# AI M&A Valuation Shifts and Market Dynamics

**Podcast:** The Twenty Minute VC (20VC): Venture Capital | Startup Funding | The Pitch
**Published:** 2026-08-20

## Transcript

Your gross margin problem is my revenue opportunity for my Colossus cluster.
Pessimists sound smart.
Optimists die rich.
Only a fool denies that Elon Musk is wildly effective.
I would much rather initially work for Elon than for Zuck.
I think it'll be like the scale acquisition.
I don't even think this product will exist in five years.
You can't add expenses below the line fast enough to stop yourself making money.
The only thing that matters will be the growth rate and the 27 and 28 projected revenue.
Someone who was hired with a million dollar package in 23 ended up making 51 million four years later.
a billion knowledge workers in the world.
Absolute bollocks.
I think we'll give each of our best engineers $100,000 of tokens.
I had two board meetings in the last week where they finished the roadmap for the year.
They're into 2027.
If you're not into your 2027 roadmap.
deep into it by August of 2026 in the agentic world, your team is not good enough to survive today.
This is 20VC with me, Harry Stebbings, and today it's my favorite show of the week.
Rory O'Driscoll, Jason Lemkin coming together to discuss the biggest, best news that's happened in the last seven days.
This is the only podcast that you need to listen to every week to stay up to date on what matters in tech.
But before we dive into the show today, you have the idea, but with most AI tools, you hit a wall.
The setup, the config, the gap between what you pictured and what you actually ship.
Well, Base 44 is where that wall disappears.
You describe it?
Yeah, Base 44 builds it.
Apps, websites, AI agents, real working products built in minutes using nothing but plain language.
And it's all batteries included.
The backend, the database, the authentication, the hosting, the heavy lifting is handled.
So you just really stay in the flow.
This doesn't just take the busy work off your plate, but it gives you an advantage and pushes you past what you thought you could build alone.
So in this market, fast is the baseline.
To win, you just have to be first.
Base 44 is that edge, the move that skips the troubleshooting and gets you straight to the breakthrough.
Build your next thing at base44.com.
That's base44.com.
While Base44 turns ideas into apps, Plaud turns conversations into insights.
Founders and operators spend way too much time every week jumping between meetings, investor calls, brainstorms, customer conversations, and then trying to piece everything back together afterwards.
And that's why I've been using Plaud.
Plaud instantly captures conversations, voice notes, meetings, random ideas with one press, and then turns them into clean summaries, action items, mind maps, and searchable notes that you can actually come back to later.
later.
Honestly, it feels less like a recorder and more like an AI-powered, like, brain memory system.
And the crazy part is the hardware itself.
The Plaud Note Pro is literally as small and thin as a credit card, so it's just always with you when something important comes up.
There are already more than 2 million founders, operators, investors, consultants, and professionals using Plaud to stay organized.
So think more clearly and stop losing great ideas and important details.
Go to plaud.ai slash 20VC and use the code 20VC.
for 10% off.
That's P-L-A-U-D dot A-I slash 20VC and use the code 20VC for 10% off.
While Plaud captures the conversation, Finn helps continue it.
As AI agents become more common in customer experience, teams often end up juggling multiple silo tools for every job.
Well, Finn was built to change that.
It's a single unified agent that works across your entire customer experience, from service to sales to success.
and beyond.
Fin is the agent making perfect customer experiences possible for thousands of customers.
It's powered by custom models, trained on years of real customer interactions, so it understands the nuance and complexity of customer service better than any other agent.
That means faster resolutions, more consistent support, and just better experiences for every customer.
It's also designed to be fully self-manageable, so you can easily improve and adapt it as your business evolves.
No third parties required.
Leading Companies like Gamma, Asana, DoorDash and Crypto.com already use and love Fin to deliver better customer experiences.
So for a limited time, you can get $500 a month in Fin credits.
For your first three months, learn more at fin.ai forward slash 20VC.
You have now arrived at your destination.
Boys, we are back.
We have some mega news this week.
SpaceX closes the $60 billion all-stock takeover of Cursor, minting 1,000x returns for the likes of Ali Partovia.
Neo, OpenAI's startup fund, is a mega winner who invested $6 to $8 million very early, which, Rory, I thought of you when you said before about Elon Musk giving Sam...
billions of dollars through gritted teeth and many others thrive in Andreessen, most importantly, netting huge returns.
What do we have to say on this one?
It's the closing of an already announced deal.
Thoughts?
I just had three things.
One is it's just super, you know, we've been doing this show about 70 something weeks, you know, or so on.
So much has changed in the middle of it, or maybe a third of the way in, it almost seemed like Hercer was dead.
You know, no one's portfolio companies were using it.
I don't even remember if Claude Code existed when we started the show or not, right?
It might not have.
It sounds so crazy.
I'm not sure it had launched, right?
So Cursor was super easy, rockets to half a billion in revenue.
Claude Code comes out and it seems like everybody's moved, like Cursor's dead.
Cursor goes multi-model really early.
It changes everything and rockets to a 60 billion outcome.
I mean, forget about that it started as an email client, right?
That fun little thing from Hacker News.
I can't imagine what a roller coaster it was on behind the scenes.
This was not actually 100% linear progress to 60 billion.
Pretty crazy, I think, the rate of change.
And the one thing I just kept thinking is, and it's tough, it's how important it is to be beyond agile.
Because I think so many teams would have given up on that journey, right?
Oh my God, fucking Claude Code came out.
I got to build my old LLM.
I got to do like, and it's just, it's so hard to keep up with the rate of change.
And there's probably been three different cursors since we started other than the email client.
That was my main thought.
The second one is how it ended up not even being that expensive by the time the deal closed.
And you say that because it's going to be at six billion end of year and then you're paying 10x or you mean it?
Yeah, I'm paying 10x forward revenues.
And it went from something earlier in the show, it looked like it would be gross margin negative, right?
When we started the show, it'd be like, well, cursor is a joke because they're selling a dollar's worth of tokens for 80 cents or 50 cents to the world.
Of course it works, right?
This was the classic thing that VCs would mock when we started this show.
And it was true, right?
Turn around everything from open weights and everything.
It's a pretty darn good business model selling at 10 times forward revenue.
I mean, that's a, Elon was a shrewd buyer.
A shrewd buyer.
I'm intrigued why Zuck didn't buy it.
He's building the model capabilities with Alex and co.
He's missing the enterprise capabilities.
This would have solved that in a similar way that it solved it for Elon.
Yeah, interesting tangent.
And yes, if the logic is, hey, you've got a whole bunch of compute, but not an obvious business on top, the two people for whom that's true are Meta and SpaceX.
And you're right, SpaceX did it and Meta did not, right?
So that's, yeah, at a high level, it's a fair point.
But one of the things we pointed out in the agenda is SpaceX could move a little more.
They didn't do one of these weird acqui-hire things.
They just bought it like a regular old corporation.
They didn't have any antitrust.
I mean, they actually filed for antitrust.
They got quick clearance.
They didn't have any compelling issues with that.
I don't know if the seller would have had the same conference that Meta would have gotten through, right, just given their DOJ.
They just probably are going to have the DOJ more kind of crawling through what they do.
So that would be one argument.
It may also be, to be very direct, no one else had the stomach for the bed in the way Elon does.
And I mean, yes, Meta is relevant here in terms of fitting the characteristics of lots of compute, no compute business on top.
Elon has the biggest advantage, which is his stock is trading either doing what, 20, I mean, it's 8 billion last quarter in revenues, call it 30 billion growing, round up to 50.
What the hell, you know, right?
It's still 40 times revenues.
Picking up a big asset, as Jason says, at 15 times current revenues, maybe less than 10 times year-end revenues, dirt cheap for him.
right, a net accret of day one in a way that probably wouldn't be as true for Matt.
I haven't thought about it all that much because, frankly, until you mention it, I haven't thought of that.
But one of the things for me is if you zoom out, And just reflecting back on Jason's comment on the gross margin negativity, right?
That's true.
That story was true when it happened.
And it's still true today.
There are challenging margin issues, right?
And when you reflect on the journey, the negatives that you can cite along the way tend to be true.
They're correct.
Those were real.
And when you look at an investment, the positives.
in terms of market trajectory, just outweigh the negatives.
It's easy to sound very financially smart and say, oh, in the end, everything has to generate free cash flow.
This doesn't have gross margin.
So quote, in the end, it's worthless.
But it's wrong, because along the way, when you have a market that's exploding like coding, that's a huge market.
Remember, this is the biggest market for AI.
70%, 80% of Entropic's trillion-dollar market cap is predicated on this.
If you have the number two player in that space and you're growing hyper fast, then even though, yeah, you got gross margin challenges, especially in a kind of optimistic, forward-looking market, the buyer's going to look past that and say, there's only one or two ways to play in this space at a meaningful level.
And it was just a perfect fit.
Frankly, in a very different capital markets, it could have been a very different story.
You know, oh my God, there's no capital.
Oh my God, the gross margins.
Oh, no free cash flow.
Maybe you have to slow down and do a very different trajectory as cursor.
But in this market, They were able to go balls out, for lack of a better word, have those tough gross margin stories, and then find a buyer who not only was willing to look through it, but actually had every ability to solve it.
Because he's like, your gross margin problem is my revenue opportunity for my Colossus cluster.
So it just shows the negative issues didn't go away.
They just got swamped by the optimistic take.
And that's why, you know, it's the old cliche we talk about.
Pessimists sound smart, optimists die rich.
Jason said it.
There was probably some very tough days, but they had the guts to keep moving forward.
And because the market's huge and because, frankly, the environment is risk on, they've had an amazing result.
Good luck to them.
And on the meta thing, it's just a detail.
I guess it's a parallel universe question, but.
I mean, Zuck would have had to pay 80 billion, 70 billion in like a week.
That'd have to be very core because don't forget what happened was Cursor was about to close around 2 billion at 50 billion, right?
From Andreessen and friends.
And Elon did what you have to do in that situation.
What does it take?
So he bid 10 billion more, right?
You've got a deal at 50.
I mean, Zuck did Instagram and WhatsApp like in an hour on the back of a napkin and paid high, right?
But I think Elon did even better.
What's it going to take?
They were already working together with Cursor, right?
They're already working together.
We're going to do the round at 50.
Would it, how about 51?
No.
How about 50, 60?
How about 60?
Okay.
And well, the deal might not happen.
Well, what if we pay you 10 billion if it doesn't happen?
Well, okay.
I've removed all the objections from the deal and, and I'll let you run the company the way you want.
Right.
I think it was three points and they shook hands and did the deal.
I mean, Zuck can do the same thing.
He's done it at least twice, but you got to want it bad to do it right at 80 billion.
And he would have had to move even faster.
I mean, Rory's of course right.
Elon had the ultimate stock and currency to do this deal, right?
And the ultimate match.
But to do any of these deals, I think you've got to be Elon or Zuck because you've got to just strike this deal in a week at 60 billion.
I mean, it's only a handful of people can do this, right?
Only a handful.
Agreed.
And I was reading Noah Smith, who's kind of a damn left to center, but moderate centrist blogger, who's not an Elon fan, just wrote a great piece about a year ago that says, only a fool denies that Elon Musk is...
wildly effective.
Regardless of your opinion on the merits of the party, he's one of possibly the most effective person on the planet at getting shit done when it comes to industrialization, physical AI, and AI.
And, you know, from a standing start a year ago, he built the cluster and then he bought the product that's still on top of it.
And he took SpaceX from literally a year ago being a really amazing rocket and satellite connectivity story to being, as the rest of one says, at least in terms of the, quote, future prospects, 80-90% an AI story.
I mean, you saw his tweet.
You mentioned it a year ago.
I've underestimated AI, some version of underestimated AI, time to go.
He went from a standing start to owning more compute than pretty much anyone else and owning the most important product to fill that compute in less than a year, just over a year.
That's just wildly effective management.
It's a world class in getting shit done.
The other small factor, just thinking about it, we can move on, but imagine you are Michael Akercer, right?
And things are going pretty well.
You've got a term sheet from, you're what, 24?
You're a paper decabillionaire and NVIDIA and Thrive want to put in money at 50, right?
You're not that cash motivated.
You could take out a billion, right?
Or 500 million, right?
Things are going okay.
These are very rare deals, but.
Even though working with Elon in a year might turn out to be terrible, I would much rather initially work for Elon than for Zuck personally.
I would do it.
Like I would be like, Elon is the guy I want.
If I had to work for someone, it'd be Elon.
I mean, he is better than me.
This guy is.
fucking rockets, electric, he does everything and Zuck's firing everybody and going crazy because he doesn't have an LLM.
Not that he isn't one of the greatest entrepreneurs, but I wouldn't want to work for Zuck, but I would want to work for Elon.
And that actually matters.
It may be a mistake in M&A as a target, as a CEO, because we've all, when we've been founders on the other side, we've made mistakes here, right?
I tell founders to ignore it, ignore the brand.
Ignore what you think the job is today because you have no idea in 24 months what the hell you're going to be doing.
But it is incredibly emotionally important to founders to land in something they want to land in.
And I would not want to land at Meta today.
If I was Alex at scale and I got 24 billion and I had a tough business, maybe.
But this one, man, I'll take Elon over that one.
Do you think Amazon or Meta go, eh, we'll take Cognition instead?
Is there a knock-on effect for the second player in market, which I think arguably now would be Cognition?
I think it's interesting you cite those two.
There's actually a quality of absolute imperative to do something.
You know, who has to?
And I think SpaceX had to because they had all this compute and it looked like they had to fill it.
Now, subsequently, they've also been able to rent that compute to Antropic and Google.
I don't think it's nearly as existential for different reasons to the two you named, and I'll name one for whom it is.
For Amazon, they're in the AWS business.
They got lots of contracts with Entropic.
They basically have the compute for Cloud Code.
So they're basically getting the inference side revenue for that.
They don't own the model, but it's important, but not imperative.
They've never done a $60 billion deal at the start now.
Meta, that to me is more a, again, unlikely.
And the reason they didn't do it earlier is their core business is an ads business.
It's freaking amazing.
This is literally, I have a wonderful ads business.
It kicks off north of 100 billion.
I've chosen to do this new AI thing.
We can pretend it's strategic, but it's really, I just freaking really interested in it.
I don't know if you have to do another 60 billion deal on top of that one.
So not as imperative.
I think just to put it out there, I'm going to name the one.
The company for whom this market matters.
is Microsoft.
Because remember, he's now long since gone and owns a basketball team, but Steve Barmer would jump around the stage sweating, screaming, it's developers, developers, developers.
And the fact that they've lost that connection with developers, that GitHub is now a trailing edge product, is to me over the medium term, pretty significant loss.
I mean, operationally, the numbers are fine.
It's a well-run company.
But if you wanted to name people who should want to own a leading state-of-the-art coding product in this brave new world, clearly the number one person is Microsoft.
Now, the antitrust issues would be a longer discussion.
But I don't think, in other words, I don't think owning the developer is existential for AWS.
I definitely don't think it's existential for Meta.
It's 100% existential over the medium term for Microsoft.
I've got a fantastic tweet that said Satya should buy it and then make Scott be CEO of Microsoft.
I thought that would be a rather ridiculous thing to replace himself, but I actually thought Scott would be a rather brilliant CEO of Microsoft.
My experience with big company M&A is that the idea that, Harry, what did you say that someone else feels like you feel like they've got to, oh, the folks have to jump in to respond to Cursor that everyone else.
Yeah.
My experience is that doesn't happen.
It doesn't actually get everyone else to say, hey, I've got to go buy Cognition.
My experience is that usually the other thing happens.
I wanted to buy Cursor.
I lost cursor or I didn't even know I lost cursor because Elon swooped in.
Now it pushes it up my existing priority list.
That's how number two and number three get bought.
Not because there's a panic for land grab, but because.
I didn't get what I wanted.
That's when you got to be really thoughtful as number two, because that's when you get bought as number two and number three.
When just number one just gets taken off the table.
It's not so much a land rush.
A lot of times the choirs are like, I thought I had more time.
Maybe such as like, I thought I had more time with Cursor.
Andresen was going to do it at 50.
I could do it at a hundred billion next year.
I wanted to wait and see.
And they thought I had more time and they didn't.
So then they go buy number two.
A couple of times I've said on the other side, I don't know that it creates such a strategic arm race that everyone just gets picked off instantly.
That might be a VC partial myth.
There's another mega acquisition that happened this week.
It's not quite the $10 billion that was reported, but OpenRuda, $7 billion acquisition by...
the irish polison brothers bro your brethren i mean what an incredible journey alex satala ceo who i just had on the show he founded openc before it's obviously the leading llm routing company it raised a series b it was at 1.3 billion dollar valuation just four months ago so it's 5x that for capital g to 12x for menlo and andresen how do we think about this it's widely reported now it's confirmed You can see intuitively how Stripe get there from here, right?
Is that, you know, when you look at their existing business, they get paid a small percentage of the money flow to manage complexities in collecting cash via cards and also by ACH now.
And here they're going to get a small amount of the money flow to manage the complexities of picking models and running, you know, as an enterprise using a single API to run, you know, tens and maybe hundreds of different models.
So kind of, I can see at the conceptual level it.
It totally makes sense.
And a lot of the lift recently has come from.
even on their payments business, has come from just their customer base being so AI forward that every time you spend money with open AI or Anthropic on a credit card, they get some of that money.
So I can totally see how they get there.
And again, it's some version of the same thing as the cursor comment.
You can do the old intellectual, oh, what are the barriers to entry for this business?
Oh, over the medium term, there'll be lots of people.
And there's a ton of weenie router companies out there, and everyone's building one.
But it turns out in an early land grab, when people are moving, remember, the metamarket here, is going 10x year on year, if you take Antopix's growth rate as the big picture comment here, right?
If you move early and you build a useful part of the infrastructure, you will probably find an acquisition at a price that doesn't make any sense on a DCF to you basis, but makes huge sense to the acquirer.
Because just like Elon will turn cursor into money, cash flow far quicker than cursor could have turned cursor into cash flow, I'm willing to bet Stripe.
will turn open router into money probably quicker than open router could do on a standalone basis.
This is what happens in a crazy market is that If things slowed down, a lot of these, the acquirer would run the buy versus build and say, there's no hurry.
We've got five years.
When things are moving as fast as they are now, you're going to see, in my view, until such time as you see the correction and the acquirer currency diminishes, you're going to see a whole bunch of people like Entropic say, screw it.
I want to be in world models.
I'm just going to buy the card.
I don't have time.
Screw it.
I want to be in Stripe.
Screw it.
I'm huge in payments.
I want to be in the AI influence flow.
Quickest thing I can do is spend several billion dollars, some of it stock, get these guys and be rolling in a week.
This is what you see.
You saw it at early internet stage.
You saw it back in times even before that, that would make you cry, Harry, if I even mention it, right?
When things are moving really quickly in a build out, you just see these kind of amazing acquisitions where the value to the acquirer dictates a very healthy price.
And it's one of the reasons why venture works.
You go right out there in the risk continuum.
But if you time it right, you can get these kind of returns.
And, you know, well done A16, well done Menlo, well done Capital B.
It's a reminder, you know, how weird revenue is in M&A.
Because if you're bought by PE, top and bottom line are incredibly important, down to the significant digit, down to cell G38, okay?
If Workday goes private, exactly what its DCF will look like in 2032 is so important.
The weirdest thing about M&A with big companies is revenue is so important to argue over multiples and the price.
Like, it's so important to price.
But it's irrelevant because it's all about what Stripe can make out of Open Router.
It's such a weird thing that your revenue going into big M&A actually doesn't matter at all, even though it's probably the biggest input to price.
But then it's like Stripe, what's Open Router doing?
70 million, 80 million today?
Stripe does not care for that money.
And so you often see acquirers will abandon even the existing revenue, right?
To do the revenue.
It's just, it's such a weird paradigm.
Two things, Rory's right.
Stripe actually appears to be very good at acquisitions.
It's how it...
accelerated into crypto and otherwise, they're good at it.
The flip side you could say is maybe they should be better at building these themselves, right?
That's the grouchy version.
Why didn't you build it?
But if you're good at M&A and this is 5% of your market cap plus cash and you want it tomorrow, it makes sense.
You have to be good at M&A though.
And then you do it.
The counterpoint is...
I love OpenRouter.
I talked about it on the show like six months ago.
I'm a customer.
I'm a user.
It was brilliant.
It was one of these pieces of software like 11 Labs, which is just instantly easier to deploy.
It's just elegant.
It was just a beautiful piece of software, but it's pretty niche.
In what sense, Jason?
Just a genuine curiosity.
So OpenRouter, as I understand it, and I think it's right, is really strong in sort of...
developer type tools where you want a simple way to pick a model, okay?
Because you can pick any model.
You don't need to get on fireworks.
You don't need to set up anything.
And it's really, really, really strong with chat bots where like they don't have to be perfect.
When you're talking with my digital Harry or digital Rory, you don't need perfect outputs, right?
You could route between models based on availability.
And those are their two niches.
Now let's talk about workflows with a lot of reasoning for BNB when it has to be accurate.
You're gonna down spec to one or two models.
Because you can't have model drift.
You can't be routing from Kimmy to Quinn to 4.6 to Fable.
And all of a sudden, your B2B workflow that has to be perfect drifts from all of them.
It drifts even just going from one Opus model to another.
You see drift.
You have to QA it, requalify it, fix it, test it.
So for high reasoning models, people do Frontier-esque outputs, right?
People don't rotate through 11 models.
And I don't think Open Router is the right product for that.
And that's fine.
They get that too.
I think Stripe is, hey, listen, any transaction on planet Earth, we can take 2 point something percent of, right?
But it's not going to be true for open router.
It's a niche.
It's a wonderful niche product.
But in the world of routing, which everybody does, Databricks does, Replit does it, Lovable does it, Vercel does it.
It's a niche product with two really good niches.
But this is the risk to Stripe is that they end up owning a niche, a successful niche product.
And that's not their DNA is not niche.
It's just not the- First of all, I do think that's fair because we internally agonize about this space and that was exactly what we're angsty about.
And your framing is exactly correct.
The positive trend, let's spell out the positive.
The positive trend is as long as you have the frontier models trying to extract 100 billion in revenue from you this year and you're an enterprise, you're going to want a plan B, right?
At least to keep the thing honest.
So you are going to want some kind of running.
But it's what you said that resonated with me, Jason, a little bit, which is remember when cloud was starting, people were like, oh, I want to be multi-cloud.
it's really hard to be multi-cloud.
Here, maybe I want to be multi-model, but maybe I only want two or three models, and therefore I don't need this kind of routing functionality.
That is the risk.
If your enterprise customer decides I need to flip between three models, but not 10, then you write your value here goes down.
I would imagine the positive spin is your value here goes up to the enterprise if you can build on top of just picking a whole bunch of normalization of all those options and try and commodify the model.
So that's the kind of tension part.
The more you can do that and the more you can service the people who don't care all that much, the better your business.
But you're right.
If JP Morgan says, I want more than just on Tropic, but I'm not going to qualify 10 models.
I'm just going to work with poolside as my plan B and then offload the rest to something else.
Then you're right.
Then you have niche and you don't get that revenue.
Yeah.
Like for example, like this week, Rippling posted their view as a B2B player of what models they use.
Right.
And they, they had it all.
And they said in the world world across Rippling, we looked at two things that were best for us.
Opus 4.8.
It's an N minus one model, but it's well trained with their harness.
And then there's like, there's price performance and speed.
And then I think they picked whatever GPT 5.5 medium or something.
And they said.
The rest isn't worth it for rippling today.
Now that could change in 60, 90 days.
So they down spec to two at a time and then they have to manage the outputs from these.
And you may tune one set of workflows here, right?
That are long reason in another.
And even if you're rippling scale, you.
managing 12 models is too much.
If you're a dev tool and let people pick, so be it, right?
That's great for Open Router.
Or if you want to build into your own product a fallback, Open Router is a 10 out of 10 for this.
Like, let's say something's down, right?
Open Router automatically falls back, but I think it's a niche product, but it could be a massive niche, you know?
Yeah, I'm remembering the conversations now because you are right.
The great thing about the core Stripe product is all payments are equal and Visa is the rails for everything.
That might be the case.
I'm going to check out that post because, I mean, one of the big...
Questions will be how much pricing pressure enterprises can put on the closed foundation model companies and how do they put that pressure on because I think it impacts a lot.
Sorry, Harry, go on.
In five years time, will this be considered a successful acquisition or not?
Bats on prediction.
I think it'll be like the scale acquisition.
It will be the start of something that gets bigger.
whether this brand exists or whether even this product exists five years.
I don't even think this product will exist in five years, but I think there's a high chance, more than 51% chance it builds into a 20 or 30% revenue stream for Stripe and that's enough.
But does open router as part of Stripe exist in five years?
I'll bet you dollars to donuts.
Five years is so much time and it's such a niche product.
This product itself, if it does exist, it'll be deep in a dropdown menu on the top of Stripe, like 11 layers down because it'll be subsumed into the whole sort of token management.
platform, right?
They're TMP.
I don't know.
I think Jason's answer resonates with me is if it works, it'll be seen as a time expansion play.
What's fun about Stripe right now is they're doing that acquisition, which is very much a, hey, we don't play in this space.
Let's put a stake in the new ground.
And at the same time, they're talking about a PayPal acquisition, which is very much, we own this space already.
Let's buy these guys, fold them into what we already have, and just make a shit ton of money consolidating.
And actually, I think that's a clever strategy.
I mean, I think they're actually playing a very clever hand.
There's probably a one in three chance that they have a massive AI routing business in five years.
But if they do, that's a big second leg.
While at the same time, if they get the PayPal deal done, that's the kind of deal you have a high, to Jason's point about, if you're good at M&A and good at consolidation, you probably have a high degree of visibility that you keep those revenues, that you remove the entire G&A.
You get more of a two-sided network because you have consumer wallets, which Stripe doesn't have.
And you've done core consolidation acquisitions.
Doing them both together, provided you can pull them off, is super interesting in terms of building enterprise value.
And they're doing it all private.
Again, back to the comment, doing what looked like public company size M&A and pulling it off while private.
I know they got the...
investors to take Stripe stock in the open router deal.
I think some portion of it was stock.
And the PayPal deal is more complex and probably requires more thought.
But again, being able to do what is, I think, a $40, $50 billion deal and a $7 billion deal issuing paper while private is pretty impressive.
Stripe's Corp dev team need a bonus at Christmas time.
They are busy this year.
They are busy this year, but isn't everybody?
We mentioned margin pressure on foundation models.
Anthropic turns its first profit.
on $11.5 billion of Q2 revenue.
The business is getting better for Dario.
This was also in a week where Gavin Baker said about Dario saying he believes that they will be the final private company.
Did you see this?
We did.
And let's separate the hyperbole and the future from the facts in the present.
It's not surprising they're making money, right?
If you just go back to last year.
They did $4.5 billion last year.
And I think the gross margins went from negative the year before to like positive 30 or something like that, right?
On track, I think end of the year, roughly 40, right?
When you have decent operating margins, like 40%, and you go from $4.5 billion in a year to $10 billion in a quarter.
That means you have $4 billion of gross margin, right?
And that's literally in two quarters.
You can't add expenses below the line fast enough to stop yourself making money.
So it's inevitable.
I mean, yeah.
12x growth, which means they probably 14x gross margin if it continued to increase even slightly, and the trajectory has been increasing.
You're not going to 14x headcount or below the line training costs in six months.
So yes, I'm totally not surprised they are operating in composite.
We had run numbers at the start of the year and it kind of came to that conclusion.
I mean, the interesting thing will be as they continue to grow, as they buy that expensive compute from Elon, if you remember, that has a big price.
increase two months in, I doubt they will forecast for their IPO a base case of continuing profitability.
I could be wrong.
But this profit didn't surprise me.
I mean, it's amazing performance.
It's amazing revenue.
I mean, revenue with any kind of decent gross margin cures almost all ills.
I think the other question is, as we gear up for an IPO, which could be very imminent, right?
Is what numbers does Anthropa get away with, right?
You've got off balance sheet liabilities, right?
You've got massive commits.
You've got probably stock-based compensation like we've never seen in the history of mankind.
So if you get asterisks and daggers on your numbers...
they will be jaw dropping, right?
If they have to fully account for that, and some of that's non-GAAP, these off-balance sheets, if they're going to be hammered like a poor Wix or someone for SBC, and everyone's going to write up the horrific downside, right?
But I think everyone's going to look through all the nerdy negative things you could see in the numbers.
They're just going to ignore it, right?
But I do think it's important that it get ignored.
I think it's important for Anthropica to get ignored.
And I think none of that shit will matter, to use a technical term.
The only thing that matters will be the growth rate and the 27 and 28 projected revenue.
Provided the revenue comes, everything else will be fine.
If the revenue comes, then you'll need the off-balance sheet stuff and you'll have the revenue to buy it.
In other words, all these off-balance sheet stuff are basically, I promise to buy a whole load of compute from you in two years' time because if my revenue grows 10x for two more years, I'm going to need all that compute.
Well, if the revenue grows, you need the compute.
You're happy to have it.
In fact, you're insisting you get it.
If the revenue slows down, then you don't need the compute.
It all gets hard.
So almost everything is going to boil down to what number do you underwrite for the next two or three years?
And then, as you said, the stock-based comp, no one's going to care because...
The reason you worry about stock-based comp is because in a steady state like Workday, we can talk about that in a second, if you're giving someone 500 grand every year to show up and be a middle manager, they're probably mentally putting those RSUs into their comp.
And they think to themselves, I paid 400 in cash and 500 in RSUs.
And if you stop giving them the RSUs, they're going to want cash.
So it really is a cash number.
So in a mature business, it's totally correct to worry about SBC.
But the SBC numbers here are going to be huge because all these people got grants and then it turned out to be worth way more than they ever thought.
And yeah, the classic example, someone who was hired with a million dollar package in 23 ended up making 51 million four years later.
That doesn't mean you'd have to pay the next guy 51 million.
If that person had gotten the million they signed up for, that's all the real economic stock-based comp would take.
The other 50 million is just dumb luck.
You got lucky.
It's not a run rate.
I actually think it is okay in a hyper-growth company to look past a good slug of the SBC and normalize it out.
And conversely, it's not okay in a mature company.
That SBC stock-based comp in Workday or Salesforce, that's real money that people are spending.
And it's a little bit unfair because you're kind of giving the hyper-growth company a free pass.
But they get a free pass.
You get a free pass.
And it's the same thing we said about Cursor.
You get a free pass on margin.
You get a free pass on off balance sheet.
You get a free pass on SBC provided revenue go up.
Once revenue stop go up, all bets off.
Once revenue goes up, all bets are off.
What would it take in usage for Anthropic to hit the $200 billion in ARR plan for 2028 and then $600 billion in the next year?
The simple version is how many knowledge workers are in the world, all right?
How many folks can take a subscription?
Being generous, is it a billion human beings, right?
You know, if Anthropic has 100% market share at 200 bucks, that's 200 billion.
If Anthropic has 300% market share, that's 600 billion.
I don't know, Rory's thought more.
The 600 billion seems complicated, but, you know, our demand for AI is only just begun.
You can see 200 billion, which is the number, right?
Once you start getting the 600 billion number, it gets really hard because no one ever looks at the big number.
And I've just been doing some work on this, right?
No one ever steps back and looks at the big numbers.
I mean, you said a billion knowledge workers in the world.
Absolute bollocks.
Hard-nosed comment here.
US is typically 50% of the world's software budget because we're 50% of the world's high-end knowledge workers.
We're 25% of the world's GDP.
So at a minimum, if spend tracks GDP, it's only 4x the US.
But every software company is typically 2x US.
Why?
Because the rest of the world can't afford the same software we do because they're poorer and they have more people at lower wages and less software.
That's why we have crappy internet when we go to Europe.
So the truth is, the hard-nosed comment is this.
You probably take the US knowledge worker spend and double it.
There are 83 million knowledge workers in the US.
and then roughly 86 physical labor workers.
So that's what you start with.
And you start cutting it down.
And I literally was doing the math this weekend thinking about it.
You start cutting it down real quickly.
The truth is, you know, knowledge workers includes everyone in health care.
I don't think we're going to, you know, we're not going to replace the nurses.
It includes the teachers, right?
The sweet spot, the er sweet spot of the whole damn thing is there are about 1.8 million people doing coding.
in the US, and then including then QA and all the other, there's around 5 million people that do software related shit, systems admin stuff, all the rest of that.
And they get paid in total, grossing up about 600 billion a year.
200 billion means you're replacing a third of them.
That's a lot.
Remember we said this before, the single most important ratio, and I asked you about what you thought it was, Jason, is in a steady state, what's the ratio of salary dollars to AI dollars?
Because if it's...
50% of salary dollars, you can easily get to 200 billion.
600 billion is hard in coding, where you can't get there.
If it's 10%, then it's hard to get 200 billion across the whole thing.
So it really boils down to, in the steady state, how much software, because if software is the tip of the spear in terms of max adoption, what do you think for every $100,000 you spend on an engineer, or $200,000 you spend on an engineer?
Are you going to be spending 100K on AI, 50K on AI or 200K on AI?
That's the number.
Yeah, we're testing it.
The last 60 days are every single scale up is capping their AI budget for real.
It's not just Ubers of the world.
Everyone's capping it because it's grown truly exponentially, right?
Everyone's capping it.
It's 6 million a year, 8 million a year, right?
I think it'll land at 100 grand per engineer equivalent.
I think we'll give each of our best engineers.
$100,000 of tokens and in return, we'll cut the size of our dev teams 30, 40% effectively.
It won't exactly work out that way, but close enough is how it's going to work out.
So there's a hundred grand here for running inference 24 seven with 10 agents in parallel.
For what it's worth, I actually agree with that.
That's what was my mental model too.
And that points to a total and it's assume it's not just dev engine.
Let's give the sys admins, the QA guy, let's do the same thing for everybody.
Same thing for everybody.
You get 200 grand of wages, fully loaded, including all the benefits, and 100 grand worth of AI, but we cut 30% of you.
That turns out to be terrifyingly about a 200 billion plus or minus market in the US.
Next year.
No, ever.
Well, yeah, I mean, that's Anthropics estimate for next year.
My point is this.
If you count all the heads and apply the Jason Matt, you get 200 billion in the US, which probably means you struggle to get 350 billion worldwide.
That's the time.
And then you've got to go beyond software.
And there is obviously revenue beyond software, but it's nowhere near as fertile.
And the percentage isn't going to be anywhere near as high.
Yeah.
But it's funny.
It's exactly the number I come out with.
Because you see the ramp data that says the top 1% of their sample, which in turn, obviously, is a biased sample of tech forward people are spending 7K.
And then the median is spending like 100.
It's amazing, the dispersion.
And 7K times 12 is only 84K.
So the top...
1% of the most curated group you can imagine in terms of tech spend is spending, that's 1% for all employees.
So you're right, that's the pointy edge of the most optimistic spend is 50 cents of salary dollar.
I think we're gonna get to 100,000 in the investments I've made that are the best ones, the ones growing faster, especially the ones that are pre-20, 22, 23.
So they have a frame of reference.
They literally are shipping two to three times faster, only recently.
Only recently.
That was kind of bullshit last year, right?
People would say that, but it was all performative like token maxing.
I had two board meetings in the last week where they finished the roadmap for the year.
They're into 2027.
These are my fastest growing, two fastest growing, but not brand new companies.
They finished the roadmap.
They're well into the 2027 roadmap.
So you're going to spend a hundred grand on your team to do that.
But it's adding up to so many millions, it's overwhelming.
So I do really think there's some, this hundred thousand makes a lot of sense.
You could justify more or less, people will ratchet it, but I think it'll be the new normal and you'll cap your team and it'll all be, that's just what the CFOs will do.
A hundred grand of inference and you get to hire this many engineers.
But the idea that they're pulling their 2027 roadmaps in, it's not just performative, it's not just PRs.
You want to invest in that up until the maximum where it works, right?
But the absolute numbers are just getting really big.
Yes.
I got to say, man, if you're not that way, you're losing today.
If no, if you're not into your 2027 roadmap deep into it by August of 2026 in the agentic world, your team is not good enough to survive today.
This is your last chance to make changes.
Listen, if you're, if you're open router, you didn't even have a 27 roadmap.
It didn't even mean it because you're just remaking it day by day.
But if you're running the classic playbooks of these, I can get this much done each quarter, this much done each month, and you're not into 2027, you're going to lose to the competition.
You've got to be honest.
How deep into 27 are you?
Not deep enough.
Yeah, Jason always gives me these terrifying soundbites that I go back and think about.
Because we did this survey.
We tend to be fact-based people.
We did the survey of all our companies.
And we saw similar to the ramp dispersion, which is some companies all in, some companies adopting, but still dramatically less spend per head.
I can't remember the average, but it was dramatically less.
And what I didn't do, and actually now that I think about it, I should do, and I will do, is go back and see if you can touch a strong correlation, which you believe you should be able to, between out- importance, but can you justify the spend, then you should be saying to the laggards, you're just going to fall behind.
If it goes out at two to two and a half trillion, would you be a buyer?
First of all, I want to be clear.
I don't think the software market is definitionally the end of the TAM.
I think the average knowledge worker won't have 50% of salary and thing, but they'll have a meaningful percentage.
So the TAM is significantly bigger than just...
developers, because you have lawyers, but I think lawyers won't.
Look, the K&E guy who's pulling 2 million a year as a partner isn't going to be doing 200Ks worth of tokens.
He's definitely not going to be doing a million dollars worth of tokens.
A lawyer would die before they gave a million dollars of tokens instead of a million dollars of take-home pay.
So the market is bigger than software, but there's nowhere else that's such a sweet spot as software.
So I don't want to be limited to 200.
But I think the really challenging thing, I'm...
I definitely want to be first out rather than second out in terms of going public, especially if you have some kind of near profitability story or bouncing around profitability.
I think it's a far more attractive strategic position to be going out as Entropic in the fall with a we've been profitable, OK, we're unprofitable again, but we're the winner in the enterprise, than going out next year where maybe the growth rates have started to slow both for Entropic and the public markets.
And if you open AI trying to access the markets, then I definitely think they're in a strategically more challenging situation.
I think they've just capitulated to it.
Of course you want to be first to your point, right?
I think OpenAI has had to get their house together, more executive turmoil, apparently a great last 30 days, right?
But first half of the year, slower than its previously junior competitor, right?
And they've had to do so much to say, Liz, we're going to go public second.
And then we're going to have a comp out there.
And the comp is what it is.
And we may not trade with the hype that SpaceX and Anthropic did.
And the world will not end.
Like we will trade at a very precise number.
We will know what we're going to go out at.
And the world will not end if we trade at 1.3 trillion.
I just think that they've given up on worrying about that because ultimately Rory's right.
It's much better to be first, but in the long run, it doesn't matter, right?
You're just, if you don't need the capital, it just is what it is.
But Jason, that's the sentence.
I'm going to push a little.
That is the sentence.
There are no two companies on the planet that need more capital than these guys.
In a world where you do need the capital, being second sucks.
Because I agree in general, you are correct.
It doesn't matter, you know, two companies go public plus or minus a year and a decade later, no one cares.
Well, we've definitely seen that over the years.
The thing that's challenging in this particular case is both companies still have enormous, many hundred billion dollar capital needs.
In that situation, I would much prefer to be.
I do.
I'm putting an asterisk around fear there.
I think you're right.
But the thing is, let's say, and pick your number.
Let's say Anthropica is public at two trillion.
It really doesn't matter, right?
OpenAI is going to be able to sell stock at a discount to its implicit valuation.
before it goes public.
There's still enough capital.
Let's say they're both worth $2 trillion, right?
Implicitly.
OpenAI is going to be able to sell stock next year at 1.8.
People will do it.
And especially if you have no stock as CEO in your own company, it's okay to sell at a small discount.
Yes, agreed.
And look, I'm not catastrophizing here, but I think the interesting thing is if you're the smaller market cap...
company, and you have the bigger capital need, which right now OpenAI does because they have a more ambitious capital need target.
Now, would you prefer to be the guy trading at $1.5 trillion who only needs to raise $100 billion, or the guy trading at $1 trillion who needs to raise $300 trillion?
At some point, these things become troubling.
And yeah, price clears all markets.
This is the best new technology market we've seen ever, perhaps.
And if you are the founder in that market, and even now the number two, you're going to be a track capital.
But you just don't know the terms under which it happens.
Going back to my comment, I think you will regret not being able to access the capital markets this year.
No, no, of course I agree.
And I don't want to spend too much.
My only point is the media and social media don't make a big deal out of this, right?
Who goes public first and who does better?
I just think Sam and the OpenAI team have said, this is our fate.
They could go public tomorrow, right?
There is enough people to buy these shares to go public.
They've decided that while this isn't perfect, right?
This is the best on the board.
And we're going to live with the doubt.
Like it's not the end of the world.
Like you can't.
solve every problem tonight.
They got to solve bigger problems, right?
The cards are the way they are, right?
Jason, you said about management team churn.
The churn, for those that don't know, most recently was Denise Dresser, who was the CRO, who left, and Dali Rajic has replaced her.
For those that don't know, Dali, he's one of the most respected CROs.
He was a freaking master at Wiz.
And I think the best CRO or sales leader in the business, who's Chad Peets, says he's the best of the best.
So I'm feeling a little bit more confident for their codex and enterprise division today.
Yeah, it's just a lot of change.
I don't know anything inside.
I just think Greg Brockman took over, right?
And brought in the whiz guy.
Just had enough of the Salesforce crap, right or wrong.
Actually, if you look across all of AI, a ton of Salesforce executives have been recruited, right?
To come in and help.
And you can make fun of it.
Like I used to make fun of how back in the day Salesforce hired Oracle executives because they took shots at Oracle.
But you need folks to know how to scale.
What is Salesforce at?
45 billion run, right?
50 billion run, right?
I mean, Anthropics passed that now, right?
OpenA is past that.
So you don't want to hire kids.
You want to hire someone that has some idea how to play.
So Salesforce is about it, right?
But if you step back for a minute, I'd rather have someone from Wiz that is close to technology, that is in a hyper-competitive space, rather than asking how many seats of Slack you want.
It's just a very different go-to-market motion, right?
It's very different.
Jason, you said if you have not already hit your end of year goal in terms of product and you're not well into 2027, you're behind.
I'm making assumptions.
I don't imagine Workday's quite at the cutting edge like two of your companies at 2027 already hitting those goals.
And Silver Lake Circle's a $43 billion take private bid for Workday.
One of the biggest SaaS buyouts ever.
We've got two of the best SaaS minds in the business here.
Guys, what should we take from this?
The SaaS isn't dead.
One of the biggest firms, one of the biggest buyouts.
The stock popped 18% afterwards.
Wow.
I think what you can take from this, because the SaaS isn't dead thing is just too simplistic.
I think what you can take is a very financially oriented, wildly savvy buyer is willing to bet money.
that they can buy this at a constrained price, lever it, and generate a return because the revenues are sticky enough to allow them to pay down the debt over five years and with reasonable multiple stability, sell it on and make a 20% IRR plus or minus.
I mean, I ran the numbers.
That's the bet.
So it's not, quote, dead.
But what it is not is wildly exciting.
What it says is, this is the mature phase of an industry.
When it's not about wild growth, it's not even about untempered growth.
It's literally about someone saying, this thing is growing at 13% year on year.
We can buy this thing for, what is it, roughly five times revenues, 16 times trailing EBITDA.
We'll probably leverage it two or three times, four or five times in EBITDA, but it's going to be a big equity check.
And then you run the LBO model and you say, you know, you keep at a 35% operating margins for five years.
You use all that cash.
It's roughly $10 billion a year in revenue.
So it's like $3 billion a year of cash.
You pay down the debt and the interest.
And, you know, provided you buy right, you can make 20% and almost a 2x over four or five years.
I look at that deal and I go, I'm torn.
Because first of all, I think it's like a wily smart.
It's very interesting when you run the sensitivities.
If you pay like 20% too much, it dips down into the mid-teens.
It's almost the exact opposite of venture.
In venture deals, if you're in the right thing, it almost doesn't matter what you paid.
You see cursor for details, see open router for details, right?
This is the exact opposite.
This is fine, precise financial engineering.
If you're wrong by 20%, 30% on price.
You know, your IRR dips from 20, which is totally acceptable at scale, to low teens, in which case you wish you hadn't done the deal.
Can I ask a question?
Precise financial engineering for a four to six year hold period.
Six years ago, ChatGPT didn't exist.
Are you able to do fine, precise financial engineering in a world where we move so fast?
I don't think system of record is, I think it's a moat, but I don't think it's a ticket to growth.
This is...
I think super important.
And it's something that everyone on X gets wrong.
It's great to have a system of record, which Workday has, even with AI and ALM's help.
It's very hard to churn or you just don't want to churn, but it sure as hell doesn't mean I want to spend more money with that vendor.
That's their challenge.
But it sure as hell means the five years are far more predictable than 95% than poor Monday, which we love, or others.
We have no idea where Monday or even HubSpot will be in five years at the S&B level.
We know pretty much where Workday is going to be.
10 years, right?
And so I think this growth versus retention is misunderstood.
There is a little bit of upside in this deal, which I don't know if it's part of Silver Lake's calculation.
The CEO came back.
One of the co-founders came back.
Anil came back.
He came back, he hired his successor when times were easy, just before AI, he brought in a great knobs and dials co-CEO, you know, like our friends at Daniel at UiPath and others and realized if I go to work today, came back.
So I don't think Silver Lake is planning on Anil like radically changing it, but I think if he does, there's real upside to that.
Maybe instead of their 20% IRR, it could be a game changer.
If he creates the agentic version of Workday, they at least have the founder back in the saddle doing it.
And that would make me feel a lot better if I were Silver Lake that I have upside.
But it wouldn't be in the damn base case.
Jason, you framed the base case exactly correctly.
It's 5.3 times 20.
In other words, what this says is financial minds will pay five times revenues for system of record growing at 13%.
Anything that's not a system of record, anything that's not growing as fast, price accordingly.
Because you're right, there's no way you'd apply the same kind of leverage to, for example, a to-do or a task management or a project management software or a website building software.
What this gives you is a sense of what the baseline is for best-in-class LBO takeouts.
If the Airtable Bending Spoons give you an idea of what it is, if you don't have that kind of system of record, you get 2.7.
If you're vaguely profitable and in a space where, as Jason says, you can't predict five years, you get 2.7.
And what Workday says is if you've got 30% operating margins, modest growth, but you're a system of record where you really can believe.
in the next five years, then if you're lucky, you get 5.3 times revenues.
That's the bid-ask spread right now.
Contrast that with the game for open router where they're going to get, I think a trailing revenue, plus or minus 100.
You know, you're going to get 70 times trailing revenues.
Which game would you prefer to play?
Workday has something that makes it a better deal for P that I think than anybody else on the target list, which is that it is a somewhat closed system of record.
Now, Salesforce is out there working their frigging tails off because They are a muchly open platform.
You can build your own agents on top of Salesforce tomorrow.
And a lot of the hot GTM startups are built on top of Salesforce.
They're not necessarily only on Salesforce, but it's open.
Try building on Workday.
It ain't so easy, right?
It is like LinkedIn, right?
It is intentionally barely open.
So there are negatives to that, right?
But it also means you're gonna capture more budget overall in your ecosystem than you would for others.
It has more of a buffer against agentic damage to your growth than an open ecosystem has, right?
Open has negatives today.
And so I would want system of record, churn impossible, closed AF.
I want the most closed system that can't churn because the reason system of records aren't that great is because you need your system record.
But if you're remotely open and you can produce a better agent yourself or a third party, the value will extract to the agent even if the system of record is retained.
But Workday is so closed, they've got a leg up, right?
Jason, how open is Salesforce?
They are a toll keeper like a Shopify, but they're pretty open.
Shopify and Salesforce are pretty open.
The three of us, we can use OAuth to ship a Salesforce app tomorrow.
Just to prove that, Harry, really quickly is that, look, there's a bunch of companies, even in pre-LLM world like Gong, Outreach, SalesWolf, that are all effectively built on top of the Salesforce platform.
You can't name the equivalent with any E's in Workday.
There's a few, but it's much harder.
Some of the planning tools, but pretty much most, and it makes sense, within the financial accounting system, everything gets sucked into the gravitational pull that is the GL and the accounting system.
So I agree.
That's a good point, Jason.
Whatever dollars are in that ecosystem, If they're careful and shrewd, Workday will get most of them.
And on the other hand, if they get too greedy and they don't invest enough, then the customers start thinking, oh my God, this is just not advancing.
Over five years, maybe I do need more of this agentic workflow on top.
Maybe the smaller customers start evaluating that suite, start evaluating the next generation.
Even at the very small end, you've got the realists, you've got the campfires, you've got the people like that.
You can't be such a greedy bastard in your ecosystem that you incent people to start trying to move out.
Right.
But Silver Lake are smart.
Neil's smart.
You could have this be a profitable, self-contained universe.
But remember, the most exciting version of that is you pay down all the debt in five years and you double your money for a 20%.
That's as good as it gets now.
It's on a lot of money.
You're probably putting in plus or minus a 20 to $30 billion equity check because you're not going to get infinite debt.
You know, maybe 20 billion.
You might get 18, 15 billion of debt.
which means you need a 25 to $30 billion equity check.
So you're going to turn 30 billion into 60 billion, which on a multiple basis is not amazing, but it means you've generated 30 billion of gains and 20% of that in carry.
So someone's about to make $6 billion if they can pay down this debt and just knuckle down for the next six years.
Go team.
Yeah.
And Anil gets to rebuild his company outside of the public company eye, which is slightly overrated because he has to hit the underlying numbers, but it's much better.
Instead of large numbers of stupid comments, he will get one very focused comment from one of the world's smartest investors.
It's probably a trade-off.
Just one last thing on this versus Salesforce.
It's just interesting.
So we run Salesforce entirely headless.
So we have our own agent, 10K, our own AI VP of revenue.
It runs Salesforce under the hood.
Pro is it makes Salesforce much more powerful than it ever was.
Like I didn't log into Salesforce for seven years.
Now I log in every day because I have an agent.
Con, it can connect anything.
The agent, it literally can connect to any other agent, including competitors.
including other data sources, data lakes, data everything, the agent doesn't care.
It's really a weird world as a system of record or a core system.
Do you want to be extensible and open, right?
Sales sources said you can be headless.
Risks and opportunities because you make it much easier to abstract you away or to compete with you, even while you may retain a few seats, right?
The logo retention may be high, but it makes you have to run faster.
Workday doesn't have to run that fast.
Everyone can't run it headless and integrate any single thing or pull out all your employee data and push it into my own ATS or my own system or own financials.
It's a shrewd deal because it's the best mode out there with the system of record.
And I go back to my comment.
If it is a shrewd deal, it also by definition means it's the high watermark of what deals are going to look like.
Plan accordingly, people.
You get 2.7 from the Ben Spoon and you get 5.7 from the Silver Lake guys and it pays your money, it takes your choice.
Lemkin, you have a buyout firm.
which other asset would you buy next?
I'd want to know who gave Jason money for buyout.
I would give Jason money for venture, but I don't see him as the spreadsheet guy.
I don't, Harry, I just think more and more about the fact that systems of record are going to retain their customers.
But I think we just underestimate that's just not enough to grow.
It's grow or die today, right?
It's grow or die.
This whole show, everything grow or die.
Who cares about that stock-based comp or anything at Anthropic?
My God, it's an open router, 192x revenue.
Just because your customers are prisoners does not mean in today's world, they will spend one more dollar with you.
In fact.
The CIOs want to cut what they spend when they're hostage, right?
They're like, okay, I want to spend 90%, 80% of last year.
What can we cut from our bill from the vendors we're stuck with?
It's a, I got to think, but yeah, Rory's right.
I'm not the best at the spreadsheet.
You know, I'm actually going to, I'm going to cancel my comment and disagree with myself.
Actually, I think it'd be great because I'll tell you what you would bring to the table that I think a lot of these P buyers missed.
It's this idea of mission clarity around growth.
If you don't have growth of some sort.
You're in a desperate race against the debt.
And the best you can get is a mid-teens IRR if you work there and you buy cheap.
And remember, that's when you buy at 5.7 times revenues.
Some of these PE deals were done four or five years ago at 10 or 12 times revenues for not as good a quality asset as workday today.
The PE firm should hire you as their operating partner, where for every new deal they do, you explain the facts of life.
It's really clear here, people, the only thing that matters.
You can't just stick it to your customers.
If you don't give them value, you're going to get shafted in the end.
Rory, for me, the death spiral here is the exec guy who's got no idea about AI and has a load of logos and has a load of middle management.
And I think Jason would be the freaking best.
I agree.
I changed my mind because you're done if you don't.
By the way, you can click the link below to donate to Silver Lake Lampkin Ventures for the buyout firm.
I don't want to spend money on the positive side.
If you look at it like a more S&B version, I'm not saying how widespread it is, but if you look on social media, a lot of folks are like, okay, I'm lifting off Airtable now.
And they're like, Bending Spoons is going to raise my prices 3x, right?
Let me start doing it now.
And so it's just an extreme version of what you have to be careful with everywhere, right?
I mean, Bending Spoons may lose 20% of Airtable's customers who finally spend a week lifting off of Airtable.
But when they triple prices, it's a good deal for Bending Spoons.
But it's going to happen a lot faster than Workday.
Growth at all costs on the consumer application side.
big fundraisers from Higgsfield, who raised at a $5.5 billion price from DST, and they hit $700 million in ARR.
And then you have Lovable, who raised a new round from Menlo.
They're around the $600-700 million ARR range too, raising at a $13.3 billion price.
Big price divergence for very similar revenue numbers, which I find interesting.
Guys, we've talked about these companies a lot.
How do we think about them?
Well, you know, on the lovable thing, the thing I was thinking, I mean, it's so much so crazy since when we started the show, right?
And lovable and replet were both raised in like 2 billion and we're really terrible products when we started the show.
Now they're great products.
They're truly generationally great.
I do think today engineers and developers will mock me for saying this, but I do think that they deserve us arguably a somewhat similar to be in the cursor conversation in terms of stickiness, strength.
capabilities.
They were not when we started the show.
Did Mendo pay up a little bit as an existing investor, right?
Who was already in it for maybe, but is that multiple that far off the cursor multiple that we just saw?
It's not radically off, is it?
Yeah.
A lot of it for the end of the year.
It's probably a little pricier, but whatever.
But it's not as out of whack as it might've seen with cursor as a comp.
These platforms are becoming, one thing is they're becoming.
very rich.
They're very good now, right?
Cursors, they're very good.
They can do so much more than they could six months ago.
There's so much more complexity.
I mean, cursor launched Origin, right?
Which would bought Graphite or whatever.
It's going to become a GitHub entire workflow replacement in a couple months, right?
I'm closer to lovable, but they both just launched automatic deep pen penetration as part of their products, right?
So you can go really deep on security.
So these aren't just little, like little hacks a year ago.
And it also makes the startups harder to beat them out, right?
As these become these cursor and lovable as a replets become true platforms.
They're great software today.
So when the cursor deal was announced, our jaws dropped.
Now it's a comp.
It's just a comp.
And I don't think this is such a bad comp for Lovable to cursor.
I mean, maybe that sounds wacky, but that was the one when I thought, you know, Higgs field's cheap.
Although when the deal was done, it was at 500.
So it's funny in today's world, by the time the deal announced it's at 700 million.
So it's still cheap, but like, that's what happens if you don't announce a deal, the hour of the term sheet is inked, right?
And you guys know what both of them have done really well is parlay that kind of massive bottom end demand for AI in Lovable's case for website building and coding in Higgsfield's case for video, start with a PLG motion and then add mid-market and enterprise products on top.
It's a well-trodden path.
It was well-trodden in the SaaS days.
We did a bunch of that.
It all works.
You build your top of funnel, and then over time, you just add the enterprise features.
But they've both done it really well.
And you're right.
Lovable have punched their way into being a big-picture coding alternative.
There's different ways of going at it.
You've got the cognition style.
You've got the cursor style.
You've got the Lovable.
Replic style.
They're not direct comparables.
But in the big picture comment of the thing AI does best is write code.
Lovable is a tool that uses that to write a lot of code.
So it's got a lot of lift.
And yeah, so I think they've built good enterprise business on top of good consumers.
It's not as Hingsfield.
And I know you guys are in them, so you know much better than me.
I think there is clearly a market for enterprise video.
It's a good market.
It's not as perhaps deep as the coding market, but great to see them do it.
The one meta learning for me is I do think, took me a little while to see this.
I do think these products today, not forever, maybe only for six months, right?
Or who knows?
I do think they now are defensible and have moats.
I mean, for example, Higgsville, I was one of the first 10 customers, I think.
What could you do?
make a four second video using Kimmy or Quinn, who cares?
It was a great way to do it because I didn't even know how to use a Chinese model, okay?
But that wasn't particularly defensible.
Now you can make a full length motion picture and you can do it another, it's just so hard.
And now that on Love It, Repable, which we, even though I'm a user for you, you could have made fun of these products when Harry invested, when we started the show.
Now they really can almost build production grade, highly secure apps with everything across.
Like it's just some, I know we're building so quickly and you better be into your 28, 29 roadmap.
or you're failing, but they are starting to get these layers of moats.
And the folks that work at these companies are so smart, right?
Hicksfield is like the smartest mathematicians in Kazakhstan.
Lovable and Replit have become talent magnets.
I mean, I know the team at Replit better.
You walk into Replit, I mean, these are the smartest people that Amjad could recruit for years.
And so these layers are not impenetrable, but...
They start to get thick and crusty, this crust around them, right?
Staying with that, because there was a whole bunch of, oh, what's the moat?
I think the truth is in any new software market, out of the gate moats are light, but the companies that execute and get traction, you accrete moat over time.
I mean, just to give two historical examples.
The Netscape browser wasn't that early on.
It wasn't that hard.
But as yet, you parlay that into other things that ultimately you only got acquired for 10 billion, which at the time felt like a failure, oddly enough.
But the initial thing was relatively simple.
It got complex.
I mean, the MS-DOS product, and the classic example is Magnet.
The MS-DOS product was mind-blowingly simple.
But over time, you just accrete more and more value.
And the same thing's going to happen here.
Yeah, I mean, will there be some guys who stumble along the way?
Of course there will.
But you're right, Jason.
Two years ago, it is probable that someone could have built a lovable competitor with the features that Ed had relatively quickly.
As they add more and more features, that just gets harder and harder.
Yeah, and I don't know that that was obvious six months ago that this would happen.
I don't even know it was obvious to these companies we're talking about that it was obvious, right?
Yeah.
I think, going back to Mike, it just shows just push on forward, add more stuff for your customers, revenues grow, good things happen.
If you're faster than everybody else.
You just have to be faster and better.
That's all.
Just faster and better.
Then it will accrete.
Faster and better is a more tangible thing than thinking some kind of, I mean, yeah, there are businesses that are much more moat central, right?
Massively high IP, obviously the model companies to some extent, and definitely things like the bioinformatics companies there.
But there are also businesses that will become wonderful businesses where the moat is, as you say, Jason, faster and better.
And you just got to know which game you're playing.
Speaking of high IP businesses, literally like three weeks ago, Etch raised at $10 billion.
Today, they've announced they've raised $700 million at $21 billion from Jane Street.
Kleiner, Sequoia, Andreessen, four weeks after, double the price.
It was a good month, Harry.
You only need one great month to raise today, whether you're pre-seed or north of 30.
You used to need three to four good months to raise.
Now you just raise on the one.
Listen, I don't know the details of the deal.
I mean, Jane Street wants to be a customer too or something.
It's not that they're suspect.
It's just you never quite know how it's all tied together.
So that was the only asterisk I had in the deal, but I don't know the details.
What is or have I missed that we should discuss?
There's one that I don't know if you missed while you were vacating there, Harry, but the Department of Justice is picking on Paul Andreessen because of these overlapping boards.
I put it in.
It's in my schedule.
Thank you for mentioning the vacation.
But what's why is it?
What's the story behind the story?
There must be a reason.
And I did the story because, yeah, I often think one of the jobs we try and do here is let everyone and not people who listen know what's interesting this week.
Right.
And I will admit this time yesterday, I knew exactly Jack.
I was like, huh, what gives?
I looked at this and I'm like, why is.
Let me say something cynical and then retract it.
Why is the Trump administration picking on Andreessen Horowitz?
One would have thought that there is honor among thieves and gratitude.
The definition of an honest politician is when he gets bought, he stays bought.
Yeah, Elon got his deal done in weeks, his $60 billion deal done.
So I did the research.
And it turns out that this initiative, no surprise, was actually kicked off in the prior administration, which frankly was much more willing to, quote unquote, get involved in business and kind of try and tell them what to do.
What's happening here is, zoom out, there's something called the Clayton Act, which I think is the early 1900s, an antitrust act, section eight that basically says individuals can sit on two boards of companies that are competing.
And there's all sorts of definition of how you define compete, there's a de minimis threshold, and that's on the statute books.
It turns out under the Biden administration, the DOJ, I think it's the FTC within the DOJ, but don't quote me, had actually made some actions on that.
There was a couple of general business folks who were in overlapping boards.
And interestingly, Toma Brava, they had a couple of companies where, in one case, I think they'd spun off a separate company from the existing company.
So they had a lot of overlapping boards.
The DOJ got on them.
And eventually, they said, we just take the board members off.
It was Wi-Fi.
So this is a thing.
Right.
This is apparent.
And it's like a low consequence thing, because what invariably happens is if the department comes around, you just pick the less interesting board and you come off it.
And what sounds like what happened here is, even though, as I say, you'd have thought the administration change would have killed this, apparently as part, remember when 5Tran and DBT were merging?
The kind of DOJ had to look at that because there was antitrust issues and that got true and it was passed.
But as part of that, it kind of, the light went on in someone in the Department of Justice head that says, hmm, do we have a Section 8 Clayton Act violation here?
Because Andreessen's on the board of Databricks and they're also on the board of, I think it's Fivetran, right?
And now they're competitors.
So now this has been percolating and now they're investigating, right?
This is one of those things where I know why the law originally exists.
It's all back to JP Morgan and overlapping boards.
the antitrust and whatever.
You look at this and you go, really?
Is this the biggest fish you have to fry?
But my guess is it peers out into some version of the venture firm just saying, we'll take off the board member on Fivetrans, whatever.
Now, it's interesting.
There are ways you could contest it.
If you gave a shit and wanted to litigate, there's all sorts of things because it actually said the legislation says individuals can't be on two boards, but it's not as clear on can two separate individuals be on two separate boards.
There's a whole bunch of reasons why you could decide if you had the stomach for it to litigate and see would the Department of Justice back off.
But the truth is, no one's going to bother.
I shouldn't say no one's going to bother.
It feels to me like if this thing rumbles on and the Department of Justice doesn't back off or they don't decide the competition issue is the minimus at some point, if it got really serious, is my point, no one's going to get into trouble for this.
If it gets really serious, they'll go, OK, we'll take a board member off.
Yeah, it's probably a non-story in the end, thinking through it more, right?
Pain in the ass story.
There is a remedy here.
You resign, right?
It's not damage.
If you're the compliance officer on Andreessen, you're wasting a lot of your time on this.
But you're right, a non-story is a...
The only weird niche thing.
But classically, you might ask the founders if they're okay with it of each company.
Maybe that's not even a permissible out under the Clayton Act.
It's not actually.
The funny thing is, to your point, you're exactly right.
And this is a very interesting example, because this is an example of you and I both know that that's the asset test.
We would be worried about, is founder A pissed about founder B?
Are we damaging the other company by disinformation?
But the classic antitrust thing is all about consumer damage and what they're hypothesizing absurdly.
is that the Databricks guy and the Fivetran guy get together and they say, why don't we raise the price of tools, of AI tools, and we'll stick it to all our consumers like JP Morgan and B of A and whatever, right?
And that's so far from what's happening.
And this is the problem.
You pass a law for one reason, to prevent US steel from raising prices in 1909.
And here we are in 2025, 2026.
And do we really think that Databricks and Fivetran?
are our DBT are colluding about the price of data tools.
You're right.
The logical test would be Founder A, are you cool with this for Founder B?
And if they're cool, we're cool.
But it turns out that's not the way we write laws.
Yeah, I mean, if Martin Casado had to step off the board of Fivetran after exiting Cursor at 60 billion, it's probably okay, given their position in Databricks.
It's all right.
That guy just got us a $60 billion exit.
We're sitting on 200 billion at Databricks.
Fivetran, good luck.
We'll switch to an observer seat.
Yeah, anytime you want.
I'm going to move to observer status.
Like, that doesn't work either.
You got it.
It doesn't work either.
They've actually thought of that.
They're literally like, Mr.
J.P.
Morgan can't bring his big banker nose in 1909 into any of the meetings.
Yeah, no, that's what we're trying to solve.
That'll be it.
Just CC me on the updates.
Genuine comment here.
It's why, and this is a serious comment, it's why when we talk about all these regulatory regimes for other things, you have to remind yourself, these regimes go on forever.
And if we pass some law about AI regulation now, you've got to be really careful.
The unintended consequences, months, years, and decades later, once the regulatory law is passed, it doesn't leave.
You know what?
One last thing in all seriousness.
At Andreessen's scale, and everyone has to take the Series 62 and you're broke.
There's probably 40 or 50 legal things going on in the background at any given time, right?
It's probably not even four.
It's probably like 40.
They don't even talk about this one, right?
It's mentioned it.
Let me know if I got to do anything.
I got to go to that pasta lunch with Michael for the closing lunch.
The $12.
$12.
$12.
Yeah, let me know if there's an issue because there's like 50 other lawsuits.
Everyone's coming after Andreessen, right?
Yeah, it's the old no conflict.
no interest comment.
Exactly.
They have lots of interests, so they have lots of conflicts.
It'll be fine.
Boys, thank you so much.
That was awesome.
I loved that.
But before we leave you today, you have the idea, but with most AI tools, you hit a wall.
The setup, the config, the gap between what you pictured and what you actually ship.
Well, Base44 is where that wall disappears.
You describe it.
Yeah, Base44 builds it.
Apps, websites, AI agents, real working products built in minutes using nothing but plain language.
And it's all batteries included.
The backend, the database, the authentication, the hosting, the heavy lifting is handled.
So you just really stay in the flow.
This doesn't just take the busy work off your plate, but it gives you an advantage and pushes you past what you thought you could build alone.
So in this market, fast is the baseline.
To win, you just have to be first.
Base 44 is that edge, the move that skips the troubleshooting and gets you straight to the breakthrough.
Build your next thing at base44.com.
That's base44.com.
While Base44 turns ideas into apps, Plaud turns conversations into insights.
Founders and operators spend way too much time every week jumping between meetings, investor calls, brainstorms, customer conversations, and then trying to piece everything back together afterwards.
And that's why I've been using Plaud.
Plaud instantly captures conversations, voice notes, meetings, random ideas with one press, and then turns them into clean summaries, action items, mind maps, and searchable notes that you can actually come back to later.
later.
Honestly, it feels less like a recorder and more like an AI-powered, like, brain memory system.
And the crazy part is the hardware itself.
The Plaud Note Pro is literally as small and thin as a credit card, so it's just always with you when something important comes up.
There are already more than 2 million founders, operators, investors, consultants, and professionals using Plaud to stay organized.
So think more clearly and stop losing great ideas and important details.
Go to plaud.ai slash 20VC and use the code 20VC.
for 10% off.
That's P-L-A-U-D dot A-I slash 20VC and use the code 20VC for 10% off.
While Plaud captures the conversation, Finn helps continue it.
As AI agents become more common in customer experience, teams often end up juggling multiple silo tools for every job.
Well, Finn was built to change that.
It's a single unified agent that works across your entire customer experience from service to sales to success.
and beyond.
Fin is the agent making perfect customer experiences possible for thousands of customers.
It's powered by custom models, trained on years of real customer interactions, so it understands the nuance and complexity of customer service better than any other agent.
That means faster resolutions, more consistent support, and just better experiences for every customer.
It's also designed to be fully self-manageable, so you can easily improve and adapt it as your business evolves.
No third parties required.
Leading companies Companies like Gamma, Asana, DoorDash, and Crypto.com already use and love Fin to deliver better customer experiences.
So for a limited time, you can get $500 a month in Fin credits.
For your first three months, learn more at fin.ai forward slash 20VC.