convoluted to avoid antitrust.
It's so expensive.
And it is worth pointing out.
It's just quite terrifying from a government perspective.
You now have a process whereby the government makes the rules that enforces the antitrust.
And basically, you've got two choices.
It would appear you either lobby extensively at the highest levels of administration and you get a waiver from the top down.
Put out Wall Street Journal article this week, which was pretty.
good.
And option B is you do it this way and then you pay double taxation and the government wins either way.
Wire me the money and I'll let you off or wire me the money after it closes, but wire me the money either way.
It's a really perverse incentive.
I mean, whoever comes into the antitrust division next time and says, I think we should clean up the rules and make it much more transparent, it's probably going to cost the government 20, 30 billion bucks in terms of some combination of kickback and tax avoidance.
I have to say I do like it.
Jonathan was in the desert and the dark for many years, and he is a founder who's been a real respectfully cockroach, who's gone through the hard times, who's gone through the criticism.
He's also just a good dude.
I like him a lot.
So it's nice to see good people win.
Just like Chamath, another good guy who's been through the wilderness and has now got his $950 million.
So I'm sure that's the point you're trying to make, Howie.
He needs money, Rory, OK?
He can now buy some more Laura Piano.
Roy, you brilliantly say it to me, you know, that's great, but what about me?
I own stock in Amazon and I own stock in Figma, okay?
Google launches Stitch.
Figma tumbles.
Figma tumbles is an understatement.
I saw a tweet.
It was actually an announcement that someone posted and Sequoia were buying 35 million bucks of Figma stock.
And I was like, fuck, if Sequoia and Azure are buying 35 million bucks, I'll put in some of my money.
That's a good sign for me.
I'm down 22%.
22%.
Yeah.
It's 21.66 a share.
I remember, look, when it was at 108 and you asked me what I thought it'd be, I said 35 and I was wrong.
You laughed at me because I was so pessimistic and I was wrong.
It's 21.
Wow.
Does this have a floor?
Of course it has a floor.
I mean, stop.
Again, it has a floor based on its cash flow, which is strong.
It has a floor with its growth rate of that cash flow, right?
The third element is the probability of disruption.
And you know what?
The tricky thing about the equity business in the short term is everybody gets to speculate on that probability of disruption.
So you take the cash flows.
And then if you love the story, you apply uplift.
See Elon for details.
You take the cash flow.
And if you're really scared about the story, you apply terror, downlift, which is what's going on here.
Now, in the end, if the business is worth it, It will grow and it will generate the cash and they'll get to do what the Palantir guy does, which I so love, which is every earnings call, he basically slams all the haters and says, basically, fuck you, I'm making money and you all were wrong.
In the short term, the market gets to bitch and moan and have its opinion, but the floor doesn't come because the market changes its mind.
Maybe it will, maybe it won't, but that's only in your control.
If you're running Figma, the floor comes if you execute, you demonstrate that you've been able to adapt to an AI first world, you generate the growth, you generate the cash flows, and eventually it'll turn.
But that's why drawdowns are shitty.
That's why drawdowns are hard.
On the Stitch Figma thing, I mean, I've used Stitch, of course, as you would imagine.
I think most folks that chimed in on this never used it.
I'm confident 98%.
Jason, for those that don't know, Stitch is what for those that don't know?
It is a new design tool that Google launched.
And the bar at Google to launch a new AI tool is pretty low.
They try a lot of stuff.
And they abandoned almost all of it because then they focus on a few core products.
So you literally cannot take it seriously when Google launches a product because you have no idea whether they will stick to it.
They launched a Sona.
Is it Sona?
Sorry, I keep getting this wrong here.
The audio one, right?
What's the one source?
The audio one?
Oh, Suno.
Yeah, so Google launched a Suno competitor.
It's like cool, but it's not nearly as good.
Like it doesn't really work.
Will they keep with it for five years?
I'll bet you dollars to donuts they don't because it's not core, okay?
I used Stitch.
I've used all of Google's design products.
I think the odds that they decide to build a Figma competitor from this for a decade approach zero.
So on the one hand, massive market overreaction to a proof of concept.
Give me an effing break if I'm Sequoia or whatever.
On the other hand, The markets are saying we are extremely worried about disruption.
You better prove to us, Figma, Atlassian, Salesforce, you are ahead of disruption and not behind it.
And the market said we don't believe it.
And I agree with the markets here because Figma Make is one of the worst products I've used in the last six months.
But Stitch on its own, at least it's better than Make.
At least it can take context from a website and not hallucinate.
But the market should be...
So show me the money.
Again, where is Figma's $300 million of revenue from disrupting Replit and Lovable like we talked before?
And so if you haven't delivered like Palantir or started to deliver like Salesforce, the markets are going to freaking panic that your revenue is not that durable.
This is what I think at all.
Like I didn't get the 2026 panic for a long time.
I was slow.
Now I get it.
The markets are rationally saying, we no longer believe this revenue is particularly durable, old SaaS people.
PE doesn't believe it.
Qualtrics couldn't finish its debt offering this week.
Salesforce barely got its debt done.
And why?
The markets just, it's not that they think that Figma is a bad company.
They just don't believe this revenue is going to last a decade anymore.
They don't believe it.
And so you're going to see more and more of these panics for anyone not accelerating.
They're just going to panic every time it happens.
Jason, we just released a show with the CRO of Figma.
And I asked him, how are you seeing AI implemented into your sales teams?
And he said, honestly, we don't really have that ability and we haven't done it yet.
And oh, and we're hiring a lot more.
in sales, by the way.
We're not reducing headcount at all.
We're not seeing that.
And oh, by the way, we're not seeing seat pricing change at all.
How do you feel when you hear that?
Because that one, ironically, Harry, ironically, that one does not worry me as much as the product.
I will tell you what I've learned.
You formerly on the other 20 VC, me and formerly, I know, I've talked to her, I know a lot of the CROs and CMOs at leading AI companies.
The ones I'm close to are pretty good, but I also see tons of folks I called recycled mediocre.
They're folks that bombed out of old B2B companies that barely did anything there.
But because they have the right logo, got hired to assume they're all over the hot AI companies.
So many recycled mediocre.
And they're going to hire 250 reps and not train them.
And they're going to build infographics.
But the products are so strong and the demand is so strong, it doesn't effing matter.
So if Figma Make was so great and their AI product was doing 500 million, you could sell it with folks fresh out of a non-technical junior college.
It'd be fine, right?
So my point is, even though I talk a lot about AI go-to-market agents, and I believe they're great and they work, they don't fix product market fit.
And sales does not fit product market fit.
And we're seeing decaying product market fit.
That's why the market panicked on Figma.
They're seeing hints, just hints, of decaying product market fit in the AI era.
And you should panic.
Yeah.
Harry, just to pile in on that, because I actually have these conversations with my companies all the time.
I actually...
I totally agree what Jason said.
It's like when my companies come and say, hey, we want to talk about AI, and they say, hey, look at us.
We're using AI and go to market.
Or they say, look at us.
We're using AI to build engineering.
I'm like, that's great, but nobody gives a rat's ass.
That's like jacks to open.
That's not solving the core problem.
Unless you're making something like cars where it doesn't matter.
It's just back office efficiency.
If you're a software company, the number one question is, How does AI change the end product you deliver your customers?
That's what's going to determine success or failure.
So I was wrong.
I'd have guessed you'd have piled on to that guy and kind of bludgeoned him while he was down because I thought how he'd served you up a softball for you to say, hey, the idiot is not using AI.
And I'd have argued with you, but I think you nailed it.
You could be using AI well or badly and go to market.
You can be using AI well or badly in engineering.
It will catch up with you over time if you're not using it well.
But that's not what's driving 30%, 40% price declines.
What's driving that is exactly what Jason said, is the market net looking at this and saying, there's disruption risk here.
I don't know the terminal value here.
I'm just nervous.
So I got to be paid for that risk.
It didn't take my softball, did it, Rory?
That was normal.
Well, it is a softball, but Rory's got the important point.
You got to have the right AI or your company's going to decline.
Listen, I'm sure the Figma guy is great.
But honestly, if I interviewed a CRO today and didn't have any AI agents that he or she had brought in.
to our last podcast, I would recommend to the CEO, don't hire her or him, okay?
For sure.
But what I think this was, would I be much more worried than if I talked to a CTO and the new CTO they wanted to hire didn't really believe in using Agenda coding?
Then I would ask for my money back.
Can I have all of my investment back in 1X?
You can keep your mark up.
Just give me my 5 million back.
I'm going to go one level more than that.
Is that, you're right, not using any go-to-market bad, not using AI to build product.
Maybe I want my money back.
But if you're a software product and you don't think AI is going to disrupt not just how you build, but what you build, then you actually probably want to actively short it.
If Figma or Salesforce or someone was to say, I don't think AI is relevant for our customer base and they don't want to use AI in design.
If someone was to take that pain, you'd be like, oh my God, you're just going to be, you know, just left behind.
Yeah.
And that's why Figma's insensitivity to how mediocre make is really worries me.
That's actually an interesting bargain.
I wouldn't care if...
Dylan or the team said, listen, make isn't good enough, but give me time.
Give me six months.
It's going to be great.
But saying this product that is the worst vibe coding tool I have used in the last six months, the fact that there is no public awareness that this is an issue really worries me.
Jason, can you help me understand that?
Because Dylan is a good CEO.
Listen, I don't know for sure.
OK, but I think.
Every one at scale has a trap, which is your installed base is a trap.
It is an opportunity and a trap.
It is the greatest thing in the world to sell your agentic product to, to sell agent force to, is the $44 billion of AR.
It's the greatest opportunity because you don't have to earn that base, right?
But it is also 50 years of debt, 50 years of features, 50 years of offline integrations, non-agentic gaps they want, 50 years of endless work.
And if you're not careful...
it will consume 98% of your resources is that install base, right?
They need so much attention.
And I do think literally make is the only vibe coding product that I have used where you say, build me a website for 20 VC, use 20VC.com as a template.
And it can't go to 20VC.com and pull the context and make the website.
Now, Replit couldn't do this in June of 2025.
Lovable couldn't, but anybody can do it today, right?
Including, you know, who could do it pretty good was Stitch.
Stitch got the context right of the design projects.
I get it.
And that just shows to me, whoever's running it doesn't care about these use cases.
They just don't care.
It has fallen behind.
And I really, my guess is, my guess is there's a small team on this.
You know, they're still growing, what, 35%, right?
I mean, this is one of the best out there.
But here's the trap.
And we all have portfolio companies like this.
The trap of earning that 35% can imperil your agentic growth.
It can consume more than 100% of all the product and engineering and CS resources you have, right?
Even Michael Cannon Brooks, when he was on the show, he alluded to it, right?
And then they did the layoffs.
He's like, I got to get these resources because otherwise Jira and Confluent and everyone's going to suck it all up and I have no people.
It's a trap.
And think of some of your portfolio companies at scale, north of 100 million.
They don't describe it this way, but you know it's a trap.
Especially when they have a mediocre VP presented at the board meeting.
And the mediocre VP is like, I just, I want to do it, but I don't have the people.
I need another 700 people to build that.
You know, like, ugh.
It is so hard to say, I'll allocate to the new thing first and allocate the residual to the old thing.
And you're right.
The instinctive is to say, I'll deal with the old thing and then I'll find some people for the new.
You're right.
It's a mind shift.
That's an interesting point.
And, you know, I don't want to overstate the intercom example, but if you want to use it a case study, it does illustrate what you have to do.
And Owen was clear.
We let our core business go into partial decline.
It's very hard for almost impossible for a public company, though.
It's lucky being private because, you know, you got to have a lot of guts to say we're going to let a one point something billion dollar design business decline a little bit so we can build our authentic product.
It's tough when you're public, right?
Figma is at 21 today, 12 billion market cap.
Would you buy it today?
No, I don't see any evidence of these agentic investments working.
I would rather miss out on the bounce right off the hard deck than invest in something that may fall below it.
The reason is there's too much change.
My God, there's so much change.
It's so fast.
Make would have been a great product in August of 2025.
It's just not today.
The problem with the bounce here, and it's a first world problem is, so you buy 21, the concerns are overdone.
You're back up to 24, 25, 26.
So you've made some decent money.
But you sell it, you get ordinary income, blah, blah, blah.
You actually, net of taxes, risk adjusted, isn't worth it, right?
The only way you buy is, and I'm not saying I have the answer to this, when you buy stocks because you want to hold them for five or 10 years, you just do better, especially tax adjusted, than when you buy things because you think there's a short-term bounce.
I personally think that almost all of this stuff is overdone, right?
And there probably will be 5%, 10%, 20% bounces across a number of these companies.
But to want to buy it, I haven't done the work that Jason's done, but he is right.
You only should buy things if you think five years from now, there'll be a winner in the future.
I think it's totally plausible.
Figma could be.
But Jason, until you've used a product, until you've seen what they do, I wouldn't make that decision, especially at scale.
Well, here's the tough thing.
Figma is clear.
You just had them on.
Harry, are they materially charging for their agentic products?
Are they monetizing it?
No, they're not even really charging.
Look at your portfolio companies.
Why the hell would you not charge for your AI product today?
Why the hell, when Anthropics doing 22 billion in the blink of an eye, when people are lining up out the door to buy agentic legal products and healthcare products and open evidence, why would you charge almost nothing for your AI product?
Why?
It's not good enough.
Literally, I was with a founder this last week who used Make and got very far with it.
If nothing else existed, it would be amazing.
If this was 14 months ago and they built their own LLM and they could do this on their own, our jaws would drop, right?
But it's not.
If it's not good enough to charge for, it doesn't count.
You're not an AI company if you can't charge for it.
Very few public companies can effectively monetize AI.
And that's why they're all in terminal decline.
Almost all of them at the moment are in terminal decline.
Will they pull it back?
I'm not going to buy their stocks until they do.
I don't see any point.
For the record, that's an excellent test.
Yeah, even Figma can't charge for it.
It's a very, very bad sign going into the middle of 2026.
Terrible sign.
I'm naive here, so forgive me for this.
Are Notion charging for it?
You've spoken before about Notion's brilliance and the integration of their AI capabilities.
Are Notion charging additional for that AI capability, or is it just a superior product?
Well, first, if I said I thought it was truly brilliant, I misspoke.
I use Notion all the time.
I think they're good.
I don't think it changes the game in the way other products do.
But the simple answer to your question is they have been able, look, they're not public, right?
But if you combine what they've said with their pricing page and their announcements of acceleration and the fact that they have effectively doubled ARPU from it, doubling ARPU for it.
Here's a way to look at an SMB product.
today?
Is your ARPU 50% or higher than it was pre-AI?
It's a really simple test.
Can you drive ARPU up 50% or more?
It's very different at Salesforce or ServiceNow.
It appears that Notion has done that, in which case they passed the test, right?
But I want to see 50% or more ARPU growth due to AI, or it's just a feature.
It's just a feature like an integration.
Great, hard work, good job, guys.
Let's have beers, but it doesn't count.
Yeah.
I mean, reacceleration is the aggregate test, to your point two weeks ago, Jason, right?
Something's got to be going better across the marketing KPIs.
It can be charge of your A product.
It can be reacceleration.
It can be ACV.
But something has got to be working and getting traction.
Otherwise, you are falling behind because AI first players are delivering utility to their customers, and that's manifesting in those customers, giving them money.
So if you can't make the same phenomenon happen one way or the other, you're falling behind.
Well, obviously, the market rejected Microsoft co-pilot products as things they didn't want to pay more for, right?
That's the example of stumbling.
Notion with AI is 20 bucks a month.
The basic is 10.
If everything ties, and private companies have an incentive to be honest, but...
but polish the numbers a little bit, right?
See for our conversation.
Yeah, but assuming there's at least a substantial amount of truth in what they've said, then it's working.
They're able to charge $20 a month for their Agente product, not because they splashed an AI label on it, but because it's so much better that it is worth it to talk to your docs, to have stuff flow into your database autonomously.
It's worth 20 bucks.
I don't love the pricing.
I suspect as the year goes on, we're going to see the same thing at Slack because most folks...
haven't used it, we're on it.
The AI version of Slack for certain use cases is so much better.
I don't love that they're not just charging another four bucks a month.
I wouldn't be surprised if it's like Notion, like they're able to do it, right?
Speaking of Figma, I'm going to go a little bit off piste here, but I think it's why the Jason, we were on Twitter about it earlier, joking.
Mamoon announced raising the new KP funds, a billion dollars for the early, two and a half billion for the growth.
Seems small.
I mentioned meeting him for the first time at SAS to Jason, if you'll believe it, 10, 10, 11 years ago in a side room.
Kind enough to give me time.
My takeaway is honestly, you can't do early and you're going to kill me, Rory, with less than.
a billion if you're going to compete to lead A's.
And my reasoning for that is A's now are 30 to 40 million.
And if you want to lead them, you need to be able to write 25 to $30 million checks.
You need 20 across a firm.
So if you need 20, $30 million checks, you're at 600 million.
I would argue that your fund scale is as small as it could be to lead A's today.
I don't entirely disagree in the sense that, you know, it's a $900 million fund.
And you're exactly right.
I mean, the math of what you throw out is correct.
Series A's, you're writing an average of a $20 million check.
But I don't even think 20 is enough these days.
I know.
Let me just tell you just an average, right?
Because, you know, if you hustle, if you find some deals where it's a little off the beaten track, I've written A's where we've gotten 20% ownership of 12 or 15.
So it's not all, but let's just go at your average, Harry, because rather than arguing that, yeah, it's 50% reserves.
Over like six or seven funds, we've been 50% reserved.
So you end up with $30 million in the average deal.
Then the last comment is a portfolio concentration versus diversification question.
I think given the higher time to exits, you probably tend to be nearer to 30 than 20.
So yes, I think, you know, there's a certain small scale required to play meaningfully in the Series A business.
Yes.
Rory, can I ask you, you've got 720 of investable.
You can't have a reserves of 50-50.
No, I didn't say 50-50.
You didn't pay attention, Harry.
50% of it, because there's two ways of expressing reserves.
It's a simple math.
Let me help you.
One way is expressing as a percentage of original capital.
And in other words, if I...
put in 20, do I reserve 10?
That's 50% of initial capital.
And mathematically, that's the same as saying two thirds of the money goes in in the first check and one third goes in in the later check.
You're right.
I'm not reserving 50% of the total amount.
Do you understand me?
Those are literally just...
Now I do with that clarification.
Thank you for clarifying that.
I used the prepositions correctly the first time as well.
But OK, it's good to be clarified.
But to be fair to you, people do express it both ways.
And sometimes precision is important.
I always think of it as the amount of money you've put in and then the amount of money you have in your back pocket to defend that money if you need to expand on that position if you want to.
And what it says is, and this is another insight, unlike...
For seed, where you also have a big fund, for that kind of Series A game, the Series A is not, for us, especially for a firm that just has checks for A's and B's and of this size, it's not an option value on putting a ton of money in later.
Most of your value is made on that first check.
Whereas these folks who have seed or even A funds, where their real plan is to put $200 million in at the B or C when it's working, right?
To some extent, the A is an option value.
But just for Jason, the seed check is the check.
For us, the A or B, because we're roughly about half and half, is the check.
You're not saying, oh, I'll put in a little now and write more later.
That's not the way the game can be played.
Rory, are you finding it increasingly uncomfortable with the expansion of Series A rounds because our checks are getting stretched bigger and bigger?
It's ruining our math.
I mean, it is somewhat uncomfortable, but I think you have to find the deals where that's not the case or decide in some cases to reach.
I mean, I'm going to put both sides of the challenge out there.
There may be some deals that are too capital intensive and you decide, I don't want to do that because I'm just not getting paid for that risk.
But you're right.
The average round that we play in has crept up, right?
Not just the amount we do, but the average round that we play in has crept up over the last year, year and a half.
So, yes, it's not, I would say, to the acute level of, oh, my God, you know, we're perfectly happy with the checks we're writing and the round sizes.
But, yes, there are times, especially, for example, you know, we haven't done any at scale of the kind of the Neolab seed checks where you're just so outclassed with your $30 or $40 million check.
It's barely worth playing.
How big is the Hummingbird fund they just announced?
It's $800.
$800.
Where have they grown their fund size from over time from doing Inception investing?
$200, $300 of...
I think initial capital, it's the same fund they always had, but adding a growth fund to a rounding error.
And then didn't Balderden lead the seed in Revolut?
Yes.
And then who did they just do at a billion this week?
It's just the game, the game is, it does change.
We were really good at doing Revolut at four.
Now billion dollar rounds are a good entry point for us.
It's just a lot of change, isn't it?
Yes.
Look, we track it on aggregate versus our 2010 checks.
You're probably up.
roughly 2x in terms of the valuation.
And I think that's significantly lower than the industry as a whole.
Well, look, his point's hard to argue with, which is if you want to own 15% of a company or whatever your target number is, and deal sizes have inflated, there's a basic math you have to do, right?
With reserves.
And that math is, in many cases, highly stressed in the market today.
It's just like, it's a fact.
Like it was very easy to solve your fund size before, right?
It was 60 million per partner for seed.
maybe 100 for A or B, and then it would go up a bit.
The math was so simple that all these funds were, but that math just is broken today.
And it creates interesting, I don't find it super interesting, but it is a little bit broken, right?
And so if you're Gary Tan, you say the $100 billion outcomes make it irrelevant.
I don't know how they work, but I was just looking and I was writing something up on Wiz and Cyber Starts owned 4% at exit.
I don't know whether that's dilution or his model back then, but the model still works for a seed fund at 4% of 30 some odd billion.
But I think we're going to see more and more of those dilution in time.
We'll see more and more seed investments eroded to 3%, 4%.
I'm just doing one example.
They'll be eroded.
And if the exits are...
You know, north of $10 billion, it's okay for a seed fund, right?
But it's tough.
I don't have the answers.
I just think the old math was easy, right?
We need to do 15 to 20 investments per fund, $15 million, the average check size, and you could roll up into fund sizes that didn't make you fall out of your chair.
At the risk of being a dick, the math is easy both times because math is independent.
You just don't like the answer, right?
Multiplying a pre-money of 50 is no harder than multiplying a pre-money of 50.
I think the math inherently creates more risk unless the outcomes are massively higher.
That's my point.
We are levering up our risk to Harry's point.
We're levering up our risk.
I totally agree.
I was just being a my little jerk because I'm thinking I'm getting grumpy.
It's not that the math is complex.
It's just that the consequences are unpleasant.
We said it over and over again.
pushed out on the risk continuum.
But it does feel like times are changing faster than fund sizes are able to adapt in a way that they haven't done in previous cycles.
Like our normalization of billion dollar plus rounds, hundred billion dollar plus raises.
Yeah, I think that's actually true.
That's actually a good reflection because I've lived through 95 to 99, the run up and the billion dollar funds.
And I also lived through unwinding, watching all the funds being unrounded or two.
And then, you know.
Obviously, 2007, that on one.
This, and even 2021, this feels faster than that, right?
The action on the table and the need to play at a highlight.
Yes, I think, which is why I think every VC is stressed right now.
No matter how successful you are, no matter how well your last deal that you did three years ago is doing, everyone wrestling with doing deals now is grumpy, stressed, and feeling.
Feeling the pressure.
But I think there's one risk that is under discussed.
All this fun math can lead to concentration risk or ownership risk, like at least for a smaller fund.
I have to deal with concentration risk or ownership risk.
That's that's a simple trade off.
You can't.
That's my maths.
Right.
The one that we are just ignoring because times are so good on paper is who the hell is going to buy these companies if they don't IPO?
What the hell are Replit, Lagora, Harvey, Lovell?
How much is Lovell worth in the last round?
Eight billion?
Six point six.
OK, let's be honest.
Who the hell is going to buy them if they don't IPO?
You really think Google's going to buy them for $32 billion?
It could.
Look, don't get me wrong.
It could happen.
And acquisitions are not up, right?
Dollars are up.
So I just, my point that is under discussed is we are doing these.
post billion dollar deals like candy.
And at least in the bubble of 21, there were PE exits.
There were many exits out there.
We have outstripped any current ability for these companies to have any exit.
So you're going all in on the IPO and not without any worry, rhyme or reason.
And I think so many folks subanthropic are going to get.
Their arse is burned because they'll end up in the dead zone.
They'll have great companies without great IPOs and zero M&A opportunities.
And I'm not saying don't do it.
I want my markups on paper.
I got to do an LP announcement this week.
I want my TVPI and my IRR to look good.
But it's also terrible.
It's terrible to raise north of a billion.
It's terrible.
I mean, Grok is great, but a lot of this stuff is not Grok.
I agree with everything you're saying.
And what's hard about you saying it is.
that the strategy that has worked has been precisely the strategy of doing those rounds above a billion and getting the round beyond it.
But you're right.
It's all predicated on being able to exit these companies in an IPO.
And I will say, just to remind you, you can imagine a world of IPOs where some of these companies exit, but if the last rounds don't have a block, it's not necessarily going to be above the last rounds.
There are some awesome AI applications companies where you kind of go, I totally see how that's worth $5 billion in three years based on fundamentals.
And right now it's valued at $10.
And three years from now, I could contemplate it going public at $5 billion.
And you kind of go, that last one on the 10 is going to have to convert and take 50 cents on the dollars unless it has a meaningful block, in which case it will get more of the company.
Yeah, for sure.
I just worry there's some ratio of potential acquirers divided by unicorns.
And I think we're at the lowest ratio of our careers.
Yeah, no, absolutely.
The lowest ratio of potential.
acquirers divided by Unicorn, Unicorn Plus up to Decacorn.
They're just not there.
We've lost all of PE.
And NVIDIA isn't buying 100 companies.
Microsoft is not buying 100 companies.
So what is the subsequent thought then, Jason?
Sell aggressively into secondary markets, which are more liquid than ever?
Well, probably for early stage investors, sure.
That's the hopping lesson.
I know you love to talk about it, Harry.
Maybe that's the lesson.
I don't think it is.
Can I just push?
I don't want to use the hopping example because then people will – because I actually think I'm going to make it a more interesting discussion.
Because when you do hopping, people go, well, my company is not hopping.
No pun intended.
I think you're saying even for your fucking great companies, excuse my language, great companies, where you know in the end they're not going to be hopping, they're not going to vanish in a puff of blue smoke, you're still right, which is those last rounds might be at prices you'll never see again.
And what should you do as a seed investor?
I mean, what would you do if a company where you invested at 50, you thought it could be an M&A at 2 billion at some point in time, and suddenly you get a round at 5 billion of new money, and there's a secondary opportunity?
You're a starter for 10.
What do you advise?
Yeah.
And listen, maybe just as we're now okay with down IPOs, like we're okay, it's just mathematically true.
Yeah, we are.
Maybe we'll all be chill with down M&As and all these folks raising at 9 and 10 can sell for one or two in a few years and everyone will be happy.
I'm just not so sure that they will.
But I'm more worried there's just not going to be a lot of acquisitions.
They're very specific to either we're desperately behind on AI or we need to jump forward years.
That is a very narrow subset versus making sure accountant software at $5 billion is better for accountants.
I believe that's a great market.
I just don't believe the hyperscalers are going to buy these companies.
Yes, because by definition at the app layer, you're not getting the hyperscalers.
And the odd thing is, actually I just realized this for the first time, the odd thing is because of this story of eat the work, the TAM.
It's meant to be larger.
That's the whole point of these applications.
And I believe it.
But Jason, to your point, what it means is you are definitionally, therefore, the new company is larger in terms of value than the old company you're replacing, which means the old company can't afford to buy you.
If you're Harvey and you're worth 10 billion and it's not really it's worth more, but if the old practice management law software is only worth 2 billion, they're not going to buy you.
Basically, it's win or die.
To your point, I think you're exactly right.
When the TAM becomes bigger, the new company gets marked up and has potential to be a bigger outcome.
But what it means is once it gets marked to that bigger outcome via a late stage round, it precludes the prior generation buying in.
If I was running one of those prior generation companies, if I was the system of record...
You need to be doing is buying that not marked up, you know, 500 million valuation company and getting something out there.
Right.
But you can't no matter how hard you try as the old generation legal software company, you can't afford Harvey at 10 billion.
So it doesn't matter what you want.
You can't afford to buy them and they can't afford to sell to you.
I think you're exactly right, Jason.
I just wish.
Listen, even if IPO markets are barely, barely functional, they're open, but they're barely functioning.
If the M&A markets are on fire, I'd be good with everything.
If we were turning around and these companies were being bought for $10 billion cash each week, I'd be like, this is awesome, man.
But it does worry me a little bit that it's so much easier to get a $9 billion valuation than a billion dollar exit.
Which should be terrifying if you're the people giving a $9 billion valuation.
I mean, you got to play the game on the field, but I don't know.
Well, actually, for the record, sometimes you can stick your money in your pocket and not play the game on the field, but that's okay.
But you're playing the game on the field, Rory?
Part of it.
And the bits I haven't played have been, you know, we haven't done deals with a billion dollars.
Well, we kept it in that 100 to 300, 400 million dollar pre-money valuation.
And right now, that's been the wrong play, just to put it out there.
I give all credit to, for example, Spock, Yasmin there at Spock, who broke all the rules and said $4 billion for a pre-revenue company on Entropic.
That's paid off.
Do you vote for Matt Murphy at Manly?
Matt has consistently.
Absolutely, Matt did it too, totally, yeah.
So my point is some of the late-stage bets have paid off.
On average, I share the concern.
So to your question on playing the game on the field, we're playing part of the game on the field, but we're a bit scared of certain parts of the valuation curve.
I think that will probably across the cycle be the right decision.
I'm not sure in the last year or two it's been the right decision, which is always a challenging thing about valuation.
I shouldn't be so honest, but I fuck it will be at the end of the day here.
My biggest regret with our Series A fund is not being more elastic, disregarding the Series A mandate and just saying I'm going to leverage the brand and the access that I have, arrogantly, forgive me for that, to get into super hot companies like your Eleven Labs, your Lagoras, your you name it, your Lovables much earlier and being a momentum investor in a hot environment.
I'm going to paraphrase what you said.
My current plan is to write $20 million checks in Series A investments where I get 10 to 20% ownership, and I can write 20 of those checks.
In retrospect, you're saying I should have taken five of those checks, the full 20, not a bitty check, but a full ticket, or maybe even double down and use a two-ticketer, and done some deal at a billion pre or two billion pre because those deals with momentum had even more momentum.
The interesting question is...
because I wrestle with this a lot.
So I know it's an interesting question.
If your mandate is to do 20 series A's where you get 10% to 20% ownership and you stick to your knitting and you do your due, should you have taken five of those slots and used same check size or maybe even larger check size and done C's, D's, and E's at one billion, two billion pre and got two markups already?
The truth is...
In some cases, not only will you get markups, but you will get returns commensurate with Series A, but at much lower risk.
And Antropic will be the definitive version of that forever.
Not actually the rounds Spark and Menlo did first, because that really was risky.
But kind of the rounds at $14 and $60 billion were risk adjusted freaking awesome.
Now back to your point.
I wonder will all of those rounds in those other AI apps companies be as good?
for precisely the reason you articulated, which is that maybe the TAM doesn't support that exit.
But right now, Harry's right.
You look at the lovable at six.
Maybe you could have done it at one or two.
You'd have a 3x step up with no hassle, no fear, no early stage.
The sweet spot of investing, I mean, it's something you said, Harry, and it was true but tautological.
You said, I wish I'd been a momentum player in a rising market.
The definition of a momentum strategy is it only works in a rising market.
Right.
But yes, in the market we've been in for the last three years, it's hard to distinguish momentum players from very shrewd players.
Both of them have worked out really well.
That's the kind of step back.
I don't think shrewd players have, actually.
That's my point.
I think shrewd players have appeared disciplined, remain temporarily diverse like me and you are, Rory, remained with our high ownership targets.
And you've had players.
abscond with AUMs like never before, pay insane prices and get fast markups.
And in a lot of cases, DPI because Zuck buys you an insane price.
Brutal commentary.
Then maybe you and I aren't shrewd.
Look in the mirror.
Very possibly.
And that's the self-reflective question as I introspect, which Marc Andreessen doesn't do, clearly.
Yeah, no, yeah.
More introspection here, please.
No, that's the ultimate question.
Look, the truth is that is the question everyone wrestles with.
When do you stick with your strategy and when do you break it?
And, you know, what's a good reason to break it?
Absolutely.
No, we all agonize with that.
And that's why, Jason, I said the kind of trivial breaking it just to be silly doesn't isn't that interesting.
But the sometimes breaking it could be the right strategy.
And that's the hard one.
There we go.
OK, it has been a pleasure.
Thank you so much, as always.
Jesus, that was quick.
We ran out of time.
But before we leave you today, are you a founder working nonstop to raise your next round?
Are you an investor doing all you can for your portfolio companies to help them stand out?
Funding and scaling a vision is challenging.
Banking should not be.
HSBC Innovation Banking caters to tech and healthcare founders all over the world who need a really great banking partner that matches their pace, offering fast onboarding, product packages designed for your business, and capital solutions built for high-growth startups.
the VCs investing in them.
With HSBC Innovation Banking's rapid onboarding, you can get access to your new accounts and facilities quickly, so your team can stay focused on building and scaling what's next.
You'll be paired with your own dedicated team of venture ecosystem veterans who have the network and experience to guide companies in your specific sector, at your specific stage.
And behind that support is this real strength, HSBC's $3 trillion balance sheet and global network that provides this and international reach needed to grow your operation with confidence to see how HSBC Innovation Banking can support you.
Whether you're on day one or day a thousand, visit innovationbanking.hsbc to learn more and connect with an innovation banking specialist.
That's innovationbanking.hsbc.
While HSBC manages your corporate banking needs, Deal helps you build the global team behind it.
Founders scale startups faster on Deal.
Grow without borders.
Deal handles the hard parts of global hiring, so you can stay focused on growth.
Set up payroll for any country in minutes.
Hire anyone, anywhere, and get visas handled fast.
Deal takes care of onboarding, HR, IT, EOR, benefits, and compliance.
Everything your startup needs to scale quickly.
All done, fast, in one place.
And that's why 37,000 fast-growing companies trust Deal to move really fast and get back to building.
Visit deal.com slash 20VC.
That's deal.com slash 20VC.
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 migrateyourfull.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 .com from a Framer specialist or get started building for free today at Framer.com slash 20VC for 30% off.
30% off a Framer Pro annual plan.
That's Framer.com slash 20VC for 30% off.
Framer.com slash 20VC.
Rules and restrictions may apply.