# AI Token Economics, Late-Stage VC Shifts, and SaaS Valuation Compression

**Podcast:** The Twenty Minute VC (20VC): Venture Capital | Startup Funding | The Pitch
**Published:** 2026-07-16

## Transcript

To some extent, it may have been a distraction for open AI that they were so successful in consumer.
If this was a mercy killing, Apple may have done them a favor.
If there was action on threads, Harry, you'd be there.
Action on Mars, Harry, you'd be there.
Every company with a CIO who's half awake is going to have a cheap token model to hand to stop this madness.
Shit, I'm putting everyone out of a job.
The least I can do is keep them alive.
Treason does not succeed, but what's the reason?
If it does succeed, no one calls it treason.
In the early stage when you're on the board you can't invest in two competitors.
In the late stage structurally you have to.
If you don't want to be worth 1x, like do something before it's too late man.
This is 20VC with me Harry Stebbings.
It is your weekly listen.
Everything you need to know that's gone down in tech this week.
Rory O'Driscoll, Jason Lemkin and me are pining on The agenda for today.
So, number one, Apple sues OpenAI for trade secret theft.
Number two, Meta fights back on the coding model front and Zuck is back on X.
And then number three, SK Hynix prices a $26.5 billion NASDAQ listing, bringing the compute and infrastructure layer to the public domain.
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Guys, it is so good to be back.
As always, there is a lot for us to discuss.
Why don't we start with the trillion dollar company that is Apple, as it brings in another trillion dollar company in the form of OpenAI, where Apple sues OpenAI for trade secret theft.
Essentially, one of Apple's long-term 24-year vets was taking...
secrets to OpenAI and sharing information that he shouldn't have been.
This is a really serious thing, and there's actually some conclusions that we can share with listeners in a second.
But on the facts, the 24-year veteran is Tang Tang, and he's named in the suit, but the person who is alleged to have taken the secrets was the six-year Apple employee, Cheng Liu.
Tang Tang is in charge of the hardware division at OpenAI after having been a super senior executive at...
Apple, and the allegation for him is that he encouraged hires to bring this stuff over.
Just slightly different.
Absolutely.
And he encouraged them to bring actual parts for show and tell.
Exactly.
You know, I think the big picture here is in particular, I mean, so let's start with the advice to anyone listening.
Don't ever do this.
The person on point, the individual who brought that stuff across, I read the lawsuit this morning, 41 pages, didn't read it all, but got through a good slog of it.
There's a lot of fact-based evidence that the person who took this stuff did it and he's screwed.
And the first thing he's going to discover is there's no gratitude in litigation.
You think you're caught helping your new employee or trying to get a job.
They're going to burn you so fast your head's going to turn.
But they're going to say, like Claude Rains in Casablanca, I'm shocked and appalled to find that there's gambling going on here and he's going to be left high and dry.
Don't ever, as someone interviewing for a job, ever do this because you're going to be screwed.
That guy's toast.
Yeah, I hadn't thought about that.
You think you're helping your company.
He's already lost his job.
Forget what his exit package is.
He's already gone, right?
You're not helping your company.
And then the next level up is the gentleman you mentioned, Tan Tang, who is he also has some issues.
It's not as clear because there's no fact based evidence, but it's not just hearsay because a bunch of folks have said he did it.
He encouraged me to do this.
And even in the email traffic with Chang Lu, there was a lot of, hey, we were asked to do this.
So the risk is up against is that there's now going to be a ton of deposition, a ton of discovery.
And if there's any smoking gun that.
has him emailing or encouraging people to say, hey, bring in information when you're coming in for your next interview here at OpenAI, then he's screwed too.
And the same thing will happen.
Now you get to the highest level.
Look, Apple in one sense is quote unquote happy because they're really pissed that 400 people from Apple have gone to move to OpenAI.
And traditionally over the years, Apple has always hated, in my view, almost to the point of not being appropriate, people leaving their place and going to someone else and really leaned on other companies to not hire.
Right.
And I think, as I said, at some point that gets inappropriate.
See this whole Steve Jobs kind of issue 15 years ago.
But the bottom line is they're not looking at this and going, you know, the way when you want to get something for something and then the other guy makes a foot fault and there now we have them.
So they know they have the junior guy.
They probably have the VP of engineering and they're going to twist the knife, depot everyone and see how high up it goes.
They're pissed and they've got leverage.
So it's a tough place to be.
Because really what they want isn't, I mean, you know, they care about these secrets, but what they're really dealing with is, you know, the big picture comment is OpenAI has been talking about building a hardware device.
That's obviously why they're hiring 400 people from Apple.
And Apple's pissed.
And now they've got some leverage and they're going to find out what's going on here.
Yeah, you know, it's a tough one to Rory's point.
We all have history in our operating or investing experience.
You do hire folks for their domain expertise every day, right?
That's employment portability.
And where the line is for trade secrets, it's actually somewhat nuanced, not only in the law, maybe Rory would challenge me, but in practice, because not everyone gets sued.
People are stealing trade secrets all the time they shouldn't be, right?
The salesperson's got to be careful when they take the Rolodex.
Once in a while, they get burned for that.
Once in a while, a sales rep actually, they lash out when one goes to a competitor in your portfolio.
They get sued for taking their actual Rolodex, not their conceptual one.
They get sued for downloading the CRM when they leave.
And Jesus Christ hacking into the old iFolder or whatever the hell he did to take documents from Apple after you leave, it happens.
But...
That's too much, right?
But still, you don't always get sued.
And it's tough, but if we can't hire domain experts, sometimes we can't all invent LLMs ourselves.
Sometimes we need a little help.
Jason, you're exactly right, but I actually think it actually makes the point that you didn't need to do this.
Because stepping back, California is one of the most liberal places in the country in terms of employment, right?
Which is, you know, there's no non-competes.
Non-competes are typically unenforceable.
And there's this doctrine called inevitable disclosure.
right?
Which is if you acquire knowledge in one company and you go to another company and you use that knowledge, the California courts are pretty friendly and they'll say it's inevitable because it's part of your trade.
So they'll even say, we can't stop you using the tricks you learned at company A at company B.
And let me give you a very practical example of that.
Anthropic is the biggest beneficiary.
of the inability to enforce non-competes and the doctrine of inevitable disclosure.
Because those seven employees who left, they basically walk out of them because they're way smarter than this guy.
They probably didn't bring anything, no pieces of paper, no stolen code.
But next morning, they start up and they say, we just were thinking about this last week and we can keep thinking about this and everything in our brain is owned by us.
And there's lots of states in the union where you can't do that.
I wonder if Anthropa could have been started in Massachusetts.
Probably not, right?
No, you're exactly right.
And I think California's, even though it sucks as the employer, I think California's been right.
Oddly enough, the rare policy triumph for the great state of California, it's been really good for innovation in the Bay Area, right?
So you already have that very friendly employee thing.
And given to Jason's point, given you have that, given you have that inevitable, why put yourself at risk by stealing some shit that you just don't need?
Well, my question was, okay, so these individuals are screwed, to be blunt.
What does it mean in terms of timeline for OpenAI?
Does it cause meaningful delays?
Does it impact their ability to ship their hardware product when they wanted to?
Listen, if I had to breathe the tea leaves, hardware is probably on the bubble.
This was one of Sam's initiatives that made sense when everything was working and OpenAI had an unassailable lead over its competitors, right?
Now everything's, you know, we chopped Sora.
Why the hell did we buy TBPN?
As great as it seemed six months ago, right?
Hardware seemed like a great deal for $6 billion when I could get the legendary Johnny Ive.
But his team stole everything.
What's the point of like, this is just an effing distraction for something that's going to hemorrhage cash.
I'm all in.
If we go back 60 weeks ago, I'm all in on persistent AI around us.
So Zuck, like with his new eyewear and all that.
But this has got to be almost on the cutting board.
It's like the Apple car.
It's got to be close to being cut.
And I think the reason this lawsuit may have happened is to push it over the line of getting cut.
Just kill it, guys.
Like, it's not.
directly cause an effect, but it really could push it over the line to just let's put a pause on this for a year, boys.
Let's put a pause on it for a year.
I didn't pile in on that initially because I feel I'd pile in on this point, but I totally agree.
I remember when they did the individual deal, I was like, this is stupid.
Sometimes the cliche, keep the main thing the main thing.
The main thing here is that LLMs are really amazing at code and the amount of economic value that can be created from that dwells to everything else.
I've seen some of the columnist Ben Thompson even articulate the view that to some extent it may have been a distraction for open AI that they were so successful in consumer.
Because where the value has all clearly been created is not just within enterprise, but within enterprise for coding.
And I'm with you, Jason.
If this was a mercy killing, Apple may have done him a favor.
You know, move on, slow it down, stop doing this shit.
If you think about a year ago when OpenAI was a consumer company, I know you thought it didn't make sense, but step back.
It actually all makes sense if you're a consumer company.
Should we go into hardware?
At some point you do, you think about it.
Should we go into media as a consumer company?
Yeah.
I mean, we could buy a top podcast for a hundred and something million.
Like worst case, it doesn't work.
Like if you're a pure consumer play, this is how you keep building.
You add to the layers of the concentric circle, right?
Is that enterprise death?
March LLM, it makes no sense.
It's baffling, right?
Let someone else build the pin that clips to your shirt.
You mentioned Zuck.
Zuck returns to X, and he returns to X for Muse Spark 1.1.
and the first time ever that Meta start charging developers to use their own models.
It was a very meaningful release, some people think.
Alexander Wang called the pricing of it in particular very aggressive versus OpenAI and Anthropic.
As I said, Zuck broke a three-year silence on X to launch it.
How did we think about the release of Spark, and was it a meaningful progression for Meta in the fight against OpenAI and Anthropic?
Yes.
And I'd like to come back to that.
It's actually let's do on a tangent first.
I wonder what the internal Zuck algorithm was, which is how good does something have to be before I spitting and cursing put something on the competitor social media product?
I mean, you know, maybe the comms person goes in and says, I think the new Glass release is awesome.
Should we use X?
He's like, fuck no.
And then finally, he's like.
All the developers are on X.
If we're going to launch Spark, we just look like idiots.
And then he's like, OK, I'll type something on the clown car company.
Anyway, that's fine.
Before you move off that, Alexander Wang has done 27 posts on X to three posts on threads.
And it actually got people quite pissed off online.
And I think internally.
You probably forgot they had threads, as did I, until the other day.
It's got 400 million users, apparently.
Sort of.
Yeah, because it's integrated into Instagram.
you can't help but see it.
It doesn't mean there's any real engagement.
Activity is the word, engagement.
Let's be honest.
As three inveterate, inveterate Twitter junkies here, guys, we know what the action is and it ain't on threads.
Okay, let's be honest, people.
If there was action on threads, Harry, you'd be there.
If there was action on Mars, Harry, you'd be there.
So let's focus on the real point.
I mean, and the stock jumped nicely because a ton of things happened here.
They ship Spark 1.1.
They move away from here.
It's free.
As I always remind myself when I forget, it wasn't Glamour, it wasn't open source, it was open weight.
But they moved away from that to charging on an API.
In other words, they've embraced the same business model as the other Frontier Labs.
It's a decent product.
I've used it as an end consumer.
It actually, you know, I could.
compared and contrasted to Claude and Samantha.
So it was pretty good.
But of course, the real test isn't Rory the end user.
The real test is coding.
And they reported good benchmarks.
But in the past, their benchmarks haven't been as good.
And we'll talk in a second about benchmarks.
But fundamentally, the big picture point is in the game, using the same business model as everyone else, entering the marketplace with the low price product, big hit to competition.
I mean, it's going toe to toe with the balance sheet to afford it.
Will it be ROI positive over five or 10 years to be the fourth player in the market selling at that price?
I don't know.
But if you're open AI and on topic, you'd have preferred this not to happen.
It seems to me the tweet's fun.
Clearly, they want to win the eval game and the eval tweet game that's out there.
It gets like it clearly gets attention.
Where you are on the evals gets attention.
It's very valuable.
It's worth going on Twitter for Zuck.
My Captain Obvious view is.
Everyone's going to be token maxing if they aren't already.
Everyone's going to hit the limits.
I finally hit my quad limits yesterday for the first time on my max plan and I had to decide what to do.
And as every organization goes from burn all the tokens you want, baby, to budgets, however you do it, whether it's automated, whether it's manual, whether it's picking a dropdown, everyone's going to have to have a cheaper model.
It may be in your product for cheaper workflows.
It may be for coding.
So at the moment, this seems like a battle for the cheap seats.
And it's a big battle for the cheap seats.
And we'll see what happens.
We don't talk about it, but I think Haiku from Anthropix is a pretty damn good product.
And in one day they could make it better just by adjusting the slider of how much Opus you get in Haiku.
I literally use a massive amount of Haiku.
And for like cheap, simple stuff, it's really good.
And it's a tenth of a cent.
And so there's a battle for this second bucket.
How much of the margin is there?
How much of the revenue?
Who wants to win in it?
I don't know.
So I think it's interesting.
It appears to be a battle in the frontier bucket, but I think it's a battle in the B-tier bucket where there's still a lot of volume, but how much margin of revenue is TBD?
I think that's correct.
I agree with you.
And I think the Databricks paper and a couple of other papers that we'll talk about have talked about this concept of buckets and tiers of model.
And I like what you're saying, Jason.
You're exactly right.
When the pressure on spend is out there, The sentence you said that really resonated with me is every company is going to have an internal tiering.
They might all buy it from OpenAI or Anthropic, but every company with a CIO who's half awake is going to have a cheap token model to hand to stop this madness.
And to some extent, that means there's a slot for that.
A fun, interesting one would be, you guys know that obviously Meta did that contract.
They're starting to offer their capacity now, just like SpaceX, on a short-term basis.
It'll be fun to figure out at what price.
It's not clear to me that they would make more money selling at these token prices.
They might actually make more money renting their capacity out.
So it'll be interesting to think about compute to the highest user.
We'll actually have that discussion again when we come to Grok slash SpaceX.
But this is an aggressively priced product, and good on them.
You're right, Jason.
It's pushing at the low end.
Yeah, they'll probably play it by ear.
I mean, if this is more successful, then they get more capacity.
If it's less, then they give it to their competitors.
They'll probably play it by ear.
We mentioned the Databricks paper.
It got a lot of attention.
Can we actually stay on that?
Can you summarize what happened and why it's important?
Some of the stuff is obvious.
I read it all.
The big picture at the start was the basic point is cost per token is really not a useful metric.
It's cost per completed task was the first thing.
How much does it cost to get things done?
Because one of the ahas is some of these things that have low cost per tokens, their reasoning tokens are more expensive than their basic tokens, and then you don't know how many they're going to use.
There's a whole bunch of things.
So the first picture point was Cost per completed task is really the thing you have to assess.
Then the second point they made, which is interesting, is you end up with a Pareto curve for different kinds of tasks.
Which is the best model for this guy?
And this is Jason's point.
There will be a big brainiac frontier.
set of tasks for which you use them.
Once you quantify the cost per task, then the second thing you're going to have is different models are more cost effective at different tasks.
And a quote, cheap model that just requires infinite reasoning mightn't be as good as paying up for the more expensive model.
So you can imagine this Pareto curve of value.
And then the third point, broadly speaking, was the harness you use.
In other words, your infrastructure around that massively impacts kind of how efficient that all happens.
So it's quite a lot of just- So you use Databricks.
Databricks.
Yeah, they did.
Exactly.
Yeah.
I mean, I'm shocked.
Exactly.
I'm shocked to discover that a company that effectively helps you manage models says that managing models is important.
But to be fair, they produce the goods, Jason, in terms of facts to back it up.
And it makes sense.
I think moving away from, because every time someone announces the new model, they kind of give you the cost per million input and output tokens.
I think the emphasis on cost per completed task, it's just, I can totally see that making sense if I'm the CIO.
I like the post this morning from Aaron Katz at ClickHouse, who said that their AI spend is up 60x since February.
Oh, yeah.
Did you see this?
I did.
I saw the post, yeah.
And then he said, AI is fundamentally changing what is expected from a data platform.
We can't build the best data platform for AI if we don't deeply understand it.
We're investing in building a team that's truly leading in understanding and innovating with AI.
60x.
Well, I mean, once you do anything complicated, it's easy to go up 60x, right?
Instead of doing one design for one page of your website, have Cloud Design redesign your entire website in the background.
That'll blow your token budget in five minutes.
For the whole month, it'll be gone.
These really complex workflows consume a lot of tokens.
And even as they get cheaper, the workflows, the outputs are getting richer and richer and more and more complicated.
So not only is token maxing gone from niche to interesting, right?
Every developer can consume more tokens.
The mediocre developers can do it to be performative and pretend they're working, even though none of their PRs are accepted.
And the great ones literally can run 10 or 20 agents 24-7.
I mean, if you talk to the best developers now that are AI-pilled, and I hate that term, okay, they are coding 24 hours a day now.
Okay, they are, and it's addictive.
It's like video games, okay?
Because now I can build 10 features, 100 features.
Now I can do things I couldn't, I can do so quickly.
So it's 10 o'clock at night.
I'm checking, instead of doom scrolling, I'm doom coding, right?
And I'm going all night and I wake up in the morning and I want to check in on that workflow.
And instead of checking in on one feature, what if it could have built all my features?
Right.
And so, and again, I hate the term.
I don't know any AI developer that couldn't consume even more frontier level tokens.
We would just want more, right?
You can do, and nothing else, you can do more prime versions of whatever you're working on.
You can just do more versions.
It saves you time and it's much better.
Why do I have to choose A, B or C?
Just build them all and then build A prime, B prime and C prime.
Right.
And then let's actually go further.
Let's put them all up on production, on staging or the dev server.
Let's see how they all work.
You know what?
Let's go further.
Let's run a million test cases against it, right?
Oh, well, that will cost $20,000 in tokens.
Okay, well, I won't.
I'll narrow down the test.
What if I could?
It would be better coverage, right?
You can consume any top tier developer and can consume an order of magnitude more tokens than they are now.
The ideas are limitless.
Agreed.
And I think I want to stay on this one for a while.
I think what's interesting about that, Jason, there's never been a, and this is why this is the management challenge, there's never been this product before which on a totally on-demand basis can allow, and for an individual worker with no cost to them, can basically do their work for them and make them look amazing.
Yeah, the company's earning $100.
If you think about it, if you're a developer and you're sitting there going, I could crank this thing for the next two weeks myself, or I can press the magic button and somewhere out there a whole bunch of expense will accrue to my company, but it's not been taxed on me and it can get me a long way down, I'm going to do that.
If I'm an intern, I mean, you know, summarizing references in our shop this morning, I'm going to get the magic cloud summary, right?
And why not, right?
And to be clear.
Sometimes that's going to be wildly value accretive to the company because you saved an hour of someone's time that you're paying 500 bucks to and you paid 20 bucks.
You're ecstatic they did that.
But as Jason points out, if there's no governor on that, eventually you're going to hit the moment where you spend 600 bucks to save 500 bucks.
What's going on right now is how do people get to grips with that?
Let me just, I sort of hit, but let me just give you a simple, even if it's very basic, I know some folks will make fun of me that watch this, right?
Or listen to it, but it took me a while.
Now I'm all in on Claude Design.
It got really good.
Okay.
It took me for a while when it launched.
I wasn't sure if it was a play feature.
I love it now.
I think it's gotten better, but as folks said, and it took me a while to get it, it consumes more tokens than anything else I do.
It is massive.
And so yesterday for my first message, I'm doing, I'm like five minutes in.
It's like, you got to wait till 3 PM, Jason.
You gotta wait till 3 p.m.
to use your credits.
And that's to do one, basically redesign one page in essence, because it uses so many.
What I would love to do instead, imagine this.
Here's my entire website for any product, okay?
It's 100 pages, whatever it is.
Every night, come up with better versions.
Every night.
So I'll wake up in the morning and I'll doom click through your ideas for my website and I'll pick the two or three of the 100 that are better.
Instead of burning, like think about it.
I burned through my tokens and 20 minutes building one page, how many tokens would it create for every night to redo 100, right?
Help me with the math, Rory.
It's a lot of, it's orders of magnitude more tokens, right?
I think literally every product person, every designer could do that and consume 100x tokens they do now, easily, without even blinking.
Agreed.
Does it change your Figma usage?
I don't think so, but what I think...
not to go down a rat hole, what I do think Claude Design, if they keep investing in it like they have, and we can figure out the massive token consumption, is that you can get further without a designer.
Or you can get further with half a designer or an outsource designer or something.
Because you can build your whole design schema and build, people, you're going to make fun of it, you can still smell a Claude Design app, you can see the elements.
But you can get pretty...
damn far.
It's pretty smart on the product side of how to do it.
And so it doesn't mean you don't need a designer, but it may mean that we don't need that crappy designer anymore.
to get us to a V1, right?
There's just no need to have it.
So does that harm Figma?
No, but I think in the age of AI, every time you start losing the bottom of your market, as a CEO, I'd be nervous.
It won't show up in that quarter's numbers because it's the bottom of the market.
It's the ankle biters.
Like you've already gone up market.
Figma's tracking million dollar deals, right?
Who the hell cares to the low end one seat?
deal it lost to Claude Design, but over time, those ankle biters move up the leg.
You know, they're the piranhas.
They need to take over the knees and the thighs.
And pretty soon you retain the big customers, but you've lost a portion of your funnel, right?
If you lose the bottom, you lost a portion of your funnel.
They don't all wait and say, you know what?
I'll graduate to Figma when I'm bigger.
And this is where Salesforce is at risk.
People like, I love Salesforce.
We run it headless, but the next generation of folks may not graduate to Salesforce because they never started there.
They started agentically.
They may never graduate there.
If I'm a CEO, I'm at risk that folks won't graduate into anymore.
Workflow tools are at risk that even if just 10%, 20% less folks graduate into, it leads to a death spiral of slow growth.
That's why, you know, for public companies, the only thing that really matters to me is are they growing net new logos 15% or more a year?
If they are, they'll figure it out.
right?
If you're growing your net new customers 15, even 20% a year, but as soon as it falls, man, you could, I mean, you can raise price every year, but it only takes you so far.
So Ramley answers.
It does worry me, but it's not a threat to this sort of enterprise Figma play at all.
But if I are building a startup today, that's where I'd start.
Roy, what point did you think was more interesting that I didn't mention or glossed over?
No, actually, it wasn't a point they made.
It's just things you find yourself puzzling on as you think about the market.
I'm just looking at the level of traction on these companies right now, which has just been astonishing, right?
I mean, the entropic explosion to what now might be 50 billion from 9 billion at the start of the year.
I saw the semi-analysis breakdown.
And yeah, two or three billion of that is quote unquote clawed code.
But the real truth is I think a huge portion of the API part is code as well.
And I've just been wondering, when something's growing that quickly, momentum, I always say it.
What could cause it to change?
And I think that there's really only two things.
One is mass competition, which we've been talking about.
In other words, if everybody dive-bombed the price and it went down by a factor of 2% or 3%, yeah, it's 70%.
The low-end token pricing we're seeing here.
Is that likely?
I don't know.
I don't know if that's going to happen.
So then if the momentum continues, what's the constraint?
And one of the things you figure out in all these very late stage growth investing is in the end, the time is the criteria.
And what has that just been?
You start to look at the dollars being spent here relative to the size of software engineering.
And it's pretty huge.
Remember we talked about, is it going to be 20% of software engineering?
Right.
And kind of to Jason's thing, right?
Everyone goes, oh, 30.
million developers, it's all fine.
If you go to the BLS, which I did last weekend, and say there are only 1.8 million developers in the United States, of which only 200,000 of them work in software companies, another 600,000 work in tech companies, you know, HP, IBM, and a million of them work in literally JP Morgan, B of A, right?
That's a total spend, median wage is about 140K for that role.
It's a total spend of around $250 billion.
And if most of this OpenAI and Entropic, if a large percentage of that is software, they really are close to 20% already.
They already hit it.
Part of me says, oh my God, what's happening?
Because there hasn't been 20% of layouts of these companies.
It's just, it's a huge, my point is this, it's a huge number relative to the total software coding spend in the US.
And I'll freely admit, I don't have a conclusion from that.
I'm looking at it going, hmm, is it ex-US revenue?
I read the semi-analysis stuff.
I don't think it is.
I think a lot of it is in the US.
So there's some.
purchasing in the US for use and overseas.
But it's an astonishingly high number relative even to the biggest number you can think of, which is the wage that's being spent on software engineering.
It'll be interesting to see how that shapes out in the next 12 months.
It is a great analysis because it is definitely a bear case that no matter how great these tools are, we may soon hit the ceiling in terms of how much companies just on an absolute sense are willing to spend here.
You can't spend more revenue than you take in.
And that's if you have 100% gross margins, right?
There are just physical limits.
Even if you reallocate budget to IT, there are just limits.
You're right, Jason.
And I almost don't like to posit it because one of my rules of thumb is this.
I always joke.
Simplistically put, Newton's laws of motion are true.
Things in motion stay in motion.
Things growing at 10x year on year might decline to 8x or 6x or 4x, but they don't come to a grinding stop.
And the amazing thing is when you're going at 10x, even 6x next year and 4x the year after that is a huge number.
I mean, if you're at 50, 60 bill this year in gap revenue and you 6x next year, that's 300 million, billion.
That's more than the total weight spent on software development.
So you look at it and go, one of two things is going to happen in the next year.
Either this thing decelerates faster than anything you've ever seen decelerate.
And I don't think that's option A.
Option B, to Jason's point, a whole bunch of CFOs are literally going, we used to spend $4 million on tech, all of it in salaries, and now we spend $8 million on tech, $4 million on salaries.
WTF, we've got to do something.
So it's just, as I say, no conclusion.
I'm just, things I'm thinking about in July 15th.
It'll be interesting to see.
And you're right, Jason, there are, there are final, I mean, it may well be that the prize for becoming the fastest growing company in human history is you may hit TAM faster than any other company in human recorded history.
And it'll be interesting to see.
You may have hit the limits of how much money there is in the till.
Well, you know, there's just one other vector just added up for fun.
And again, I don't mock me if folks want to.
There's how much can we spend on engineering?
And then there's another math you can do.
Okay.
Every piece of software is becoming agentic very, very rapidly.
Okay.
So what's software spend?
A trillion and a half?
You have better at the numbers.
A trillion plus or minus, yeah.
A trillion.
So I think we're coming to the rough conclusion that folks may tolerate, say, a 10%.
gross margin spend on AI.
Let's just assume that for a minute, right?
That's another 140 billion that can go to Anthropic and Friends, right?
So that's significantly more than the math you just did, but it itself has a ceiling, right?
It can't be all of the 1.4 trillion.
10% feels about right today.
There's 140%.
All the software spend is gonna put 10% of their top line into tokens.
First of all, I totally agree.
Because, I mean, you asked that question a while back and I got the answer wrong because I was an idiot in that process, right?
Which is, how much does it cost to run my little sales and marketing agent?
And it was way less than you thought.
And the reason this is relevant here is this.
It turns out that outside of coding, most of the token costs...
for a Gentic software outside of coding are manageable.
To your point, they're 10%.
They're not 50.
So you're right, Jason, is that if the software industry is doing a billion in other kind of non-coding stuff, sorry, a trillion, that's another 100 billion right there.
You're right.
Like Salesforce could comfortably pay 10% of its revenue for tokens from someone.
They're not going to pay 40.
because they only have 22% operating money.
That's $100 billion of revenue that's almost accessible now.
I mean, it's all going agentic, right?
I need someone smarter than me, but that could be a huge...
I don't know what percent of Anthropics fuel is, but it's a lot, that $100 billion.
You're right.
There's really three buckets.
There's the coding bucket, you're right.
Then there's the agentic 10% software tax, just like Amazon took a tax on software 10 years ago.
Everyone's going to run on Amazon, give me 7%.
Now you're right.
Everyone's going to run using LLMs, give me 10%.
That's $100 billion more.
Then the last thing you start talking is, does co-work replace the knowledge worker at 20 bucks like Microsoft Office?
But you're right.
I mean, the big picture, and I'm still wrestling true and trying to look at those numbers and I'll report back.
But you're definitely at the stage where you're talking big ass numbers well to everyone else's numbers.
And we'll see.
Is that movement into legal biosciences, not just an appreciation of the fact that they are potentially hitting TAM ceiling limits in where they are already?
There's no evidence that they are, even though logically, again, because I don't want someone to say, hey, we're going to say they're hitting town.
All the traction momentum seems to say they're not.
I just look at the actual.
market and I go, huh.
I personally think that on the medical side, I think, oddly enough, I don't know if that's as much as I think the founders of Anthropik, just like the founder of DeepMind, is very much motivated on the medical side by the desire to.
Everyone always references the world where cancer is cured when they're talking about their LLM.
So I think actually people's interest in doing life science is one third TAM expansion and two thirds.
Shit, I'm putting everyone out of a job.
The least I can do is keep them alive.
I want to do good because I want to have meaning.
It's the search for meaning.
You know, starting with DeepMind and going from there.
I mean, if you don't think the other founders wish they had a Nobel Prize like DeepMind, like Demetra, you're crazy.
That must be good.
That must feel good.
Jason's going to get a Nobel Peace Prize for his work.
Everyone's not going to get a Nobel Prize.
He has worked with his companies.
But Jason should.
Yeah, exactly.
Impact portfolio.
I'm waiting just to get an offer, a decent offer from any offer from Anthropic.
I haven't gotten a single one.
No one's offered to bring me in as a chief anything.
It's a joke.
What would your price be, Jason?
200.
Wow.
After tax, it's not worth it otherwise.
Plus, I don't really want to work for the man.
So that'd be the end.
If I really wanted to do it.
200 would be the minimum.
I feel strongly the need to say to you, Jason, that based on my understanding of the entropic org structure, you in fact don't work for the man, you work for the woman.
Right?
Daniela runs everything.
It's a gender neutral term, I would say.
Gotcha.
So take the job and 200.
There we go.
We have a price.
Plus there's risk.
I might not work out for five years there.
Like there's a small chance I don't take.
There's no other way of saying this without being hurtful.
I don't think you'll pass the personality test.
I mean, I know I wouldn't, but they're doing good, carry all that stuff.
I think you just flunk out.
Yeah, but some people think I'm a little driven, Rory, even at this point in my career.
Yeah, you're driven, but they filter out for cynicism.
You just won't make it true.
You're just not idealistic enough.
Look, I haven't gotten the offer.
So empirically, you're correct, right?
I've done 63 of these podcasts.
I've written 10,000 blog posts.
I haven't got one offer from Anthropic.
It's just not coming, is it?
It's age discrimination.
You're right.
The Infrastructure of the Powers Foundation models, SK Hynix, NASDAQ listing.
You want to go there, Rory?
Great.
I mean, yeah.
I'm nervous to suggest a topic these days, Jason, because he just scowls and I'm like, oh, fuck.
No, no, no.
It's a winner.
Obviously, the stuff everyone knows, there are three memory companies.
They have been a huge beneficiary of the AI CapEx boom in the last year.
SK Hynix is up 6x.
Two of the three are based in Korea, Samsung and SK Hynix.
Micron is based in Idaho.
Go America.
And the truth is, it's an oligopoly.
They've made out like bandits.
And it's actually very hard to buy stocks in Korea, which is why even today, interestingly enough, after the ADR is traded in the U.S.
Stock Exchange, it's still trading at a 20% premium to the same stock in Korea.
Because it's just hard for an American to open a brokerage account in Korea, buy the Korean thing.
So I think it's just good.
that these guys are accessing the capital markets.
And so for everyone to know, SK Hynix, NASDAQ listing, lodged ever by a foreign company, had a great reaction, popped 13% at close of day.
And then back down.
And then, I mean, I had a very difficult day, I think, yesterday, last couple of days, right?
Yeah, it would be tempting to go to some kind of, oh my God, the AI CapEx bubble is busting.
And at some point it will, but...
I actually think a lot of that, there's a lot of weird technical stuff going on there because no surprise, the two memory companies dominate the Korean stock market.
The two companies, Samsung and Hynix, are 60% of the stock market and roughly 120% of the GDP in terms of market cap.
They're just huge.
They're highly volatile.
There's lots of retail action in Korea.
So there's just a lot of intraday volatility in the Korean stock exchange.
It's called kind of crazy casino-level wealth there, right?
So even though the stock's moved down in the last couple days, it's not as clear.
Is it fundamentally, oh, DRAM's correction?
Or is it just weird kind of trading shit?
But I think on the DRAM thing, I mean, the fun bet there is I don't have an opinion on it, but those three companies are all trading at five to eight PEs.
In other words, dirt cheap and one cent and any kind of screen.
And that's the bull case.
And this is going to last.
And the bear case is.
These have traditionally been capital cyclical businesses, and the minute more capacity comes online, prices have gone up 6x in the last year, which is why operating margins have gone from negative in 23 to like 70%, the most profitable companies on the planet.
Samsung is the most profitable company on the planet right now, and they're going to go back down.
So that's the kind of pro and con.
I think it'll last a little longer than the typical cycle, but in the end, it'll...
And at some point, it does correct.
You're not going to have the memory makers earning 70% net margins, not gross margins, net margins forever.
Maybe Rory, you'll challenge the connection.
I thought it was interesting that, you know, IBM this week, pretty old tech company, right?
I think founded in the 1800s or something like that.
I mean, they had a huge miss, stock crashed 20%.
And some of it, listen, is probably an excuse.
We have to make up excuses as CEOs and we have a huge miss, but they blamed memory.
They said memory is taking so much of the CEO's budget.
There is such a scramble to buy memory before it goes over up.
They weren't buying our mainframes or our servers or anything from us.
CEOs went into a panic to buy memory before it would get even more expensive.
And I'm sure it's an excuse, but I'm sure there's a germ of truth that that money's got to come from somewhere, right?
And IBM said it came out of us.
I think you're right, Jason.
I actually don't.
I think there's more than a germ.
Look, money has to come from somewhere.
And if you're spending a lot on LLMs and then if you're spending and you're having to spend even more on your memory needs because the LLMs themselves are bidding up the price of memory, you don't want to be the last item on the purchase order list on the last day of the quarter.
Because I'm sure there's a CFO sitting there going, you know, what can we cut?
Because we only have a finite capex budget this quarter.
And it's what you said also about what's going to happen to the marginal SaaS vendor.
It's not that they're going to vibe code it away.
It's as much as, you know, guys.
We have a tech budget of 10 million.
And last year we spent 100 grand in AI.
This year we're spending 3 million.
So we need 2.9 million in savings.
And it turns out we don't need five productivity apps.
You'll love Teams when you get to know it.
And maybe we'll stick with what we have too, rather than buy that module from you.
So yeah, I mean, and IBM did tumble pretty drastically today.
I'm going to go off on a bit of a tangent, Rory, because you said, oh, there's a world outside of this like AI.
Me and Jason were messaging.
earlier this week about Jason Calacanis' syndicate or investing activity where he basically said, hey, due to popular demand, I'm moving where we'll be investing from very early to later stage growth opportunities in some of the big names.
Is this symbolic of where the venture market is at today and a sign of the times?
Jason, given it was us talking about it, why don't we start with you?
I just thought it was interesting for him to say that because actually...
you know, Jason's got some pretty good investments.
He does a lot of investments, right?
So he's got some pretty good ones.
I thought the message would be we're adding an annex fund, right?
Or we're going to do a little bit more here.
But to say that he has put so much energy over decades, right, into creating an alternative path to do massive number of syndicated investments to apparently tilting all into growth, you know, is in a niche, it's a huge sign of the times, right?
It's a huge sign of times rather than easing into it, but completely switching.
when you've got multiple billion dollar winners that you have material ownership in is, to me, it's a big deal, right?
I mean, Seeds for Suckers, as we've known for 60 something weeks.
This is the, other than YC dumping early stage, that would be a real sign, right?
YC issuing a, going on threads and telling everybody we're only doing growth rounds, that would rock the world.
But I thought it was at least a sign of the times.
Everything's up.
And when everything can exit north of 20 billion, even me, like I have an investment with a hundred million dollar position that took me years and years and years to get to right now.
And then just watching a growth round where someone comes in and invests a hundred million, like, why did I bother?
All the drama, all the years, all the, being the only guy at the board meeting, when someone just drops a hundred million dollar check, if that can grow an order of magnitude, what's the point of being the guy any earlier than there, right?
No existential point.
Because you love the craft.
I don't love the craft.
Who the hell loves the craft?
David Frankel.
I interviewed him yesterday.
He does love, that man loves the craft.
He loves the craft so much.
Yeah, yeah.
Replace me with him on this pod.
That man, that man will be doing deals from the old folks home, right?
And he'll be getting good ones and he'll be getting good ones.
I would give that my money.
I love David.
So do I.
Please, that was me defending his love of the craft.
Yeah, loves the craft.
Loves the craft.
But to give it good framing, I hear you, but this whole idea of venture early versus venture late, that's really the question.
How do you think about that?
And the trite answer I could give, and I always like to leave the snarky trite answer is, Generally, when something looks easy in investing, it's precisely the time you shouldn't do it.
And late stage looks very easy right now.
So that's kind of the natural contrarian in me.
But I think really what's going on, Harry, is there's three different things you have to think about.
And I put them on there.
One is there's this big secular trend in...
private company financings, which is, as we said, the early stage business hasn't got that much bigger in the last two decades.
But on top of that, a 5x bigger late stage business has emerged as companies, A, haven't gone public as much, and B, in the case of something like opening Iron Tropic, just became bigger quicker.
So there's been this new business for late stage on top.
And there's no doubt.
Looking back 15 years, if you said you can enter the one business that's been around for 30 years and has 200 very good competitors, or you can enter this new business which didn't exist before and has relatively few competitors, all other things being equal, that late stage opportunity in 2005 from then on, in retrospect, looked like the easiest place to play.
So there's definitely this kind of secular trend.
And you look like, I'm not even getting on to two or three, but you're shaking your head already, Harry.
No, no, I totally get it.
I've had a lot of cynical kind of respectfully older people talk to me about this, and I'm not suggesting that's you, by the way.
I'm cynical at Wilder than you, Harry, so you are, but it's okay.
Yeah, and they're always like, oh, I've seen this every cycle.
I've seen this every cycle.
Stop.
I'm going to push right back in your face, because I didn't even, I actually made a secular comment.
I'm going to make a cyclical comment in a second, right?
I made a secular comment, which is really precise here.
What I, because I'm actually agreeing with you, Harry, I'm saying the secular trend is this This category didn't exist and now it will exist across cycles.
This new business called No One Inventure.
When I started, forget 94, even in 2004, was writing $100 million late-stage checks, and now it's a thing.
It is a new class of financial product, private $100 million checks in companies already worth a billion dollars.
It's a new thing.
So I'm not doing the old guy, it's just cyclical.
I'm actually going to do that in a second, but right now I'm saying, in retrospect, it actually is a whole new category of venture.
It's not replacing baby venture, it's kind of adding a whole new category on top.
And the world needs that category because these companies aren't public.
So the Altimeters, the Thrives, the Andreessen Late-Sage part of the business, all those guys have replaced what would have been public companies, right?
So that's kind of not cynical.
Now, the cynical comment I'll make is on top of a secular change, you do also have...
a cyclical thing.
And there's no doubt that the closer you are to the public markets, the more the cyclical thing happens, which is there's times when the late stage business looks amazing and there's times when it looks crap.
And it's really very much dictated to by change plus the public markets.
So I actually think the secular...
part is more important than the cyclical part.
You just got to be aware of the cyclical stuff.
And 2022, turns out was a great time to write checks.
2020, not so much.
I mean, the people who did that kind of cheap round and ramp in 2022, they're feeling pretty damn smart.
So no, I mean, it's just, but there's no doubt at the height, it gets tough.
The thing that I do see is just, I don't think we've ever seen the secondary market be as liquid and mature as it is today in terms of ability to get out of great named high growth companies like we can today.
In all of my top names, I can get out of them today with ease.
And every single day I have buyers for them.
I've never seen such a liquid secondary market.
So the why now is always really important.
Outcome scenarios are bigger than ever.
The speed of those scenarios happening are faster than ever in a lot of cases.
Your cursor's 60 billion exodus in four years.
And then along the way, you have the chance to have secondaries far more liquid than ever.
There are meaningful changes to the ecosystem, which make now today significantly better than prior cycles.
I agree.
It's worth pointing out, just to be precise, that that's not a stay private for longer comment, which sometimes people say, because in fact, these companies haven't been around a long time.
You're right.
And it's a different phenomenon.
You're now having companies go zero to billions of dollars in value creation in five years.
So it's not a stay.
They don't have time.
I mean, people say, look, SpaceX stayed private a long time.
OpenAI hasn't had time to get its systems together yet.
They're not public because they're staying private for longer.
They're public because, Jesus, five years ago, they were doing nothing.
So I agree with you.
There's this new class of businesses.
There's a small number of winners.
And if there's 4,000 early stage companies and only 40 of them matter, and you want to matter, and you miss them at the early stage, there's no doubt that sticking some money in the later stage is one way to play the game.
Yeah, but you can also move more money.
So yes, I thought it was entirely logical from Jason.
I think it's exactly what he should be doing, to be honest.
I think the third comment, though, is remember I said there's three things.
There's the structural stuff, which I would put your comment on new, bigger companies in that structural bucket.
There's the cyclical risk because late stage business is always about valuation risk because that's the only risk there is.
But I do think you called it the craft.
That's why I do think.
The odd thing about the private markets, unlike the public markets where hedge funds can be selling tech stocks today and buying the Indonesian bat tomorrow, right?
They're all liquid.
I think what private markets is, if you're a comparative advantage, if David Frankl's comparative advantage, which I believe it is, is to be an awesome...
first check-in investor, it's not clear how you monetize that by putting money in companies at 20 billion pre.
If you think your advantage is your stock picker, then maybe you can do both.
But like, for example, it would be insane of Y Combinator to say we're giving up early stage and only doing late because they have a position in that market that's irreplaceable.
So I do think there is an institutional factor to this.
It's not, if you've spent a lot of time doing X, it's actually quite hard to say, you know, now I'm going to switch to something totally different.
I mean, good luck, Jason, if you can pull it off, but it's not a layup.
And there's a lot of people for whom they're so good at doing X that trying to do Y would be a mistake, even if Y, on average, is a better return profile.
Agree.
Aligned to that.
Paul Graham sparked some fire on Twitter last night because he posted about a YC company that apologized for only having 36 percent month for month growth because they were fundraising.
And he got lots of plauders.
And I thought it was just symbolic of the it really depends who says it, because when I say shit like that, I get in so much trouble for saying it.
And then Paul Graham and YC, it was like, yeah, marvelous.
Well, no one's scared of you, Harry.
That's the difference.
Oh, you can't say anything about PG, right?
That's it.
Yeah.
And listen, I mean, one of the most successful investors of all time, right?
Wildly successful beyond what anybody realizes, directionally correct earlier than everybody else.
And his portfolio is unmatched.
So he has earned the right for everyone to follow what he says.
He's earned it.
He might be the GOAT, even though he's not described as the GOAT.
He probably is the GOAT.
I mean, who picks up more nine-figure and 10-figure checks off the floor than Paul Graham?
Nobody, right?
He deserves it, right?
But you have to be careful if you disagree.
You do have to be a little careful.
Well, first of all, two comments.
One is on the tweet.
I saw that.
I thought it was kind of more tongue-in-cheek.
comment.
I think people over fucking, they're overthinking it.
I saw the tweet and I thought it was a kind of a cute tweet.
Hey, my company apologized because they're only going 36% because they were fundraising.
It was a little bit of a humble brag.
It was kind of funny, but it's like boasting about your kids, not boasting about yourself.
It was not worth any emotional energy whatsoever.
So the fact that all these people are commenting on it, they just need to get a life.
I think to Jason, to your point, and this actually gets back to the structural comment, I think Paul Raymond White commenter is the GOAT, but it's less because it's better than being a good investor.
He's actually put himself in a position where he doesn't have to be an amazing investor.
He has a machine and a business that makes him win.
Factual comment.
He's been able to delegate the entire task of picking to others.
He doesn't pick them.
He doesn't sit through 5,000 pitches to hear.
He actually had an idea, which is help make more companies possible.
And he manifested that in a business that works.
He owns a business, not an investing thing.
And it would be better to own a business than be a great stock picker.
It's the best business ever.
Because you can drive around England, going to bookshops in small country towns, sending fun tweets, while at the same time, as you say, setting yourself up to pick $100 million checks off the floor 10 years later when your startups that other people have picked on your behalf go public because you have a lock on that market.
Work of genius.
It's an N of one business.
Well, every five or seven years, you do have to recruit a Sam Altman or Gary Tan to run it.
Other than that, yeah.
You have seven to 10 people at general partner level picking deals, and then you pick the best one.
Again, it's a work of genius.
By the way, the carry premiums that they charge are incredible too.
People don't know or discuss them enough.
Unprecedented, 40, 50% in cases.
40, 50%.
My LPs would kill me.
Take it or leave it.
You want access?
It's 50%.
And what I like about it is, to be clear, I mean, the original idea was to help startups.
So I know it's kind of one of those things that I believe to be true, which is, oddly enough, as a person who's very much invested in mind, some of the hugest fortunes are made by people whose motivations aren't, oh, I'm going to be a great investor.
It's someone who's just, I want to do this thing because the world needs this thing and it'll be fun and I obviously want to make some money.
This is an idea and it turns out to be a great idea.
Turns out nine people in the first class was only the beginning.
Rory, it's just like me.
It was never about money.
It was about the craft of the podcast.
Yeah?
Yes, Harry.
You can't even get through the sentence without smirking.
Anyway, enough about me.
Let's talk about me.
Let's flip the mic around.
Again, literally I'm nervous we'll have a topic, because Rory's face is very real-time.
What about Phoebe Gates?
Fear drama?
No, okay, clearly no.
I didn't like the criticism.
I might be wrong.
So let's just provide some context.
Fia, Phoebe Gates, Bill Gates's daughter, and her co-founder were in the news very critically for Asenshi.
And you can correct me if I'm wrong, but their product, Fia, was injecting their code in to take attribution when it probably shouldn't have been attributed to them in terms of online e-commerce sales.
That's the story.
Taking credit where they shouldn't have done.
Well, look, listen, I could be wrong, okay?
But...
doing basically what everyone in your industry does doing scammy affiliate marketing when it's basically.
part of your thing.
I mean, startups cut corners, right?
It's not, this isn't Delvesque, but everyone cuts a corner.
When everyone in your industry is slightly faking credit for affiliate fees, including Honey when after PayPal bought it and it's standard course, it's not that I don't want to be critical.
It's just, it doesn't rise to the level of outrage in me.
And the whole area of affiliate marketing is scamming on top of scamming on top of scamming on top of dark.
Dark codes, impossible to cancel subscriptions, putting stuff in your purchase.
or your checkout that you didn't even intend to buy, right?
Oh, how did I buy seven subscriptions to Outlook 365?
Thank you very much, GoDaddy.
I don't think GoDaddy could exist if it hadn't perfected getting you to stick stuff when you buy a domain name you never knew.
I got so many Outlook 360 subscriptions on GoDaddy domains, I don't even know how to shut them off, guys.
I got to contact someone, but I need my pin code, and everyone has a different pin code at GoDaddy.
Like, I don't remember my pin code from a domain I bought 11 years ago, but I'm paying Outlook 360 990.
a month forever for that domain, right?
So when GoDaddy does that, I just can't get that outrage.
And it's not like Phoebe's the director of marketing.
I mean, she's running the company, right?
The team did it.
I'm just, I feel like we got bigger things to be outraged about and they walked it back and we move on.
I can go with that.
Naughty, naughty.
Shouldn't have done.
Stop doing it.
Yet another startup slightly misbehaves.
I'm kind of with Jason.
It's not, you shouldn't do it.
It's well, move on.
Well, I'll tell you the related questions for fun.
Harry, you can cut me off if you want.
For investing for startups is if everybody does it, Is it okay?
I'll give you an example.
Almost every AI agentic GTM provider is buying data sources that they probably shouldn't be buying.
Almost every startup that is doing GTM, they are buying, whether it's a cleanse Chinese data center, they are taking your, like, you can't be that good with data if you're getting it the legitimate way, okay?
And every startup is, and no, it wasn't me.
I used it through an API.
But if you're doing something where LinkedIn's gonna sue you when you get bigger others, it's not cool, but.
Every startup is doing it.
Is it okay, guys, if we're cutting corners, but when we're bigger, we'll cut back.
What if everybody's doing it?
What if everybody's doing affiliate marketing?
What if everybody's using sketchy data sources?
You know, in B2B, it's, you know, I've always said no to those, but sometimes they get big.
But I do think in the era of greed, when the outcomes are so big.
It's hard to tell a founder to do no when it's standard in the industry.
When you look at, you know, there's just so many examples, and I know it's extreme, but even when you look at Polymarket et al, like that was some sketchy stuff and like pretty good returns on paper, right?
And to Harry's point, I probably could sell my Polymarket stock if I had any, right?
Or Calci stock.
I probably could have sold it even if, I mean, if everybody's doing it.
You know, I will confess when you started this conversation, I was like, no, you shouldn't do it because, you know, I can make the distinction.
I understand between just, again, for context, folks, it's illegal to scrape LinkedIn and most people don't do it.
But there are companies that aggregate information from a number of sources, including LinkedIn, and many reputable companies buy from those companies.
So it's like I don't do bad things, but I know a person who's done bad things and I give them money.
So that's the example you're using.
Jason.
So yeah, part of me wanted to say, no, you're wrong, because I think the cookie stuffing that FIA has alleged to have done is more intentful and more within your own volition than buying from someone who themselves have done something wrong, so have a little bit of distance.
So I could argue the toss with you.
But when you started talking, I realized so many breakthroughs rely on a little bit of pushing the boundaries.
I mean, Uber did with taxi regulation.
Airbnb did with regulation.
You're right.
Polymarket did in terms of how they're regulated.
I'm actually going to get off my high horse and say you actually won that round.
I mean, the interesting thing is, and actually, as another reminder, both Entropic and OpenAI did in terms of how they trained information.
And generally, my observation is all those chickens come home to roost and you end up paying the tax.
You end up getting caught with it.
But if you succeed, it's all OK.
I'm going to do my trip down history.
There's the Elizabethan quote, treason does not succeed.
But what's the reason?
If it does succeed, no one calls it treason.
When you succeed as Uber, you just get what you did legalized.
When you succeed as Airbnb, you get what you did legalized.
So yes, there are examples of that.
I still think cookie stuffing is a little bit unlikely to get over that line, Jason.
But fair point.
There's a fair amount of ethical gray areas.
But going back to where we started with Apple, there are gray areas and then there are areas that you step over at your pearl.
And I think that that maybe would be my nuanced comment.
Rory, do you just have like a bunch of these quotes percolating in your head?
I got so much noise in my head, Harry.
It's terrifying, but that's between me and me.
It's a quote on treason being normalized.
We call this reading, but your generation's given up.
Oh, dude, I didn't read anything longer than a tweet.
I know.
Signs on it.
I think we should do this stuff at the end, the Carter stuff, the Constellation and ZoomInfo stuff.
I think there's some interesting stuff there.
Okay, let's totally do it.
Let's start with the Carter stuff.
The top 5% of seed rounds hit $200 million valuation.
Roy, why don't you take us away there?
Look, I thought it was just, Carter's super interesting.
And they made a comment is that you look at the seed, all seed pricing has gone up, but there's a small percentage that are 200 million pre.
And what's going on?
And I think really when you break it down, and I think Ben Braverman had a good tweet on this, is that there's a couple of consensus bet areas where people are willing and- to some extent, have to bet aggressively in terms of dollar size out of the gate.
And that's why the prices are high.
I mean, all these NIO labs, if it's going to take you $300 million to get something done, there's no point raising $20 at $20 pre.
You're just not going to get there.
So there's a bunch of those deals where it's $200 million on $200 million.
So the dilution, maybe it's even more than that, the dilution might be 20% or more, but the check size is 200 million plus, right?
And the pre-money is a billion.
That's one category, the Neolab.
And then the other category is the kind of agentic inference, known big market, maybe a little bit capital intensive, not quite like building a Neolab, but building out the AI infrastructure where, again, there's a belief that there's a wall of money around the spend there that you can access.
And so people are just willing to write bigger checks.
So yeah, it totally makes sense.
And it's five.
I mean, the point he was making in the Carter tweet was it's not the norm.
You know, ordinary pricing has gone up 10%, 20%, but top decile pricing has gone up 6x or something like that.
And that's really just a function of there are a class of bet that frankly didn't exist five years ago.
There weren't.
I mean, Didi has that great list of 60 plus neolabs.
I mean, six years ago, there were none except OpenAI.
That bet didn't exist.
And the inference bet are some of the other kind of heavy dollar bets.
Five years ago, people weren't doing those.
Look, I have, for what it's worth, I have a slightly different and maybe less interesting take on it.
There's one thing that's new here, but the one thing that's old, like in this Carter thing, the large funds, and this was like the one and only board I was ever on with John Doerr.
when they want to really get ownership, if they have the money, they'll do it.
And in the old days, it was, we'll do the seed in the A at the same time.
That's how we'll get our 20%.
And so it's the same today.
If you, it's not like you can raise a hundred million dollar seed if you have nothing, you may not need revenue, but if you see an S tier team and it's in the right space and you want to hit your number, your 20% ownership and your fund is in billions, the math just makes sense.
It's a bet.
It's just a bet.
And this has been true.
Since I started investing, even that happens, like all the top YC companies, like, okay, only sell 6%, only sell 8%.
But if someone wants to come in and do two and a half rounds, then you can sell it to Mark and friends, right?
That's how you get the big ownership out of YC is you do two rounds, right?
And it's not new.
It's just the outcomes have changed it.
But I don't know that its capital needs is the main driver.
I think it's part of it.
But we don't give startups mass evaluations just because they need the capital, although sometimes you have to to solve it, right?
I did this in my first startup.
I needed 10 million to start and I got to do it at three pre.
It was great.
It was great.
Thank you very much.
I hated VCs for so many years after when I gave them a five and a half X return in 12 months and no one showed up to the closing dinner and they bought 80% of my seed.
Thank you very much.
But I think it's just to hit my target when the outcomes can be huge.
I don't think it's more complicated.
And if you have a three, four multi-billion dollar fund, the math pencils out.
I think it's smart to say that it's kind of combining multiple rounds into one.
And I think the other way to look at that is the rise of tranche rounds, where you see who have often been cited as doing one at 50, and then the majority come in at 500.
But even that isn't new.
It's just exacerbated by AI.
It's not brand new.
Like these things are not brand new, right?
They've just become normal is what's changed.
Instead of for potential outliers, this behavior has become normal for potential outliers.
And there's just more potential outliers.
Yeah, because just keying off a comment you made is that you don't have to give them a high price just because it needs a lot of capital.
And that was actually very wise.
I was reflecting on that because, you know, we used to do two decades ago a fair amount of biotech where, you know, you knew going in it would take 100 million.
But you're exactly right.
Well, what happened is the price would still be low, which is tough on the entrepreneur because the investors would frequently commit up front and then tranche it.
So they're signing up for the 100.
The price is low, maybe stepped up for the later one because they were saying, I'm taking the risk.
So I have to get.
ownership.
What's happening in some of these Neolabs cases, the combination of the capital need is there, but because the demand from the big funds is greater than the supply of entrepreneurs, and because the perception, rightly or not, is that the outcomes are so huge, the supply-demand equation allows the entrepreneur...
to just get a valuation that, you know, 10 years ago, if you were funding a biotech or a semiconductor company where the capital lead was 100 million, you would be getting a 20 on 20 and a charged agreement for 80 million more.
And you'd be down to 7%, 10% ownership by the time you did your big round.
I think you're right.
It's that at least a good portion of this technology is now doing capital intensive deals again, and they're doing it on terms.
that are way more favorable to the entrepreneur than you would see in the past.
And they're doing that for one reason.
They have the money.
And there's a perception that the existing stuff has worked well enough to be worth the risk.
I mean, we'll see.
I'm not sure if you saw, but a very hot round got announced today, which was Chai Discovery.
$400 million at a $3.8 billion valuation led by Index, Kleiner, Sequoia, Dimension.
I mean, listen, in terms of dilution, good round for founders there.
Not too late for 10 from 20 VC.
You can always squeeze that one in on top.
No comment.
No comment.
Not too late.
I mean, genuine comment here.
That category, and we'll avoid the specifics.
It's super interesting, but it will be interesting to see.
how much those companies end up being like an LLM and a language model, and how much they end up being like a biotech company, which is a very different trajectory.
We can revisit that another day.
Do you know what I think is actually really interesting?
It's like blast radius.
from rounds.
And what I mean by that is Isomorphic was incredibly oversubscribed to the tune of 8 to 10x.
The majority of people did not get anything at all when they wanted huge amounts.
That then causes a blast radius where I'm not saying it's second best by any means, but there's a lot of interest in Chai.
And then it means there's a lot of interest in another company, Layton Labs in London.
It is a blast radius from a very hot deal, which was originally Isomorphic.
It's one reason, honestly, sometimes to not announce a deal at all.
I've seen this a lot.
I mean, just don't do it.
I think there's a lot of reasons.
The most in my career today, there are the most reasons to not announce, if you can get away with it, to not announce a hot round, right?
If you've already got enough going on to attract talent, right, for recruiting, especially if you're not selling directly to tech buyers, right, to the ex-folks.
I say don't announce it, man.
Just brings out the daggers, funds your competitors, creates issues.
You just become a target, right?
And so that press release better be worth it because it's like a Dorito or a Pringle.
It's gone the next day, right?
Better be worth it.
If no one's heard of you, do it.
It's also interesting to thrive in chai.
I'm like, wait a minute.
I thought you just led isomorphic.
Different partners, Harry.
Different partners.
And we've got paper walls right between them.
They're thin.
We can hear the other side, but it is a wall.
I think the overlap in terms of competitor risk is fairly low, especially if you're not on the board.
So actually, that's one argument for I think it's totally fine to invest in both.
Let me make another, which goes back to Harry's late stage thing.
One of the bigger haunts I've had is this.
In the early stage, when you're on the board, you can't invest in two competitors.
In the late stage, structurally, you have to.
Because if you believe that the late stage is the replacement for what was the public markets for kind of high-growth companies, Fidelity Growth would have invested in OpenAI and Entropic.
They're not on the board of either.
They want to make the secular bet.
So I think the companies that are replacing them in the late stage private markets are going to do roughly the same thing.
Now, ironically, you're right.
They said that they wouldn't invest in Entropic when they invested in OpenAI, so it is odd.
But generally thinking, I think it actually is not a problem.
If you have limited information rights to be invested as a pure late stage investor, non-board member in multiple companies in the same broad thematic area.
It's not our business, but.
I will say one thing that's changed over the years, too, more recently is Perry has even more data.
He can challenge me on it.
But in my experience, for these smaller late stage investors, they get nothing from the company.
Nothing.
So let's say I'm a founder.
You could ask me like, let's say whatever fund invested in my competitor, but they're only 80% competitor to Rory's partner, 20 or 40, right?
This might really bother me at the seed stage.
If I like their brand and I'm going to give them nothing, they're going to learn literally less than a Google search, let alone an anthropic deep dive.
Maybe I just literally don't care.
And maybe I even like to usurp that investor.
from my competitor, right?
So in the old days you ask, and I still think you ask the founder, I hope you ask the founder, but you can position in the way they're getting nothing, right?
The founder might like it.
I mean, you never know.
Maybe the latter part I got a little bit backwards, but my point is there's just like no effing disclosure now.
It's like doing an angel-less investment from the old days.
Like, you might not hear anybody from five years.
Congratulations, Harry.
Here's your 2.5x check.
The round on TechCrunch looked like a massive exit.
It's 2.5x, but here's your money.
Thanks for being a part of it.
Thanks for the mention on 20VC, by the way.
Very helpful a year ago.
Dude, I'd love that.
Normally, it's more .2x, but yeah, thanks.
Point taken, though.
I think the point, there's really three categories of investor.
There's passive early angels.
I don't have an opinion of that.
It's not my business.
It's kind of A and B, where we play where you take.
a board and say, you absolutely can't do competitive deals.
And then there is this new market in the last 15 years, the late stage replacement for public companies, where I think you can, because you are replicating in economic terms what used to be NASDAQ small cap marketplace, and there was no prohibition on cross investing.
So it's inefficient to create one.
We're going to discuss a final topic, which could be in the same realm in some respects.
I actually really wanted to do this, which we mentioned last week.
Bending Spoons, their IPO, very successful.
And needing the B2B version of that.
Constellation buys Touch Bistro.
I'm sure no one's heard of it.
70 million ARR toast competitor.
Not growing.
They bought a 70 million ARR company.
for 70 million dollars.
How do we think about this?
Is this the future of pre-AI SaaS?
I just had the Wix founder on the show.
2.1 billion in revenue, 2.1 billion market cap.
The Touch Bistro thing, first of all, is it is your destiny if on top of a slow-growing company, you also put a whole bunch of leverage.
And, you know, they did a round with, I think, Omers in 2019 at $600 million pre.
But then they took money from Francisco Partners, which in the form of debt, when they missed.
That debt was converted to senior equity.
And my guess is the company was running out of money.
The senior equity, which had seniority, could have put in 100 and they could get all the money back in a sale.
And no one else had any incentive to put money in.
So the aha here is slow growth businesses.
with clean cap tables, they probably could have done better.
They probably could have kept going.
Maybe they could have made that 7140.
It's never going to be transformative.
But if you have a slow-growing company and on top of that, you have a big-ass wall of debt, then yes, this could be your future.
I read that case.
a couple of days ago, and I'm like, it's just the real dangers of adding a big slug of venture debt on top of a slow-growing business.
You just end up trapped.
You put your equity at risk.
And you end up with a cap table, which is very misaligned.
You end up with a bunch of people who are like, at the top of the cap table, just looking out for themselves, doing their job of minding their money.
And they're like, I've lent you $100 million.
I want my $100 million back.
And one level down, they're like, I've got $200 million in equity in here, unless I get to $300 million.
And the first $100 million is senior to me.
So I have nothing to play for.
Right.
So, yeah, that's the aha here.
I think so.
For what it's worth, I thought it was modestly interesting because, yeah, structurally, they took on way too much debt.
There's going to be a lot more of these stories coming in the coming years.
I really don't want to talk to them, but just don't do.
I just hate debt now.
I hate it.
I hate it, hate it, hate it, hate it.
I used to be a fan, but people take on too much and certainly don't do debt instead of an equity round.
That's the sucker bet, right?
It's just, you better be the hottest thing on planet earth or it's going to kill you.
It took me a while to see it.
But I think more interestingly, and it's not a huge point, because all the equity holders were basically wiped out, right, in the conversion, right?
I think Omer's made 2 million on its 100 million.
It became a clean look at a stalled unicorn at scale.
There weren't egos in it.
There weren't 2021 markups to maintain.
There weren't even founder drama to deal with.
What is it worth to just get out of this thing?
And it was worth 1x.
And so I think it's almost a clean look because too many of these situations just aren't clean or obscured, right?
It's a clean look of what's 8%, 6% growth with deteriorating market share at 70 million ARR where you're not reigning cash worth.
It's worth 1x.
And that's the brutal lesson to founders.
Like if you don't want to be worth 1x, like do something before it's too late, man.
The other thing I just look for is like, was it still founder led?
Like, was the CEO still a founder?
And no, founder stepped away March 2021.
I mean, that's part of why it got in the position, right?
But it also makes the deal possible, right?
If the founders have a veto, you know, 1x may not be exciting when there's nothing, when it doesn't clear the preference stack.
It may not have been tried, but I agree.
This is, I mean, look, I don't want to pick on them.
Stuff happens.
I've had deals fail too, but this is the laundry list of everything that can go wrong.
It's the slow.
no growth, non-wildly exciting business, misaligned cap table.
You've already made the CEO change.
You've got no move left.
This is the low end of the outcomes, which segues to the buyer constellation, right?
Because you mentioned in the context of bending spoons.
We had a good discussion on that last time.
It's like, you know, you got bending spoons buying consumer businesses, trading at 12 times.
You got constellation buying B2B businesses, trading at three times.
But as Jason pointed out, you know, we said it last time.
there's more disruption in the B2B space.
And these pre-AI companies might not have the durability of revenue that Bending Spoons does.
I still think the difference between 12X and 3X for two roll-ups is just a little much.
And by the way, one thought I had since then is one of the biggest advantage Bending Spoons might have is there's only one buyer of consumer assets, and there's a ton of buyers of B2B assets.
So they probably get the pick of the litter.
You know, in a way that there's 100 PE firms that want to buy your shitty B2B company, but no one was touching consumer assets.
So I think a little bit they're getting the premium for being the only player in that town.
But on the B2B side, the interesting question.
Now, let me put it back at you, Jason.
Do you think at 3x run rate revenues for a Constellation, which is a buy rolled cash flow business, buying pre-AI business.
Do you think that's a good bet or do you think that's fairly valued, dirt cheap, going to zero from here?
How do you think about that?
Again, I don't want to pick on Touch Bistro, but I think in the agentic world, they can't be turned around unless you have an incredible new bending spoons-esque leader that wants to do it.
They have sticky revenue, right?
Anything with POS has sticky revenue because it's work, but it is terminal in the AI age.
And so it's nothing new.
This is just a crisp case study.
Do you think, I agree, touchpiece was a given.
The interesting thing is, can Constellation, like a...
3x revenues, it's probably, I don't know, 20%.
It's probably trading at 12, 13x cash flow.
Salesforce is below 10x forecast cash flow.
Now, these guys are really forecasting these kind of companies don't last 10 years is what they're effectively saying.
I don't think they do.
You don't.
Interesting.
That's a big hole.
I think when the renewals come, they all just die like Marketo.
They're just all going to die.
If you don't have, interesting, if you don't have the new revenue, you really are toast.
I think, listen, it's just one because I'm close to it for fun.
I was also one of the first 10 customers.
I'm just watching Marketo, which Adobe bought, just because I've used it as a case study, but now I'm connected to so many folks there.
It is going to zero, but it is one of the slowest decays you can get, right?
Because moving off a marketing automation system in the enterprise is very slow, but it is without question going to zero.
There are no net new logos and everyone hates it.
And they just raised prices again on us 20% while deprecating the API.
So we're finally leaving.
Salesforce did an LLM lift.
It took one day to leave.
It used to be a year.
Now it's one day.
So I just think all of these ones are, and I don't know what Constellation does with them if they're in terminal decay.
I mean, I guess if you have 40%.
free cash flow, it's just a spreadsheet.
But the terminal decay is accelerating faster than I would have thought when we started this podcast, for sure.
That's the sentence.
And that's helpful.
You're right, then.
It may well be it's priced correctly.
Because the fact is, all these roll-ups had terminal decay in the future, but your comment is correct.
If the speed of terminal decay accelerates, then you're right.
Then the spreadsheet blows up.
Interesting.
I'm going to look at those numbers again.
Sorry, literally while we were recording, final one, I think.
And it may not be one for a discussion or a continuation of what we discussed before about Manlo and their fund size.
But Greylock announced that they have raised their newest fund, Greylock 18.
Greylock 18, phenomenal firm throughout vintages and really unparalleled track across so many different years.
But a $1.5 billion fund, I thought similar to the Manlo style, could have raised much more.
Very disciplined choice on $1.5 billion.
given size of partnership.
When was the last fundraise?
Two and a half years ago.
I guess that's disciplined then.
No, this is a really disciplined firm, again, with a broad bunch of partners on a capital per partner basis.
Well, look, it still would be nice to get into carry mode faster.
As great as a mega fund is, all things being equal, it's a little longer to get those carry checks.
And to state the obvious, those are different things.
Are you optimizing for the office?
Are you optimizing for the carry check?
Let's be clear.
I want to say this.
The billion-dollar-plus funds have been able to make it work in this market because there's been places to put the money, going right back to it.
So I'm not going to be a skeptic.
You can't deny a fact.
As Senator Moynihan said, you can have different opinions, but you have to have the same facts.
So far, those big-ass funds have worked given the market we've been in.
But Jason's right.
All other things have been equal.
If you know you can raise pretty much indefinitely because you have a track record of 50 years of success and you don't want to play in the super late stage, business where you have to write $200 million checks, then slightly smaller funds raised regularly increases the probability of a carry distribution before you've got grandchildren.
Yeah, I don't know if it's, it might be disciplined and I'm sure they have plenty of annex funds and SBVs and SS and triple layered, quadruple layered sources of capital to tap into, but they say disciplined.
Listen, if you can raise infinite capital and you don't have a massive partnership, I want to deploy it in 18 months.
What's the amount of money I can deploy with my proper reserve models at 18 months and then just raise another fund?
Like, is that disciplined or is that just how you should run your business?
I mean, I would say two and a half years.
I mean, two and a half to three years.
would be more the standard, but yes.
No, man, I want to, what can I deploy?
I do think you don't make the most money if you wait three years to deploy your fund.
You make the most money if you can thoughtfully deploy it in 18 months, right?
And then get going on the next fund.
You're better at the math than me, but.
Yeah, as they say, that word thoughtfully is very, as the LNs would say, it's very load-bearing in that sentence, Jason.
Well, I just, just to Perry's point, I just don't think that this is, what was the term you used, disciplined, Harry?
This is one of these things we manufacture, like how wonderful it is Benchmark has a flat partnership.
I mean, who cares?
It's not disciplined.
It's optimized to make the most money.
It's not disciplined.
The guys at Greylock didn't sit back and say, you know, we could make twice as much money, three times as much money with a bigger fund, but we'd like to make half as much money as our goal for the next fund, right?
It's just nicer for everybody if we make less money, right?
You can be Andreessen, you can be Lightspeed, you can be GC, you can be Thrive, where you are building a multi-multi-billion dollar platform, or you can be a Maritech, a Greylock, a Manlo, where you are maybe not building that.
platform to IPO.
We're still raising in the case of...
But I think the truth is, it goes back to that...
Remember when we were talking about the three things, the secular, the secular, and the crap.
I think you should raise the money that allows you to pursue your business, provided your business is still strategically relevant.
And you shouldn't raise the amount of money that's dictated by what other people are doing, except to the extent that perceptions change.
And I think that's what they're doing.
They're saying to do a different business.
If you decided, I want to be in that...
late stage multi-platform thing, then you raise $5 billion.
If you want to be in the predominantly early stage, but with the ability to follow on rare occasions, then you raise the $1 to $2 billion that the men in this world, the great luxury world have done.
I think the real point for this, just something Jason said, I think is correct.
You use positive words like discipline, but the real test should be when you're as the GP alone, you should say, what are we good at?
What's going to maximize the probability of us succeeding and minimize the probability of blowing up the franchise by- getting it wrong.
And if that's the meaning of the word discipline, then yes, it's discipline.
It's also, as Jason points out, to some extent, it should be what's discipline for the LP should also be long-term maximizing for the GP.
It's the Goldman Sachs rule.
I want to be long-term greedy.
And the part of being long-term greedy is preserving the franchise.
And it's worth noting, just to make a point in passing, that two of the names you cited there in terms of the long...
Actually, two of the names you cited, Greylock and Menlo, both celebrated their 50th anniversary plus.
They've survived three very tough cycles.
And, you know, just some of the other firms haven't really been through that same level of downturn.
So there's no doubt that there's a survivor bias in that discipline.
And who's to argue with that?
Boys, that's a wrap.
But before we leave you today, what's one thing in business that's spreading as fast as AI?
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If your team wants a website that looks and feels handcrafted, but is still fast to ship, Framer is built for exactly that.
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