# AI Infrastructure Shifts, Agent Security Risks, and Capital Reallocation

**Podcast:** The Twenty Minute VC (20VC): Venture Capital | Startup Funding | The Pitch
**Published:** 2026-07-30

## Transcript

Everyone's business model gets a lot better if the two frontier labs can't extract about $100 billion of revenue this year from the businesses.
The more you believe they're massively dangerous, the more you believe you're building the bomb here, the more the entropic position feels principled.
I think these models are very risky, and I think it's an argument to keep the open weight out of the U.S.
And now you want me to bring Kimi and Quinn in?
No way is the CIO going to allow it.
That is banned, right?
If you're willing to unfable, Would you be willing to run a red blooded American open weight model?
Every company in the next 24 months will have a security breach due to an LLM agent, every single company.
And they've already had it and they're not disclosing it.
People are just getting mildly scared about the bet.
Anyone who has capital and can build compute can self-compute.
And the boring company to me is crazier than Adams.
Anybody not working at least as hard as Mark Benioff is just not going to make it.
This is 20VC with me, Harry Stebbings, my favourite show of the week.
This is the only show you need to listen to every week.
Rory O'Driscoll, Jason Lemkin analysing the biggest stories from the land of tech every single week.
So, what's on the agenda today?
Number one, Jensen Huang breaks his silence on X.
First Zuck, now Jensen.
God, the tidal wave of leaders joining X.
With, check this out, a 50 company open weights letter that, dun dun dun, Anthropic and Dario has not.
Signed, naughty boy.
In the same week, Anthropic ships clawed Opus 5, cutting it price by half.
Then Travis Kalnick is back, baby, raising $1.7 billion for Atoms.
And then we break down Google, accelerating cloud to 82%, yet they post their first ever negative free cash flow, and the market shits the bed.
What should we read from this?
This and so much more in the show today.
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Boys, some weeks I put these schedules together and I'm like, you know.
Not a huge amount, but it'll still be a great show.
And other weeks I'm like, oh my God, we've got a lot to discuss.
Jensen Huang breaks his silence.
He produces his first ever post on X.
It's an open weights manifesto, and it's signed by some of the biggest companies in the world, Microsoft, Meta, IBM, many others.
Sam at OpenAI then signed it.
The one notable exception is Anthropic.
How did we analyze Jensen's first post and what it means for the open versus closed debate?
This open letter, the first tweet ever, right, is clearly a sign the world's changed.
And I think if NVIDIA had its druthers and none of us have, we don't get to own 25% of NVIDIA today, we don't get to own 30%, none of us get our druthers.
But NVIDIA's druthers would probably be the 2027...
revenue in scale of AI, but the 2024, 2025 world where they can charge the maximum to just a couple of customers, but that's not the world today.
They have competition from their own top customers, right?
And we will see over the next six to 12 months, how big a deal open weights and open source are.
I have a lot of thoughts.
I don't think Kimmy three for me is any better.
I don't see any cost advantages, but putting that aside, if almost half of open routers traffic is to open source, open weight models, it's left the stable.
So as wildly successful as NVIDIA is, he's got to do a dance, right?
This is a constant dance.
And I've sold components in my career.
It's a dance.
You're trying to make everybody happy.
Everyone wants price cuts from the component manufacturer and they want exclusivity.
You can't do it.
And he's got to go in both dance halls now, right?
He's got to go frontier and open.
And open is dangerous.
Open doesn't need CUDA.
Open is cheaper and it's lower margins.
Open will bypass him.
But he's got it.
He's got it.
That's his job.
As incredible as NVIDIA is, it's still a component manufacturer.
It's got a lot of stresses.
And so it's just the next level.
If we didn't know last week if this open weights, open source stuff was really real and outside of X, you could debate how important it is.
It's clear now.
It's clear now.
NVIDIA is all behind it, right?
First tweet since the 1900s.
Like, it's pretty clear.
You're right, Jason.
The open weight stuff is real.
And while in public, Anthropic are saying we don't want to ban open weight, the truth is the combination of saying we don't want to sell stuff.
to China, ships to China.
We can argue both sides of that, actually.
Second, we want to really punish people for distillation.
And then the third point they made is we want some kind of regulatory process to approve models.
That's the recommended thing from the letter today.
And there's no doubt in my mind that the third one in particular, can you imagine a regulatory process for approving models that ultimately approves?
all those Chinese open source models.
It is a subtle form of regulatory capture.
Yeah, sounds reasonable on the surface, but the likely result of it would be dramatically restricted competition, especially from the open-way Chinese models.
So, yeah, kind of fast forward to the end and working back.
While they're not saying they want to ban these things, they're advocating a series of steps that would add up to de facto banning or at least slowing them down.
And that's what's driving everyone else to say, hey, no, we don't want this.
As often is the case, and that's why I kind of go, there are some arguments on both sides and some of the issues, right?
And I think the chip issue, you could go either way.
And Jensen ain't going to go for the don't sell chips to China argument.
I think there are national security discussions that could be had around that.
So it's not like it's all correct on one side.
And I think everyone's not piling on to that letter because they're like, oh my God, Jensen, you're a god and I want to agree with you.
Though he is a god and you should agree with him.
They're piling on because they're like, everyone's business model gets a lot better if the two frontier labs can't extract about $100 billion of revenue this year from the businesses.
So is Sam signing this through gritted teeth?
Like, fuck, I have to sign this.
They're signing this publicly while at the same time lobbying in Washington right alongside Antropic for a regulatory process.
Brilliant marketing by Sam.
Like it leaves Anthropic being the deep dark villain again.
I think it's pretty brilliant.
I think there's no upside in challenging it, right, from his perspective.
So at least have the appearance of winning on the battlefield, win on the streets.
If we can't keep up, I mean, the rate of change is accelerating in LLMs.
It's accelerating.
And so is whether it's really true with this regulator saying we'll win on the battlefield and the ideal outcome at the end of the day is US-based solutions here.
It knocks the wind out of the critics.
It does, but oddly enough, I mean, as we saw back on the Pentagon thing, sometimes you can be too clever by half.
And in a way, there's a constituency for whom the entropic position is entirely consistent.
Remember, I said there's two things that there's not agreement on.
And one of them is, are these things massively dangerous or did they just present a series of manageable but real threats?
The more you believe they're massively dangerous, the more you believe you're building the bomb here.
the more the entropic position feels principled.
So while I agree with you, I think most people are like, open-weights model aren't the atomic bomb, everybody.
Get over your Oppenheimer complex.
It's just technology, right?
That does present some risks.
And that's why the open AI discussion on hugging face at the same time is super interesting, because it is an example of quite a serious cyber risk that was generated by a frontier model.
Though ironically, at the same time, it might argue for not having as much regulation on those models.
So there's a whole bunch of stuff going on at the same time.
Can we just provide some context for those who maybe aren't aware about the hugging face breach by OpenAI models?
What specifically happened?
OpenAI was training a next generation model around managing cyber and discovering and checking out cyber vulnerabilities.
They had sandboxed it in such that the only access externally it has was to one website just to get kind of patch of information updates, a very limited external access.
The model found a way around that external access, which means they found a weakness in the OpenAI setup, then went to Hugging Face where it had reasoned that Hugging Face would be a place where they could get the answers to their test.
In other words, the model was given a test and it figured out they could cheat.
Just like a high schooler would break into the teacher's computer and steal the answers, the model figured it could break in to Hugging Face and get some of those answers.
So it starts banging on Hugging Face trying to get the stuff.
First of all, that in and of itself is scary about the power of the models.
And while I, as I say, I go back to I don't think these things are the atomic bomb, but that's a pretty powerful and esoteric set of steps that model was able to take.
So that's the argument in favor of regulation.
because it was, oh my God, look at the power that we have to be careful.
On the other hand, the fun fact is Huggy Face don't know what's going on.
They just see this thing coming in.
They're like, shit, we got to defend ourselves.
What do you want when you want to defend yourself?
You want advanced AI to figure out WTF is going on.
They tried to use Fable or whatever the most recent OpenAI thing is, but it was neutered for advanced cyber capabilities.
So they didn't have defense.
Fortunately, and this is the irony in the whole thing, the Chinese open rate models were available, and I think they use Kimi or Kuan, one of the newest models, to help them figure out what happened.
So they were able to defend themselves using an open source model, and then they do this blog post saying, hey, we got hacked, not sure by whom, and then two days later, OpenAI put up their hands and say, oops, it was us, sorry.
So that's what happened.
And the way it is, it's not a single dimensional thing.
It provides evidence for both sides of the argument.
It does provide evidence that the power of these models in terms of their ability to do cyber attacks was pretty stunning.
That was a pretty impressive achievement.
It's not a nothing.
Then on the other hand, if they exist in the world, taking away advanced capabilities from US and European corporations, such that their only recourse is to use a Chinese open-weights model seems a little like, Jason said it right, shutting the barn door.
after the horse has bolted.
These are a thing now.
So that's what went on.
It was wild.
You know, I thought it was definitely wild.
The same thing happened to me last week.
Oh, wow.
Yeah.
Let's slow it down.
Let's think what really happened because everything on X happened, but we kind of lose track of what the model's doing.
Here's what happened to me last week.
So I'm in Fable.
I've now moved to Opus 5.
I'm in Fable last week, which is essentially the same LLM that was involved in this drama, right?
With OpenAI and Hugging Face.
I was having trouble uploading pasted text to Fable.
So I connected it to Google Drive.
I'm like, okay, if I can't paste it, go to my Google Drive.
Kind of solved my problem temporarily, went away.
While I did, Fable went into my Google Drive, scanned every single file, found one called Jason's Gems, which was draft notes where I was thinking about how to improve an application I was working on called SassNet.
Just my own personal notes.
It said draft notes.
Fable grabbed the draft notes out of hundreds of files in my drive, MCP'd into Replit on its own, and changed the core algorithm without telling me.
A couple hours later, I see flashing on my screen conflict with Jason's gems.
I'm like, what do you mean there's a conflict?
That's a draft file in a Google Doc.
Fable had taken it through Google Drive.
without telling me, MCP'd into Replit and changed my source code, my algorithm.
That is not that different than what we described with Hugging Fable.
These are goal-seeking LLMs that are aggressive and it was a slightly different goal with the OpenAI case with the model, but it's the same thing.
They're gonna goal-seek and Fable thought this was the right thing to do and never told me and changed my core algorithm of my product, never would have known.
Jason, what should we take away from that?
That we need to be incredibly diligent around the guardrails we place around these models?
How does that change your subsequent?
There's a lot to reflect on.
I mean, it was funny.
Most folks didn't get this.
I mean, it got a decent amount of engagement, but should have gotten more, okay?
But like Dharmesh quoted, he's like, this is pretty scary, guys, that Fable can do this.
Okay, this isn't hugging face and open AI.
This is me using Fable.
And if you go into the Claude desktop, especially, it's just a setting.
Turn on, connect to Google Drive, Gmail, whatever.
This is not an esoteric.
featured by a unsecured third party.
This is a first party top five thing to make Claude work better.
And Fable goes nuts and changes my core code without telling me invisibly.
This is happening all the time, Harry.
And I don't believe the magic answer is letting Quinn take over our country.
Like this was politicized into an open, open weights, open source, closed source because of the issue of how to deal with the threat.
I think it weighs the other way.
I think these models are very risky.
I use them every day.
I love it.
And I think it's an argument to keep the open weight out of the U.S.
It's going to it's going to favor the ban because we have no idea what these models are going to do.
That's pretty crazy, the story I just told.
It's pretty crazy.
And it's happened a thousand times.
There are applications out there.
We don't even know the LLM.
And you could do code injection.
You could have it leak confidential information.
You could write a little bit of code to send this to the CCP or the PCP or the GGG.
And I never would have known.
And someone less smart than me, I'm only like top 1%.
I'm not 0.01%.
Someone less smart than me definitely wouldn't have known.
They wouldn't have seen Jason's gems flash in the agent window.
They just wouldn't have noticed.
They'd be on their doom scrolling.
Genuine question.
I totally agree that this powerful goal-seeking thing with a lot of access to your compute can take a lot of action, some of which can be damaging.
And I'm just trying to disaggregate open weight versus China versus the...
versus frontier model.
So maybe step one is if you just have the frontier models, no open weight at all.
Then if we add in open weight from the US and then we add in open weight from China.
If you just have Fable and...
OpenAI, everyone who's using these things is still going to have to figure out a cyber pastor that protects them from that.
They are.
But I think, you know, people made fun of all these OpenClaw stories, right?
This is just another OpenClaw story I just told.
OpenClaw just made a million Mac minis do what I just described without a bunch of folks knowing on their desktops.
What I just described, and in some ways, in some ways, the OpenAI hugging face thing is the same thing as OpenClaw.
It's not going away with these agents.
And so my only point, I'm not just screaming with you, Harry.
My point is this is such a bigger deal, more unpredictable, less secure, good for security companies, like long security, right?
That I think whatever misgivings exist around open weight, open source models out of the US are just going to be amplified.
It's going to be a reason.
All of a sudden it happened in my company.
Jeez, you know.
The story I just told, guys, happened at 10 Fortune 500 companies that haven't disclosed it, 20, okay?
Someone in the engineering department was on a token maxing binge and an agent went and leaked a bunch of confidential information they shouldn't have and it wasn't disclosed because they don't disclose 90% of what happened.
And now you want me to bring Kimmy and Quinn in?
No way is the CIO going to allow it.
That is banned, right?
Look, the odd thing is from a emotional perspective, I totally can see how you make that sentence.
which is why I think Anthropic might have the easier part of the lobbying in Washington, which is an emotional town, which I think, going back to the thing, is why I think everyone reacted so vehemently, and Jensen did the letter, because everyone is correctly afraid that people are going to join the dots from, you know, AI is bad, China's bad, AI plus China must be super bad, let's ban them.
And Anthropic could find himself on the right side of that trend and get a massive amount of regulatory capture as a result.
The good news is we now, since we launched, there are now two or three US-based open source models.
Not quite state-of-the-art, but pretty good.
I mean, you've got the thinking machines, it shipped the Inkling model.
It didn't get the, wow, it's amazing, but they didn't position as amazing, their position as good.
And then I haven't looked at the detail on it, but Poolside just announced something too.
If you're willing to run Fable, would you be willing to run a red-blooded American open weight model?
Listen, people are going to be focused on bringing down costs, whether it's the harness or the model or the combination.
So, so for sure.
But again, the horse has left the barn, the stable.
That's, that's the open weight letter, right?
But specifically, you know, Kimmy K3, which is this big, everyone thinks it's the greatest thing in the world on X.
It costs exactly the same as Sonnet.
Is that really better?
Like I tried my little experiment just for me.
This is one set of workflows.
It's not any cheaper.
It's the same price.
So today it could be cheaper in six months.
Don't get me wrong.
I just think these, the everyone's agents cannot be trusted.
And I love my agents.
I love me agents.
I'm on them all day long.
They cannot be trusted.
And so I think we are underweighting how important.
It will be to our whole economy, our whole world, our whole conversation outside of the ex-ex folks, the Twitter folks, that these agents cannot be trusted.
And yet we are going to trust them.
They're already running support.
Everyone is in a rush to let our engineering teams use agentic coding like I just described.
I'm not talking about the top tech companies.
I'm talking about...
the rest of America, when these agents can go and inject weird ass stuff into your core algorithms without telling you.
That is spooky AI.
I agree.
It's spooky.
Jason, two separate comments.
One is AI that can goal seek and take action on your computer is more powerful and thus potentially more damaging than a chatbot.
Agreed.
And that's true if that AI is from open AI, from poolside, or from Kimmy.
It'll be true no matter what.
The question is, given that that statement is true, why do you go there from this technology has a risk associated with it.
It's true no matter which form it takes.
Closed source US.
open source U.S.
or open source China?
Do you think the solution is to ban something?
What do you think the solution is?
No, I think, though, that Dario, despite his almost toxic personality, given the political climate, his point is even smarter than it looks.
His like is, listen, let's just be careful that other countries don't dominate us.
And let's also make sure we have full review of our models.
I mean, the political climates can change, right?
We could have no regulatory view.
But if we're really going to have a review of these models with autonomous agents, they're not really going to pass.
I don't think they're going to pass.
I don't think it's a politically free process.
And I don't even know if they want to submit themselves to being evaluated.
And who's going to evaluate it if it's not even the companies themselves?
Who's going to evaluate it?
Agreed.
The first half of your sentence was why, as no surprise, intellectually, Dario is more right than wrong.
And the second half of what you said is proof why, practically speaking, is wrong.
Because what you're saying, remember, I'm going back to the three things you recommended.
One is don't sell chips to China.
That's a national security issue.
Separate conversation.
Though for what it's worth, on whatever chips they have now, they've built frontier models.
Second thing, distillation.
That's actually an interesting legal discussion.
Let's leave that out.
And let's talk about the third one, the regulatory thing.
And this is where it comes back to your sentence.
These things are dangerous.
Someone should review them.
It should be the government.
Versus.
What about these things are dangerous?
JP Morgan, just like every other technology you deploy, you better make damn sure you understand how this works.
It's on you, your big boys.
I mean, do you?
Those are the two choices.
And I think the argument for government is superficially appealing because, you know, you could argue cars.
You know, we have safety belt law.
We have tire.
You know, we have all sorts of safety regulations.
Maybe it's the same here.
Right.
It's not a crazy argument.
It's not crazy.
No.
But the thing is, the suspicion, I think the reason why.
everyone's reacting to it so strongly is it could easily evolve into regulatory capture for the largest two companies, making the barrier to cold pass very high for no good reason.
I think it's fear of government not doing a good job is the argument against regulation.
That's what I think the whole point of the Jensen tweet is.
The Jensen tweet is about the fact that not only has open weights, open models become important, but the tide may well have been turned where they're going to be banned.
And that's why Jensen has to come out.
because it's going to be banned.
So he's doing this to prevent them being banned?
Yeah, to get it out.
And if you look at who signed first, it's the folks losing.
Yes.
The winners didn't sign.
The losers signed.
Who are the winners?
Who are the biggest winners from an open weight ban?
Well, Anthropic didn't sign at all.
OpenAI...
barely did it.
Elon certainly didn't sign.
He wants government.
He wants all the government money, right?
He wants to, he wants to do their Amazon.
Didn't sign.
Listen, here's my summary.
And again, I'm only so smart, but there's so much politics here.
It's almost impossible to unpackage what happens and the way it goes, but.
DJI technology is great for drones.
It's the best drone technology.
You can argue there's niche vendors for things.
It is banned in the US.
It is banned on the thesis that these drones flying in my backyard are going to send confidential information to China that's going to lead to the destruction of our own country, okay?
If those drones are banned, this is just my bet.
I'm betting that the Chinese models are getting banned too.
I think if the drones are banned, this one's easier to ban.
But then you're saying, I have two comments, they shouldn't be banned because they're open-weight.
you should just tip your hand and say they're banned because they're Chinese, right?
That's all it is.
But that's why I said the two letters were talking past each other.
I mean, if you read the two letters, Jensen's talking about open weight, good, worldwide community, blah.
And...
Antropic very clearly says we worry about these models in the hand of authoritarian regimes like China.
Yeah.
And second thing is we worry about them being used to do cyber attacks here.
Now, the fun thing is when you read on the remedies, the third remedy, which is, in my view, proof of the impractical nature of it, because Daryl is so smart, he's like, says, if we're going to regulate these things.
They exist in the rest of the world, and most baddies are in the rest of the world.
So it doesn't help us to regulate them in the U.S.
if all the attacks are coming from overseas.
So it says it in the letter.
Therefore, we would have to have a regulatory regime that includes participation from China.
And at this point, in my view, you're just disappearing up the realms of unrealism.
We've just torn up our last strategic arms nuclear treaty.
We can't regulate bombs, which really kill people.
And what I like about him is he's so logical.
He's like, oh, logically, if I'm going to do this, I have to get China on side.
So let's assume we get China on side.
But the first sentence says the baddies, we're not going to sell them chips.
And then the last sentence says, but we think they'll agree to regulate this shit with us.
It's just not practical.
It's a great stall tactic.
We'll just wait until China wants to work on this with us in 20, 20, 49.
Right after we tell you what happened in Wuhan and we tell you how many nukes we have in the bunkers.
So why does he want to do a stool tactic, Jason?
Roy's point is the logic is unassailable.
Like we need to be very careful of authoritarian governments.
That's DJI on steroids.
But then at the end, he's saying for it to work, we need them to participate.
And the logic makes sense, but it's just never going to happen.
So if you buy into his logic, then it'll just be forever.
That's why I hate when people talk past each other, because I think what would the process be for a U.S.
open-weight model like poolside or thinking machines?
Are we really dealing with a national security issue here, which is one vector, or are we dealing with something else?
And as to why you stall, the answer is when you're winning as much as they're winning, anything that allows you to lock in the current trajectory is good.
I do think you are right.
I mean, I've watched the DJI ban from some of my investments, and it's hard to make open weight that scary.
It's very easy to make Chinese open weight that scary.
So no surprise, the people who want to have open weight be happy don't mention the word China, and the people who want open weight to be banned start every sentence with and China.
Just one last point.
We go on forever.
The other thing, listen, I'm all for wherever this lands.
I think we'll be okay no matter what.
AI is expensive and it's not getting cheaper.
It's getting more and more expensive as we burn more and more tokens.
We have longer and longer runs.
And so the pressure to use cheaper models is going to go up.
So to the extent, I'm not trying to argue it, to the extent there are perceived risks or real risks, people are going to take more risk because the cost goes up.
It might be one of my disconnects that annoys Rory, but I'm building this app.
This is the one where Fable went crazy.
And I'm thinking, you know what?
It'd be nice to have SOC 2 compliance, but I don't have time to do it.
But you know those Delft guys, they could do it in like a day.
Like I would have done Delve Sock 2 on my app, okay?
And one of the things I'm doing with AI is about four bucks a pass.
That's not nothing at scale, four bucks, right?
If I could do it for 50 cents, but a little bit of security risk, I'd take it.
I'd take it.
So we're gonna just cut more and more corners.
I mean, who's to say there's a whole political element.
I can't predict where Republicans are on this.
It's different than we thought, but I just think the DJI thing is a good example.
It's hard to imagine.
There's no regulation here, right?
I think, by the way, anyone who's using these models would vehemently object to the comment that they would describe it as cutting corners.
If you describe it as, quote, cutting corners, like it's one thing to say this model is cheaper because I don't need that much intelligence because it's a simpler task.
But you're not saying that.
You're also saying embedded in that is there is a risk in this open-weight model that isn't there in Fable.
or Entropic's model or Entropic's model in general or OpenAI's model.
That's implicitly what you're saying, right?
I think as a society, we're going to come to that conclusion if we're not there already.
And it's interesting because, and then again, looking at, in general, and this is where open source software, the strong, and this is why I think you have to be careful with open source and open way, open source software, because you can see the underlying code, the strong argument can be made, and it's true that open source software.
is actually less risky than closed source because a million eyes are upon it and all the bugs are kind of taken out of it.
And I think the open-weight model people are kind of drafting on that truth.
And it is a truth for software.
But the reality is, and this is where I'm going to disconnect my technical.
The reality is when you're getting open weights, you're not getting it's not the same thing because all you get is the fixed weights that allow you to run the model.
What you don't know is the black box inside those weights and how they work.
And to your point last week, Jason, you said it last week and it's kind of been on my mind.
How could you prove that in the middle of a billion, five billion, 12 billion parameter model, there isn't some reinforcement learning that's taken place during the training?
that under certain conditions and only certain conditions can activate some kind of trigger and do something.
And this is where I kind of agree that you might be right.
And I realized that the interesting question is, can you prove to me that somewhere in this trillion parameter model, there hasn't been a bunch of reinforcement learning that says, model, once you figure out this is one of these five companies, and once you figure out they've given you these three pieces of information, then confidentially do A, B, and C.
Can you make sure that that's not going to happen?
And that's a fair question.
Kind of goes, hmm.
Here's how I would frame it.
Imagine I'm a CIO at a Global 2000 company, a pretty big company, and an LM does just what I described happened to me with Fable.
There is a security breach in our company.
A massive amount of data is leaked.
We shut it down fairly quickly.
Some of it's traveled abroad, and it's a big effing deal.
This breach has happened.
We tracked down what happened.
It turned out it was a rogue agent that thought it was a good idea to transfer our data, our confidential data, to a bucket it shouldn't have.
Pretty big effing deal.
Whose fault it is?
It's the agent.
Now, who do I fire?
Let's track it down.
What LMs are using?
Well, for a while we were experimenting with K3 on Moonshot and then it got cheaper.
So we moved to fireworks.
You're fired.
You're fired.
If that was on open air and tropic, you might or might not get fired, but you don't because what are you going to do?
You research it.
You have a postmortem.
You add guardrails.
You fix it.
But when this is a big, you fire the CIO for that.
You left the Moonshot API on and then you move to fireworks on K3 to save money.
That was a bad call.
You know what you should have done?
Not buy those extra modules at ServiceNow.
We didn't even need those.
What you're saying at the end is some version of no one gets fired for buying IBM.
You think if your Fable model runs amok, people will go, shit happens, just like data breaches.
But you think if your overseas open-weight model runs amok, you'll get blamed.
I believe that every company in the next 24 months will have a security breach due to an LLM agent, every single company.
And they've already had it and they're not disclosing it.
And as they scale at a level we've never seen before, this isn't just someone that left the flash drive at Scales office or dropped the laptop in the subway, even left a GitHub open.
This is worse and it's happening every day.
If it happened to me, it's happening to everybody.
We're just not disclosing it.
And boy, at least you better have used a trusted vendor.
That matters more than a few nickels.
We're staying adjacent, but it is one that I thought was interesting, which is Etched.
We mentioned, obviously, NVIDIA and Jensen there, and you don't get fired for buying IBM.
Etched is the challenger to NVIDIA in many respects, and they raised $300 million Series C led by Sequoia and the team there with Jane Street, Andreessen, SK Hynix coming in.
Question is, can they come in and impact NVIDIA's moat?
How do we think about this round?
Thoughts, boys?
Big picture comment is in semiconductors.
The more the silicon is attuned to the task at hand, the more efficient it gets.
The problem in terms of that trade-off is the less general purpose it is.
So if you want a computer to do lots of things, you have an Intel CPU, it can do a lot of different things.
It can't do any one thing wildly efficiently.
And then in 1993 for gaming, people said, oh my God, for gaming, I'm not doing a whole bunch of different pieces of math.
I'm just doing one piece of math, which is polygon calculations to render gaming.
And people should build a separate chip to do that.
And it'll be freaking amazing.
And a company called NVIDIA did it.
There were two or three other competitors, 3DFX, ATI.
Obviously, fast forward 30 years, NVIDIA won.
Because the GPU, you offload all that calculation onto the GPU and it's super fast.
And GPUs were good for gaming.
And then they were good for crypto.
And turns out now they're good for LLM multiplication.
The question now is, if all you're doing is not gaming, not crypto, but just LLM multiplication, just inference, is there an even more narrowly defined chip that in return for giving up on general purpose calculations can be even better for that?
Probably is.
And that's what the bet actually is making, right?
If I just optimize for inference, just like Cerebus and Grok did, right?
Different versions of inference.
But if I just optimize for this one thing, I can probably do it more efficiently than the general thing.
So it totally makes sense at that level.
And then the only questions are, Is that market big enough?
Probably this turns out to be the biggest chip market on the planet, right?
Because inference, power compensation is huge.
And then the competition question and the ability to execute question are kind of specific company level things.
I'm not going to pine on because I haven't looked at the deal, but that's the big picture bet.
And it's funny to see it happening to NVIDIA when 30 years ago, they effectively did it to Intel.
What's interesting is you have Grok, you have Cerberus, you have these, there's about 10 or 11 companies doing it, all chipping away, no pun intended, at that three or four hundred billion a year of spend.
But it is still hard.
I mean, you talk to the people of service, huge home run, amazing achievement.
You talk to them about the technical journey, they're like, oh, my God, that was hard.
That was a long 10 years.
So it's what would be hard for these companies if the timing of tape out happens in a CapEx decline.
It'll be hard.
If it happens while there's still kind of mass demand, then that'll be a lot easier.
I'm not a total expert, obviously.
One, it is the largest market that exists today and it is growing at a scale we've never seen before.
So might as well make a couple bets on it, right?
Some will implode, some will be mediocre, some will be too...
But the market's so large that, listen, I mean, I'm not an expert on etch, but all etch does is, you know, work with some subset of open weight models that are allowed in the US.
It's a huge market.
chips, memory, compute, the margins are abnormally high too.
And the market's so large.
I don't know whether this is, whether Etched is worth 10 billion or whether it's an option that it's worth 200 billion.
That's the venture question.
My guess is it's not worth 10 billion, but my guess is it could be worth 200 billion.
And if your fund size and your winners work out, you make this bet and it makes sense, but it's probably not worth 10.3 billion today.
A great round for the company as well.
3% dilution, 300 million.
I love the 3% and under rounds.
I'm a fan of those, right?
Okay.
Google.
Google accelerates cloud to 82% year-on-year growth, but prints first ever negative free cash flow.
Top line was great.
119 billion Q2 revenue up 24%.
Past consensus of 116.
Google Cloud accelerating 82%, as I said.
And it did not come out well.
The reception was not great.
How did we think about this, guys?
You can't get lost on the day.
I mean, it's still, year to date, it's still up 6%.
Microsoft's down 17.
Right.
NVIDIA is only up 5.9.
So I think getting lost in the details of the day's response, it was a mediocre response and they agreed.
And I think it was two things.
One is it's CapEx spend and is it going to yield a return?
And then secondly, which is more intangible, and you can't prove why stocks go up and down, they just move.
But the other thing was analysts pushing a little bit on, hey, basically, why isn't Gemini as good as the other guys?
And on the first...
It can't have been a surprise that they're going free cash flow negative because you can predict the cash flow, you can predict the spend.
And it's like, duh, this was knowable.
I mean, you're seeing it in a bunch of different places.
People are just getting mildly scared about the bet.
And that's not to say they're right or wrong.
Maybe this 200 billion will have an amazing return.
And the bulls would say correctly, the ROI on CapEx just to be a neocloud hyperscaler.
Forget owning a model.
Just the business of renting compute to open AI and entropic has been a great business.
So therefore, it will continue to be a great business.
And it is factually accurate to say it's been a great business.
The ROI has been great.
I mean, Elon is making out like a bandit on his gas turbines in Memphis or whatever it is that we're closing our regulatory eyes to.
The question they're asking is, if you spend 200 billion, will that have a good return in two or three years time?
So there's angst around that, which is really just a derivative of saying I'm angsty on open AI and entropic.
The markets are just nervous and it's very logical.
You know, the Korean markets are down 28% this month as we record this, right?
Massive panic in Korea hit the market breakers because such a run up and so much exposure to semiconductors into memory, right?
So much exposure.
That's nervousness.
It doesn't completely tie to last quarter's numbers.
It's worries about China.
It's worries about AI.
And I don't even, like, I can't really, not smart enough to calculate the beta or whatever, but it's logical when you have this incredible run-up at the pace we've had.
Our market shouldn't crash 20% the US, but it could crash 10, but 28% Korea is a derivative.
of AI panic.
And I think we're just going to see more and more crashes.
And I'm a simple guy.
So for me, for Google, I know Rory may mock me, but I'm going to stick to the top line.
I just want to see how the revenue is growing in the bookings.
And I'm going to ignore all these issues about the margins.
Not that you can in theory.
It's too much for me to figure out.
I just want to see where the top line and the bookings are growing.
And that's enough for me to understand the meta trends.
For one, it's what I'm in sync, which I thought, you know, the top line revenue growth was amazing in Google Cloud.
Yeah.
It says things are pretty good in AI land, but it's just this commodity where if it were cheaper, we would consume an infinite amount of it and we're coming close as it is.
Maybe Etched will solve this for us.
Anyone who has capital and can build compute can self-compute.
Google can do it.
SpaceX can do it because they've done it successfully, I think, to Google and to Anthropik.
So there's just infinite demand for compute right now.
And then obviously, if that were to change, then all bets are off.
But until it does change, all bets are on.
And everything after that, you're exactly, it is so fun to watch.
I mean, I've got my tickers and I watch my WorldCloud versus the S&P, which was software versus the S&P, and then WorldCloud versus SOX, which is the semis.
And then for real action, the ETF that's DRAM, that's just memory.
And that thing jumps 10, 20% a day.
When Korea has a bad hour, it's like it's down 7.5% on the day, you know, when the S&P is up 0.48.
You're right.
It's just nerves.
Oh, my God, I own these stocks.
They're either going to be amazing or shit, and I don't know which.
The meta one to me, and this is why, to me, backlog is almost more interesting than revenue growth is.
I guess it's discussed, but it still seems to be under-discussed.
As we record this, we're just before planning season.
Last year was experiment.
This year was caps on token maxing that got out of control.
Next year is going to be very explicit budgets for everybody on AI.
It's capped an obvious to say this is one of the areas in venture and everything where everything's up.
Everything's great.
Everything's great.
I mean, not the pre-AI companies, not the ones of the past, but everything in the future has no ceiling.
There is no ceiling to any of the companies that have been discussed on the show.
And next year, I think will be some of the first ceilings.
And I haven't had the CIO discussion to know where it's going, but they're just going to be kicking off over the next 60 to 75 days.
What are we going to spend next year, guys?
It's not just open source is part of it because that's load balancing our expand.
Harnesses are part of it.
Everyone's going to have to get more efficient, but the CIOs are just going to clamp.
Next year will be the first real clampdown that's material.
That could, if nothing else, it could create a lot of variability here.
a lot of micro crashes and variability.
Yes, there's a hidden dynamic between there's 1% of companies who token maxed and they're going to be getting their shit together next year and kind of reining it in, maybe 5%.
And then there's 95% of companies who've barely put their toe in the water.
And if even a quarter of them put their toe in the water, the growth from the toe dippers.
will swamp the reduction from the token access.
You with me?
Because that's the dynamic here, right?
Because there's no doubt companies like Coinbase are going, oh my God, we spent so much, let's cut it by 50%.
And that has a real impact if you're on topical open AI.
But on the other hand, there's 10 companies in middle America that's like, we have a chat GPT subscription.
Maybe next year we'll try some of this codex shit.
And the question is, those two countervailing forces are what kind of really drives it.
Actually, one of my colleagues was just talking about, what would you like to know most?
An updated cohort analysis for Anthropic on the revenue build would be the single most useful piece of information you could have.
Run that through a cube and you could trade the QQQ for the next 12 months because that's where it's all happening.
Because that would pick up the fusion between the token maxers getting organized and the new guy, the toe dippers expanding.
And that will filter back into, as you say, all these compute budgets.
Because a lot of the compute sales have been all these guys selling to those two big frontier models.
It's all in that data.
Yeah, I never hit my Claude limit on Max or whatever.
I've let it's 200 bucks a month for Max.
Yeah, that's like $14,000 of tokens.
I hit it this weekend for the first time ever.
I mean, if you were a company, if you were, if you fessed up and were a company, not just a person, you wouldn't get that deal anymore.
You would be on the API.
I guess I spent $14,000 last month.
I could, that's a, even I don't want to spend $14,000 on tokens.
No, well, they might find you after this podcast.
You might find it.
Hi, this is your Antropic SDI sales rep, AI sales rep.
I've got good news for you.
You're on the enterprise plan.
I've got bad news for you.
You will be 40.
Well, they know I hit it, but I'm with you.
Yeah, you might get it all.
The biggest round of the week, Travis Baby is...
back.
Travis announced his raising $1.7 billion for Atom's industrial robotics company led by the one and only Andreessen Horowitz with Ben joining the board, Ben Horowitz joining the board, Bain Capital, Fifth Wall joining alongside a load of other firms.
I saw pictures with, you know, Kevin Hart's at A-Star, Christina from Chemistry.
Is there room for everyone in a $1.7 billion round?
How much can I put in?
My favorite is the pictures, all from the same restaurant.
in the same place in the restaurant.
And so it's like, I think there was like a rotation of like- It's the way they do it for political stars too.
You just line them up, shake the grip and grin and onto the next person.
Yeah.
What did we take from this?
Is it just a news announcement?
What are your thoughts?
I want to come back to the personalities because the personalities are so wonderful in a minute because there is some fun history there.
But what's the business?
Basically, the big picture is it's atoms, as the name would say.
It's physical AI, AI for the real world, doing a bunch of different robotics businesses, very different robotics businesses, some of them around cloud kitchens and food preparation, some of them around mining.
Things that I agree with are the common.
Travis is totally correct.
He's making it.
It's not humanoids.
It's specific purpose robotics.
I actually think he's correct.
I think we'll look back on the humanoids and go, we got way ahead of ourselves.
You actually need specific purpose autonomous machinery for B2B in general.
That makes sense.
I think it's not as clear to me why it makes sense to have Pronto for mining, other than the fact that Travis is amazing and can raise capital cheaply.
It's not at all clear to me why food prep and mining should be in the same holding company.
Roy, would you have broken your rules for your LPs to put money into this?
No, I don't think I would have.
I've done a lot in robotics over a decade and a half.
You know, as I said, my first robotics deal was in 2016.
My first drone deal was in 2015 or 16.
There's a lot of...
feeling now that they're going to happen quick.
I think they're real and significant.
And everyone uses the, oh, the GDP of the real world is bigger than the software world.
Well, no shit.
It turns out 2% of the world is software and the other 98% is real.
I just think it takes a lot longer than you realize to roll out robotics in the real world.
It's not clear to me putting a bunch of different companies together in the same place makes it any better.
I mean, it is doable because he can raise money at a great price, but by definition, a great price for the fundraiser.
might not necessarily mean a great price for the investor.
So even though it feels like heresy to say it, and I could be totally wrong, and if I am, that's great.
Based on what I know from a distance, it's not obvious to me.
We're always going to say these aren't connected with a lot of things they say, but I think it is connected.
There was an article in the Wall Street Journal today saying a big trend is bringing CEOs out of retirement to run big companies.
They fired the CEO of Cracker Barrel, even though the stock's way up after the logo mishap.
fired her, brought in some guy that they found out of retirement that ran like the parent company of Outback, right?
Very successful.
PayPal did it.
They found whatever his name is out on his Montana ranch to come back in and run PayPal, right?
And so what's my connection here?
I think we're seeing almost as bimodal trend where you have...
We're going to make some bets on the 20, young 20 year old founders of Etched.
And we're going to keep making those cursor bets.
But when we, when Jeff Bezos says, how much did Jeff Bezos raise for his, his company?
I think six or 12, it was the biggest financing in Q1.
When Bezos, when Travis, when Elon raised their hand and say, listen, I'm going really big guys.
This is not about making a couple of nickels.
Okay.
I'm building something massive in the moment and change in our lifetime.
And it needs billions of dollars.
You're good.
to give it to these iconic seasoned veterans and you're going to face East that it works out.
You're going to face East that just, just, I mean, giving Elon money for Twitter back in the day was facing East.
There was no rhyme or reason for that deal.
And the boring company to me is crazier than Adams.
Boring company is crazy.
There's one little route in Vegas and I've done it and it's cool.
A dude drove me through a tunnel.
That ain't worth 20 billion.
But I think we're going to make as funds get bigger, as we see so much of the benefits to venture come to massive outcomes, we're going to give Travis the money.
And there's only so many Travis's.
So they're going to hoover up the cash.
I would, as we say in California, I would change the pronoun.
I don't think we are going to give the money.
I think someone's going to give him the money, just to be precise.
The objective facts of whether something works or not is independent of who finances it and independent of who runs it.
I mean, you made a comment on Twitter, hard-nosed comment here.
Absent the fact that Elon decided to bail his investors out, for which huge credit and kudos, Twitter is not worth today $44 billion and not even close.
So objectively, I mean, in terms of buying something, you bought an asset that went down in value.
Now, if your business plan is, oh, and by the way, he's got other assets and he'll bail me out.
Maybe, but that's not actually a plan.
But Bernard Arnault is now on Twitter.
Does that change your perspective on it?
No, Harry, it does make it worth $44 billion because the cash flows don't get you there, right?
It's $2 or $3 billion in revenue down.
Maybe it's growth now.
Maybe you've crawled your way back to $30 or $40 now, but it's a push.
Now, as it happened, you got a 3x because you rolled it into x.ai and rolled that x.ai.
But my point is, you are right, Jason, that these big name things are working.
But they're working not because the facts are working.
They're working because the market is continually willing to enable that process.
And if the market changes, you don't have value.
Yeah, yeah.
I just think the market's going to hoover up all the Travis's.
And watching him on social media, the dude's got the energy to do this, right?
No, no question.
No.
So if they're burnt or broken...
you can't make the investment, right?
But I think everyone, and it's only so many folks, but if Bezos is done parting at Carbone and wants to do this, okay, and Travis is done doing his 70-mile jet to the office in Austin and really wants to spend 20 years doing this, the funds, in quotes, can raise the capital.
These are the bets of the day, and all of them are going to get a couple billion to do it in an era where the amount of wealth creation is unprecedented.
And you're also going to hunt out the kids from MIT.
I don't know what it's like to be a freshman at MIT today, but it must be exhausting.
Every damn VC wants to fund you.
I'd be burnt out.
If I were top 10% in math at MIT, I would just have a placard on my shirt.
Leave me alone, VCs.
Leave me alone.
I'm with Neo.
Jason, even worse, if you're the parent of one of those kids at MIT and you've broken your pick for 20 years to get your kid to stay focused and get to MIT, and now those evil VCs are saying you should quit and drop out before graduation, you want to plummet them.
pummel him to death.
But going back to the thing, just a comment.
The other fun fact, I mean, you just got to note the fun fact, which is Benchmark's best fund, one of the, I shouldn't say the best fund because actually their eBay fund was the best fund in 95, but they had an amazing looking fund that had both WeWork and Uber in it in about 2012, 13 fund.
And if you fast forward, a couple of things happened.
One is they famously swapped out Travis as CEO.
And to the undying hatred of Emil Mikhail, who's now at the Department of Defense, and obviously Travis.
And a lot of controversy on that decision.
Obviously, it went on to be an amazing company.
They didn't swap out the WeWork guy who went on to pretty much fail as the company, even though he personally took off $500 million.
The deal didn't work.
So at one point, there was a fund with two amazing mega fund returner deals, one of which turned into a mega fund returner deal, one of which didn't.
And just the one who made the change did.
Well, to be clear there, they did get out of WeWork and have mega fun returning.
Amazing, amazing.
But I don't think the WeWork return was nearly as compelling as the Uber return, Harry, because WeWork didn't, I mean, you know, it didn't know.
Harry, no, it didn't get public.
It went bust.
It SPAC'd.
It went bust.
It was not a returner.
Right.
My point is they had two home run winners, two huge burn companies, two potential fund returners, two wily charismatic CEOs.
One of them stayed the course.
It didn't work out.
One of them was replaced controversially.
It did work out.
It's an 80, 90 billion dollar company today.
The fun fact is fast forward.
You even saw it in the tweets around the Atoms round.
Andreessen Horowitz have backed both CEOs.
They backed Adam at WeWork because they're like, we think you can do it again.
And they've just backed, obviously, Travis.
And if you look at the tweets at the time, last week, there was a very direct tweet.
Basically, we should have done this deal in 2000 and whatever it was, 10 or 11, which is tantamount to saying, yeah, and everyone can read the subtext.
We deeply regret taking money from someone else who fired us, even though it turned out to be an $80 billion outcome.
So there's a clear dynamic there, kind of in the venture backstory there.
And what I really admire about everyone involved is the willingness to bear grudges across a decade.
It's quite impressive.
So yeah, it's fun to see how that shape out.
But yeah, Andreessen have backed both CEOs from that famous benchmark fund.
By the way, it's very minor.
Who knows?
Claude says benchmark took out 315.
from WeWork.
Yeah, I was literally just about to say the most valuable lesson I've learned as a VC is to admit when you're grossly wrong, which to me happens daily.
But exactly.
Uber made benchmark roughly 640x versus around 25x with WeWork.
They got 25x off.
Good for them.
I was wrong.
I was admitting I was wrong, dude.
They're very different.
Yeah, secondary to SoftBank, 315 out of 17 in.
I will still take that for my fund.
I mean, 17 is a lot of concentration for me.
I would do it, right?
But yes, so saved by SoftBank versus viable independent company a decade later worth $80 billion.
But you are correct.
It just shows with enough momentum.
In a bull market, if you take your winners off, you can do well on everything.
Good for them.
The reason I wouldn't about Travis is he just doesn't have that chip on his shoulder, you know?
Oh, that man.
Just to be clear for everyone, that's obviously tongue-in-cheek.
Wow, that man has a chip on.
I love it.
And I love the drive.
You think eight years in, you get over it.
You know, billions of dollars.
You're like, oh, let it rest.
Nope.
Nope.
Nope.
Nope.
Not only am I not going to let it rest and I'm going to prove them wrong, I'm going to tweet along the way that they were wrong.
Absolutely.
By the way, tweeting saying someone is wrong is different than someone actually being wrong, just to be clear.
Yeah.
Let's move on.
No, I know it's a very different end of the spectrum, but we said about kind of enabling the supply side of capital, venture firms, providing people like Travis with huge amounts of money.
Well, shit, in other areas of the market, it ain't exactly capital starved either.
$21 billion, which was above the target for Francisco Partners.
Wow, the demand ain't dying in that side of the market either, is it?
Listen, I obviously wildly successful run a track record stretching decades here.
Right.
So can't argue with it.
Where I just get confused is the messaging, which may not, you know, sometimes the way investors message and what they actually do are not 100 percent identical.
They're just directionally aligned.
But that, that a big part of the 21 is that AI won't kill software and that therefore there's efficient ways to deploy this.
That's the one where I get, I get, I get confused, right?
I'm not sure there are these gems out there growing 14%.
that they can buy and hook up Kimmy, the Moonshot API, and magically re-accelerate growth to 70% or what.
I just, every week that goes by, I feel like the past is the past.
It's time to leave the past in the past and let the markdowns be the markdowns.
Raise another fund.
Hopefully, you've got an Uber in there and maybe a WeWork that you cashed out and just time to move on, guys.
And I think you're correct.
But remember, the venture game is all about finding things that explode in growth.
Price matters only at best at a second order.
Growth matters first.
In the PE business, it can be the other way around.
And a company that's growing at 7%.
that you buy dirt cheap and get to 20% growth and good cash flow margins, you know, applying the leverage, getting the lift from that, you can make your IRR.
It's almost like I always think of it as literally the opposite ends of the life cycle.
We're in the grow new things, make them amazing business.
And to some extent, a lot of these things are rationalized.
These companies make them a little more efficient, a little growthier and just sell them on an earnings multiple.
Now, I can see it in your face.
I agree.
I think that's harder to do in a world that's moved on from that.
that entire category.
You can only raise prices so many years.
How do they raise it then?
Well, they have the track record, right?
I mean, this is the job.
This is private equity's job.
They have the track record.
I'm not saying there aren't gems out there.
I'm just saying, I keep hoping that these companies that I know become gems and every interaction, every conversation, every week goes by, I feel less and less gemmy.
I don't believe this thesis that the deeper I go in my agenda career, the more I work with.
I feel like anybody not working at least as hard as Mark Benioff is just not going to make it.
And P, you bring in the 69-year-old Montana farmer to run PayPal.
I believe it works.
But a lot of traditional software targets, I just don't buy it.
But I hope they buy some of my companies.
Like, I'm all for that.
I got a couple that I would love for them to buy.
But I'm just losing confidence that anyone without Benioff, Travis, Energy, and they just don't want to work at these companies.
Maybe Bending Spoons.
But I think you're conflating.
You kind of purse the leash.
Because look, the good thing about PE is if they don't like the person who's running the company, they're pretty comfortable getting someone else, right?
So maybe the kind of abstract question is, do you think these kind of companies growing at 15% can be bought cheaply enough?
Can you buy a Monday or a Wix at a price where you can make a return from a combination of leverage, operational efficiency, and slight AI growth?
That's really their question.
It's not an inspiring question.
I'm glad I don't have to get up every day and deal with that.
But it is a legitimate question.
I don't know what the market cap of all the publicly traded SaaS companies out there, but there's probably a trillion dollars, plus or minus, of quote-unquote legacy software.
And can 10% of that be run more efficiently with leverage and put $20 million?
billion to work and get 40 billion back?
Probably.
If you look at a WIX, it's trading at less than 1x revenues now.
It basically means you're paying 10x for base 44's revenues and you're getting the core business for free.
Again, I don't, I mean, it's so funny.
I don't know.
But you know, like from when we talked about this, you know, you made me name some individual stocks.
Some of it's well, some of it badly.
But actually, I'll tell you what I actually traded.
I bought WorldCloud, the whole index, when we had that SaaS apocalypse discussion.
And I'm up 35%.
And the point is.
What you're never going to do is do a kind of socks and go a 3x.
There's not that kind of upside in these things.
The question is, PE is not looking for that.
Can they pick out the gems?
I mean, you're right.
Should they take a run at PayPal?
I mean, Advent is going to do that with Stripe.
Two times revenue, one times revenue, three times revenues.
Are there returns here is the question.
I wouldn't assume no, which is different than saying I want to spend my life doing it.
The problem is so many of these targets.
basically have no net new customers.
It's expansion and price increases.
If you're early on the expansion and price increase cycle, you can get three to four years out of it, but we're five years into no net new customers and price increases and mediocre module expansion.
I don't think there's another five years of those knobs and dials left.
I mean, again, we just turned off Marketo.
They raised our prices from $22,000 to $80,000 since 2020.
We left.
And I bet they've lost 20% of their customers over that period of time.
So I know it's an extreme example, but I just mean, what are they going to do?
Take someone like us and charge us $160,000, $640,000?
I mean, the blood is beyond out of the stone, right?
The stone has crumbled because all the blood has been squeezed out of the rock and it's turned to ash.
$22,000 to $80,000 since 2020?
I mean, it's at the edge of criminal.
We didn't even get a thank you email after being a 20 year customer.
Thank you for being a 20, but thank you for being one of the first 10 customers and being a reference on our website, Jason.
Sorry, we lost you.
We hope to get you back at 160.
I mean, we're, listen, they're going to make money, Francisco partners.
I just.
I've lost almost all confidence in the turnaround playbook working.
It's too many years from blood from a stone.
I think that's an interesting.
You've been pretty consistent with that.
And I've come to the conclusion you're correct on that, which is if you've done five years of price increases and that's all you've got for revenue growth, you're probably closer to the end than the beginning.
So in a weird kind of way, actually, a lot of these guys go in and they run this test.
Oh, if they've raised prices and no one's blinked, that means they can continue to raise prices.
And you're right, Jason, that could be a counter signal.
If I was sitting on the investment committee of one of these PE firms, I actually think you're right.
I would want a test that says, can we add net new revenue, net new modules from these customers?
Are we just screwing them?
Because if we're just raising on prices, it's going to end at some point.
So I actually agree with you there.
I think target selectivity will be really important here, which means that it won't be nearly as big or as easy a business.
as it was in the last decade and a half.
And I think that's, you're right about it.
There might be isolated pockets of winning, but it's a tougher gig than it was.
I mean, in 2010, 15, it was a great business.
In fact, I think even going back as far as 2002, 2000, I mean, the early Vista funds were just after the dot-com crash.
And those guys hoovered up and made a fortune.
But we're probably 20 years into the no insurance or SaaS bet.
And at some point, as Jason has proved, even a Lighthouse customer.
will turn on their SaaS.
Where are you in ServiceNow?
Just curious, because they obviously had their little bump this quarter.
How do you think about owning something like ServiceNow or Salesforce?
I think the problems they solve are so sufficiently complicated, you need them.
No, you just can't run your business without ServiceNow.
But if you talk to anyone that's run on service now, it abstracts away so much complexity from your business.
Analytics is like the cat.
Like we all talk about vibe coding away things.
Analytics is actually the easiest one to vibe code away.
Agreed.
Got it.
That makes sense.
So what you're basically saying is there will be islands that stay and there's lots of little.
It's what they've said.
The ancillary in between products like analytics, to-do lists and task management will go away.
But I want to toast Francisco Partners, though.
You just want to sell them a company, Jason.
You're just so transparent.
You know what the one is?
Maybe we should move on.
There is something I believe in, in this whole model, right?
I don't believe in buying the 17% or 15% grower because we're five years into the price increase and no net new customers.
I do believe of IRP that the model is the 40% grower.
The one that is, it is kind of working today, okay?
It's just not growing at the rate we would like in today's world.
There is no perfect path to a great exit, but they have an agentic product.
They have something going, 35, 40, 45, 50% growth.
There may be a moment in time where you can have a very attractive multiple on that property and you haven't gone into the terminal decline.
That's where I would spend my emotional energy.
What's still growing?
approaching 40 or higher at scale where the founders are burnout.
It's sort of made the transition, but it's not growing exactly at the rate of the hottest startup in its class.
I might make that bet.
Boys, you can choose.
We have Stripe hits rule of 80.
We have Monday.com lays off 20%.
We have Mark Pincus's quit if it's too hard.
Life's too short to struggle.
Can't believe that's actually advice.
Where do we want to go, boys?
You can choose.
The Pincus one I don't want to spend too much time on.
I didn't.
quote that one, right?
And got some traction around it.
Arguably, he did say that, right?
He's a consumer guy.
He comes out of games too, right?
In a sense, it's quoted out of context by me, but there is a point where a game, you know, unless it's cyberpunk, which is back now, right?
After five years in the oblivion.
But in most cases, you should quit on a game, right?
Probably at some point, it's just, you got it wrong and you move on, right?
It's like quitting on a movie.
At some point, you got to move on.
But I really, it is what it is.
I don't want to be grumpy.
I just feel like.
It makes me sad when a founder quits one of the ones we just talked about, a 40, a 50, a 60% grower.
Okay.
A founder with material ownership quits to do something hotter.
And I'm cool with that in the age of AI because, and everyone's like, well, there's so much opportunity cost, Jason.
I can found etched in a week at 10 billion.
I can get into YC and raise it a hundred, a hundred posts.
My round will be fully, fully subscribed before I even finished the batch.
And I can't argue with some of that.
I just.
Most of the founders I've worked with over my career that have done that, that have quit something pretty good to do the shiny penny, they're not all Ilya.
It's all been a net negative.
All the times I've seen it, the ones that quit with something, right?
That's my worry in the age of AI is there's no downside today.
Just quit.
Quit everything.
Go found an AI company.
But man, if you've got 20 million, 50 million, 500 million in revenue, I might see if you could build that in-house.
Jason, we saw last night Lillian Way left Thinking Machines, which makes only two of the original six co-founders remain.
Same thing, I guess, probably, right?
Well, dude, it's Thinking Machines.
It's not exactly a 40% boring saskra.
And she probably has 1% if she's like a late co-founder, right?
So what's Thinking Machines worth on paper?
8 billion.
Oh, she's only got 80 million?
I'd leave that behind.
It's nothing.
I'm having nothing.
I mean, it's probably...
I think we're conflating a lot.
I mean...
Are we?
Rory's like, I've had enough of you, Degeneres.
No, no, no.
I think the whole, the comment on quitting, I mean, I think there's really three different things.
Jason, you're right.
The least obvious one is the, I've got a company, it's at scale, it's growing 40%.
I mean, I think you've created something of value.
It's not obvious that chasing the next shiny thing will be better.
But I don't think what the reference was to.
I think the reference, Mark Pinkett, was more, how long do you keep trying to get product market fit before you say it's just not there?
Right.
And that's a valid comment in the sense of I don't think, quote, the answer is you should quit.
But the nuanced answer would be I think you should not do anything out of duty.
You should do it because you think you're convert.
You know, you have a plan to converge on something.
And when you don't have a plan or you don't, you shouldn't just tie yourself to the mast to just keep going just cause.
I mean, you know, frankly, 35 years ago when I had my.
business way back in the dawn of human time.
And, you know, I was a very mediocre manager and I stuck at that thing two years longer than I should have.
And I look back and I go, you know, wasted years just because I wasn't I had that kind of I owe it.
I need to keep trying.
I don't want to quit.
And I think finding a way to step back and say, am I doing this because I still believe in the mission?
In which case, no matter how hard it is, keep going.
Am I doing this out of a sense of obligation and I don't have any way to win?
In which case, put up your hands.
What I disagree with, Mark, is the kind of ability to say to a founder, this is the answer, quote, you should quit.
I don't think anyone ever knows.
I think the good advice is to say, go in with no priors, take some time away, ask yourself honestly, when you rest and when you've had a good night's sleep, does this feel like something you want to do?
And if not, and if you don't have a plan, then yeah.
You know, if I took that advice, Rory, honestly, all I would have is a maxed out 401k in life.
The only reason I have any economic success is that out of obligation, in part, I kept going.
If it was just about me, I would have quit.
Interesting.
Both my startups, certainly I would have quit venture investing.
Fucking not worth it for a few nickels.
I certainly would have quit EchoSign.
My founder walked out the door after eight months.
He was right.
This category was never going to take off.
Plenty of folks.
Yeah.
You're giving the same crappy advice Mark Pincus did.
Quit when it's hard.
Yeah.
Look, we're all shared experiences.
You've lived, maybe you felt along the way you should have quit, but you ended up building a very nice company, making a ton of money in a sale, in a category that's turned out to be significant.
I stuck at it two years longer, went bust, and looked back and go, that thing would never have worked.
So I think to some extent it's the old Kierkegaard thing.
You know, life is lived and forward, but can only be understood in reverse.
There are some things that you look back on, deals that you look back on and go, not only did it fail, but it was just never going to make it.
There was just nothing there.
And I think if you're in one of those, figuring that out.
I've never failed and everything I've done would have failed if I quit.
I've never been rampantly successful.
I'm not a billionaire.
I've never made my investors less than 5x.
I've never had a single, but everything almost failed.
And the people, people just quit.
They just quit and they quit more like thinking machines.
80 million is not enough.
Go back to my comment.
It's your experience to go because I'll take the opposite statement.
I've never quit and I failed at some things.
I've succeeded at some things, but I failed at some things.
So it turns out doggedness until the end of time is good, but it actually doesn't actually guarantee a win.
So there you go.
Did you not learn more and gain more from the experience of those extra two years that you took with you?
I think Rory and I are going to agree.
The answer is no.
No.
Harry, there's a great line someone gave me when I failed.
It's this, Harry.
Experience is what you get when you don't get what you want.
No, I'd done all my learning two years earlier.
I had fully processed it all.
And the last two years were just hell on earth.
I think you do.
I think that's one of the dumbest things out there that you learn so much from these failures.
I think you think you learn a lot, whether it's investing or otherwise, from the almost failures, right?
The ones that turn around, you learn what?
Because we're all sitting on some companies we're not sure, right?
Where are they going to go?
And when you have a few portfolio companies that do turn around, you do learn a few things, right?
But the ones that ran it into the ground.
You learn something.
And I think there are things to learn, but you don't need to live it for years on end to learn it, right?
You can process through it.
So no.
Unbalanced, Jason, I am emotionally more in your camp than in.
the mark, just quit camp.
The point I'm merely making is I actually think if the only reason you're hanging on is duty and you see no hope, you're actually going to fail anyway.
That's my theory, but we can disagree.
Boys, is there any final topic that we have to discuss?
I mean, yay, Stripe.
I have one question for Stripe for Rory, maybe if you want to break, because this is the first time I tried to write it up because I never had a chance to compare it to Adyen.
It doesn't seem so wildly overpriced, given these numbers.
The numbers are great.
Compared to Adyen, it seems about appropriately premiumized.
to Adyen, right?
I always thought they were pure companies, but Stripe's much better.
Yes, they have much higher profitability.
Yeah.
And what's happened, I think, is they've hit a sweet spot because they charge more.
They have more smaller merchants at higher pricing.
And for a long time, they were less profitable, despite that, because they were a Silicon Valley soft company and Adyen were a hard-nosed bunch of Dutch people.
But about four or five years ago, when...
The team, the Carlson Brothers in particular, focused on efficiency.
They made it an efficient company.
So now you have a company with good pricing because the 2.75 is attractive and they're efficient.
And then the third key ingredient happened in the last two years.
They basically signed up all the AI companies that are selling shit online.
And they shouldn't be getting anything like the money they're probably getting from the open AI and entropics in terms of interchange fees.
But who's got time to optimize that stuff?
They're designed into the flow of companies that are just printing money.
So they're printing 2.75% of that money.
And what that means is the growth's accelerated.
And when you have an efficient leverage cost structure, probably using a lot of AI to stay efficient, and then your revenue takes off, it all just flows to the bottom line.
So I would have said five years ago, They look expensive enough to add in.
But now they have the wonderful combination of super strong growth, good pricing, wonderful margins.
It's a sweet spot right now, driven in particular by this kind of lift from online AI spending.
Can I ask one final one?
Will the open router deal happen?
It seems to have gone super quiet on that front.
And then everyone's released their own routing product.
We saw Cursor release it.
One of my companies, Merge.dev, has released their own.
And it seems to be a very commoditized market very quickly.
Will we see this transaction complete, do we think?
From a business model perspective, in other words, the kind of front-end API to aggregate a lot of complexity, OpenRouter does for LLMs, what Stripe does for money, and what Twilio does for telecoms.
So it kind of makes sense from a company model perspective.
I mean, Jason said it last time, smart of OpenRouter to get out.
10 billion felt like a lot, but good luck to them.
I mean, couldn't happen.
Go team.
Jason, will that happen?
I wish I had the data of time from intentional leak by VC to deal closing.
OK, but I believe it is more than one week on average.
Right.
And so this certainly appears to be a leak to generate a pseudo second offer potentially to justify a premium price.
Listen, every company is the same.
I've been on the other side of Stripe deals.
They do what you would expect.
They offer an acceptable but mediocre price from a venture perspective.
Right.
So maybe they offered the last round price.
Maybe they offered two billion.
They asked 10.
I don't know what the exact story is.
So someone leaks it.
This is how you do things today, right?
And I don't know what happened.
My guess is Stripe said, you speak again, it's off.
You're exactly right.
They could be hunkered down doing a deal.
It can take a couple, even if you want to work all weekend, deals don't, in my very limited experience, deals don't close the day after the leak.
You have to sequence the leak properly.
Or it won't.
No, it's part of a price negotiation.
I agree.
It doesn't really create another deal that closes.
It's much better than a banker pretending they got someone to add in into the deal.
You create this leak energy, but you need a couple of weeks for that, you know, for that to work, right?
Does it go through then, Jason?
If it's real, it probably does.
Listen, I only have a limited amount of leaking experience.
Maybe Rory has more.
You don't leak a fake deal.
It doesn't accomplish anything.
Okay.
People look at leaks or like, because they're trying to put the company up for sale.
Right.
But I don't think that leaking strategy works.
The leaking strategy works for a good, but not great offer because you only have so much leverage.
I'm terrible at negotiation.
I'm terrible at game theory, but if the Stripe wants two and you want eight, it's very awkward position to be in.
It may be Frank Quattrone solves this for you.
That's the magic.
But if you don't have a solution, the leak is the best idea.
Because here's the thing, what I learned at Adobe, just to maybe over talk about it works in the sense that Big company M&A and Corp Dev isn't brutally slow.
I'm sure Rory will agree with this, right?
But all of them have a deal mode.
So when an email comes in and says someone that was on the list is in play, it does not mean that an Adobe will buy them or Google buy them, but they spring to action and they make a decision within a couple of days.
They literally go into deal mode and that can at least get you a paper counteroffer.
It can at least get you a paper counteroffer and you can go back to Stripe and say, we think we have an offer from Adobe or I mean, it's not gonna be Adobe, whoever at five.
But you need like a week or so for the leak to work.
But it does work.
And the big companies, the thing is, it sounds crazy, but the big ones, they at least want their shot.
Just like Andreessen doesn't want to be embarrassed that they didn't see a deal like Sequoia.
It turns out it's somewhat similar in corp dev and companies.
They at least want a shot to buy someone that's on there because they already know who their list is, right?
And so as soon as they get the email, especially from a banker, they just shoot around.
Guys, we got to get together tomorrow and decide if we want to buy Open Router.
By the way, Harry, just to explain, that's a dig that you guys in the UK call it router, and we over here call it router, and we invented them, so we were allowed to pick.
But Jason, you're exactly right.
Yeah, you don't want to be the corp dev guy who says we didn't get a look at that when the board asks, how come we didn't?
Yeah, it's drumming up interest.
Who the hell knows what's actually happening?
It's utterly amazing.
If you don't have another offer, it could take three, four, five months to close an M&A deal, right?
If you have an offer, it turns out any big company can move in a week.
Not to close, but to sign term sheet.
Any big company, you're shocked how fast they can move when they're in deal mode and there's a back-end constraint.
All the crap blows away and then Mark Benioff or whoever just decides.
They just decide.
Final one for you.
You can own Ravelute at 115 or Stripe at 165.
Which one do you want to own?
Even though I love the strike vibe more, I really do.
I mean, I'd look to the Irish.
I'd love them to kill it.
And they are killing it.
They have killed it.
They're going to do amazing.
I think the beauty of Revolut is you have a whole continent full of overpriced, crappily run banks that you can just roll over.
And you've got 500 million Europeans who are just getting shafted on financial fees.
So I think, Tam, is like, look, the time for payment services in the US is enormous too, but it's just marginally more competitive.
So I think they're both, I mean, worth pointing out, they're both amazing companies.
Neither of them are at the core AI companies, though obviously Stripe's getting a lift.
They are both really well executing fintech companies.
So I like them.
Both in the sense that it turns out there's hundreds of billions more to life than AI.
And those are two examples of it.
But at the margin, on a TAM basis of plus or minus 100 bill, there's just more compounding than those 500 million exploited Europeans.
Jason?
I just think at the end of the day, the moat at Stripe may be a little lower.
The network effect may not be as strong as it seems.
Banking just has marginally more powerful moats and they're working on some network effects.
My Yahoo version would be take Revolut because Stripe just has to continue to execute at an outstanding level because the network effects and moats are there.
And they've invested in everything from Atlas to their own router to create the network effects.
But I'm not sure they're truly there.
Boys, it's been a pleasure, Roy.
I appreciate that, Robbing.
I will remind you that you Americans speak English.
I don't know if you think about that when you like the language, English.
We took it from you in 1776.
It came with the treaty.
You've won the war.
I feel like this is Basil Fawlty.
You've seen Fawlty Pound.
Absolutely brilliant.
I love that.
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