20VC — Frontier Labs Threatened by Kimi? & Stripe Buys PayPal

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right because one of the fun things about this policy dispute it brings out the hater in everybody right and you know um Dean Ball said what he said and then two people who can be controversial came down strongly on the other side and I support them both the first was David Saxs the former aisar who basically said this is rubbish stop and then the second one was Emil whom you mentioned before Emil Michael I'm never sure the pronunciation of his last name who was a guy at the defense department who got totally sideways with Entropic. I mean, what I like about that guy is that man knows how to hate and one of his biggest hates for the last decade and a half has of course been Bill Gurley from his time at Uber. So, I really find it. So, if Bill and Emil are on the same side saying don't ban these models, then you got to know that there's got to be some truth in that. It's got to make you think cuz cuz that's an interesting lineup. But yeah, I think there and I actually just saw literally as I came on and look, this is the Trump administration, so things change every day. But a political league today basically saying some version of we're not going to ban these things on any significant basis, which as Jason points out is very different than saying the White House decision support system will be run on Kimmy, right? Even if it's Kimmy hosted in California, I think we can take it for granted it won't be. Right? But the look conversely if you're if you're a decagon and you're a startup doing inference on you know customer support queries for a very boring consumer product there is no reason why you should pay marquee prices when something 10x cheaper is available and it would be horribly bad policy to ban that. Right.

Well look the one thing I will say just add and bill grouchy another rich grouchy billionaire grouchy Bill Gurley's got probably got 30 IQ points on me. Okay. and he's seen it all. Right. And and even as grouchiest point, I learned something from, right? I always learn learn from it. So, having said that, I don't think you're going to convince me there aren't some data export risks with China based models. You're just not going to convince me based on what I've done with all our agents in building. And if you're not going to convince me, I don't think you're going to convince 99% of the world that there isn't some security leakage issue. It's already scary how much of our data we put into these closed source models in the US. It is scary. Here's Elon saying scam altman every day to create distrust. Right? I there are we cannot understand what these models do. They are connected to the internet. We cannot even even if we have fable read it and have it read it itself. I don't think you're going to convince most of us there isn't data export risk.

And so I think that's going to lead to tighter constriction than this you know leave everything open so we can compete in my portfolio company's benefit uh argument. I think every CIO is being told right now, oh don't worry if you hosted onrem, you remove any security risks and the back door then is removed that could potentially be there. Why would you not be alleviated by that reassurance of onrem would solve that solution? Why would you not be reassured? Rory's more of a historian here than me. You can you can mock our regulatory bottles bodies, but they're here to answer those questions for us. Is it safe to drink that cup of coffee? The American Heart Association, I think, just said six cups are safe now, right? This week, now I know. Now I'm cool. Right. I was a little worried about my caffeine consumption when we did. No, no, seriously. I mean, I'm not sure they're right. Who has said my data is not being exported through the most complicated, borderline self-aware software of our lifetimes? Who who can say that? Especially, and I and I I I admit there this is can be triggering. There is a history of data export risk with Chinese products.

These are companies that are arguably run by the PLA. I'm not I'm just saying my lifetime of experience says I'm not confident there is and and just the internet telling a CIO I don't think is good enough and if I were a CIO it wouldn't be good enough to me unless as long as if I thought my job was on the line. I don't want to take this risk CIO of some Fortune 500 global 2000 company unless everyone I don't I don't know man.

I don't think it's triggering to say that there are IP risks in this. I mean I gen at the risk of being kind of level-headed here the data is very clear that you know technically important US companies Boeing for example suffer continual cyber attacks many of which are attributable sovereign state actors including China it's a thing so we're not being you know we're not being sensationalist or alarmist you know it'll be naive not not to put it on the table you're right both comments second companies I do I'm thinking about can you the problem proving a negative is can you know if you have an remember these are open I occasionally say open source incorrectly they are open weight which means you can see the weights but and you can run it yourself but you don't have technically the full definition of open source in the context of an LLM means seeing the underlying training data which you don't right but you have the open way the question is if the model is being run in a trusted US inference company based fireworks some of those guys right and you You could get into a long technical question is look what can it really do?

Could it initiate tool use on I mean it probably speaks could it initiate tool use on the customer side whereby the model sends a command back to the customer to exfiltrate their data. You can imagine being able to use these models fairly comfortably and being fairly secure that fairly certain that you have blocked access and this can't happen. So I mean I I I think you could in logic you could satisfy a technologist right that the risk is not there whether you can satisfy a politician whether you can satisfy someone who's just afraid of what they don't know is Jason to your point another question right I mean and I think you're right you have seen things like Huawei has effectively been prevented from selling to us to any cellular networks in Europe and the US because of this you as yet on Yeah. Unprovable fear. So it's not crazy that there will be some level of I think on the government side some restrictions. I think a blanket ban would be massive overkill to be very clear, right? But I think the interesting question it raises is this. Well, two two questions.

First of all, it's also worth pointing out that while we're talking about banning Chinese openweight models, the Chinese administration are talking about preventing those companies from selling those models to the US. Like just like we don't let them buy Nvidia, they're not going to let us buy their open source models. So which is kind of totally zany. We think they're trying to sell it to us and we don't want to buy it and they think they're trying and they think they shouldn't be selling it to us cuz it's so powerful. So we can that's kind of just weird in of itself. But I think the really interesting question here and it gets to thinking machines is is the opensource LLM open weight low let's call it openweight lowcost LLM business a good business and if it's a good business why can't some red-blooded American company step up and give OpenAI and Antropic a run for the money and Jason it's the point you made if this is I mean where's Grock where's Gemini I thinking machines had an announcement last week. I they announced a model. They they didn't position it as, you know, state-of-the-art frontier, but they kind of I think they made a comment on something that you can build upon.

Inkling, I think it was called. So, one of the and you know, at one point, Meta looked like they were going to go down this route, right? Is there a business? How can you make money? It's an interesting question. Can you make money as a maybe not completely openweight but a lowcost US provider of these models and be competitive with those guys because you know the the open weight models in China are getting 5070 billion valuations like it's not entropic but I wouldn't turn down a $50 billion outcome if someone could make a convincing case to me that a US company could do this. So I think that's one of the interesting questions here.

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Maybe it's because the dirty little secret is a lot of their advantage is distillation, which you can't legally do if you're US-based. So I I do wonder Jason to your exact point if there is a market for 80% cheaper intelligence and that's roughly what we're looking at in terms of when you take into account the cost of inference the difference between the bundled product that is an frontier model you know IP plus inference and an open source model where you dissociate the IP from the inference cost if you're looking at 80% cheaper opportunity and there's the mass demand for that when is someone going to try and fill that demand in the US? I just I don't know. I've asked so many people on on why we don't have leading open models in the US. No one's actually given me an answer. Uh we're still waiting for models from Reflection, which I think is kind of one of the

uh hopes that we have. Um I completely I was I was offered Kimmy today by the way, Rory, at 20 billion. Um this was the it fell into my inbox. I have an SPV for you. We do Kimmy at 20 billion. We're over subscribed, but we'll make room for 5 million for Harry.

Yeah, that's cuz we say such nice things about them. Thank you for your check. Um, but no, I I look, it's we're going to gloss by it and I don't have an answer, but it's a huge freaking question, right? There's this new category two um called LLM intelligence. Two companies in existing as premium products. Their combined market cap is $2 trillion. The combined revenue at this point is probably hundred billion plus or minus. There are four or five other companies in the US that are capable and have proven their ability to build something roughly comparable. None of them are taking advantage of this. And there's five Chinese companies that have proven their comparable and they're you know cranking night and day to take advantage of it. Where are you Google? Where are you know where are you reflection as you say? Where are you thinking machines? Where are you lamb? I mean the fact that there's four or five potential comp. It's just fascinating or are you asking them to dance? I'm asking them to ship you know a story and I'm kind of throwing it in here as a wedge. But when we talk about all the different models that we have on offer, one of the big kind of gossip stories or breakouts this week in terms of news stories was the information suggesting that open router is in talks to be bought several different acquirers. And then on top of that we have RAMP introducing their router routting model provider product. How

is it a great time for open router to sell? I think it's I think I think them leaking the story was very was very savvy. Why is it a great time for them to sell Jason?

Because the market's in flux. Everyone's figured out they need this. Open router like a lot of folks was was was was early and benefited from it and deserves it. Right. This is a repeat founding team that saw that there would be value to having a a fairly heterogeneous mix of models that when we started this pod probably made no sense at some level. It probably seemed too nerdy and too niche and too cool cat developer who who's going to need like yeah sure there's a little it's cool but uh you know guys like Rory and me we're going to stick to the big guns, right? and uh it everything broke well for them but it's still a niche product that more and more people are going to build variants of themselves and is this the plumbing they will pick will you know if you're on a lot of plat if you're on adjacent platforms if you're using data bricks gateway they'll they have their own harness they'll figure this out for you there will I don't know whether ramps competitor even makes sense like I but um it's my point is it's something that's going to become embedded in so many vendors that if I could sell for a lofty multiple of my last round. I I I might I might check out a five or six billion. Like it it just just it's just just because the next you you you've achieved a certain amount of victory in a market that's going through radical change and becoming part of everything. I might I I might I might I might take the offer.

Jason is answering the question, why is it a good time to sell? And you know, frankly, as you you yourself, Jason, have said, you know, and I say it too, the private market liquidity window opens so rarely that it's always a good idea to pay attention when it does. So, I think it's easy to understand that side of it. I actually think the interesting side of the discussion is the other side. Why would someone want to buy, right? And I think when I saw that article, I was like, yeah, that makes sense. If you think about the last conversation we had, you know, what's in the zeitgeist right now, it's this whole idea of can I get escape model dependency, manage my costs, have a whole load of alternatives easily available to me, right? If I'm someone like who makes my money as a hyperscaler hosting, especially someone that doesn't have their own just one in-house model they're pushing like Gemini. If I'm maybe Amazon in particular who's made a business of saying I'm going to support all the models. If you had maybe even Microsoft now that the divorce is coming true from open AI, you know, maybe this would be a great product to own if I was a cloud hyperscaler.

So I will admit I had that moment of because you often see and it's step out. You often see this in in this kind of market. You have these businesses where intellectually over a 10-year period, you can say, "Hey, margins are going to be tough in that business. It's going to be compressed and maybe it won't at scale in the end be an amazingly valuable business because it won't be able to extract margin. But on the other hand, when growth is so quick and people's urgency to adopt technology is so fast as it is right now, if you have a crucial piece of the plumbing at just the right time, when two or three people need that piece of plumbing, you can find yourself in a very interesting position in terms of M&A, right? Because it may well be that, and this is kind of a this is where the finance guys miss it.

It may well be that the NPV of the company on a standalone basis is you know couple of billion not huge but the value to it right now to a hyperscaler if they could shift 10% market share in the enterprise to them over the next half a decade by saying dude we are the cloud we are the model agnostic people and we'll make it easy could be interesting so I remember thinking I was I wish I was in that I mean which is always how you know what a venture guy really thinks it's like damn I bet you they could at a good offer right now. It's just interesting. So, yeah, I'm with you. I think it's an interesting and I interesting time to sell, interesting time to buy. I mean,

Rory, if you were on that board, would you sell at5 to6 billion?

You know, it's always hard to I mean, my first comment is whenever you get an offer, I always do the same thing. I say to the founders, one, the windows open. It doesn't open often. We should take it seriously. Two, I'm going to support you whatever you want to do. Three, if there's if there's concerns that you have that you've been sitting on and not telling me, now would be a good time to share so we can make an informed decision, right? And then go away and think about it and I have a whole process of how you you talk to them about it, right? I don't think you should pressure people into selling. I think your job is to give them whatever experience you have to bring to bear and then they'll make the decision because you know in the end and it's so funny because founders agonize about this when they think about control and they think oh my god these people are going to make a sale even if as the VCs we have board control 70% ownership and a dragalong for the founders Jason knows this if the founders who are core to the business don't want to sell it's not going to happen so what the first thing I tell the founders is it's your decision which I think is very empowering because it takes it away from people are going to make you you know that's the beauty of being private unlike being public where you don't have that degrees of freedom we could come back to that later um so yeah I I I would say to them take this seriously do you think you can be worth 3x this in 3 4 years do you think that's worth it but yeah I would definitely say take a day out of your life and think about this long and hard

the way Harry phrased his question was very VCentric would you sell at six bit what I can't do the accent Would you sell at 6 billion? Okay, I it that is I hate the term triggering that triggered me. That that's that that triggered me because this is a very VCentric way to think of it. I've got an asset. What am I sitting at in my last round? 1.8 billion. Okay, there's going to be dilution. I have there's time value of money. There's IR impact. The six billion worth is it worth it for me? I think for a founder when you start to get into nosebleleed offers and absolute terms it has to be 10x to go for it. It's not worth it for 3x. It is not. Okay. Let's say I own tw 15% of open router. Okay. For the money. Okay.

It's not How much am I going to take home? Okay. At 4 billion. I'm going to take home 600 million. Okay. I got Now, one of the founders I think is super rich, right? But but put put that aside. I got 4 million in the bank. 400,000. 40,000. I'm going to walk away with 600 700 million. 3x for you. It doesn't like maybe later in life it's now 10x and building something and this is another trit VC is building something truly generational. You kind of know as a founder when you're on that path. Okay. And so the VC that what should I do it for 2.8x on my last you know it's just it's the right way as a finance year to think about it. Don't get me wrong but it's a terrible way for a founder to think about it because there's way too much risk for not enough money. like going from again going from 40,000 in the bank to 400 million versus 800 million. It's it's it's irrelevant if there's risk. This is and and and sometimes then there is a handful of work. There is a handful of work in those next three years. It is a handful of sweat and a handful of market change and a handful of people that quit and move on and a handful of competitors that they're they're looking pretty good and they may pass you. Three 3x not good enough, man. Got to be 10x.

I'm confused. What are you saying? Are you saying to sell at six or you saying no? Which is odd because I'm saying if it's financial, sell at six. If the mo if the 18 is not enough, it's got to be 60 to be worth the risk for most founders. It's not enough gain. I I understand what he's saying. This isn't clearing the prep stack. This is clearing my life stack.

It was weird. I didn't think you were going that direction, but as often happens with you and I listen to the whole thing, I'm like, I get it. I think what he's saying is this, Harry. Right. you know, when you face that sell decision, um, you you don't not sell because you think you can make twice as much in a year, right? Because you just never know. And it like, you know, and I so in the end, even though I didn't think I'd agree with him, in the end, I did. It's like what I think he's saying is let's leave aside the what do you want to do with your life questions from a return perspective, you know, don't think incrementally. If you have a chance to sell a company for six billion and make 600 million and you you have a you think you can run it another three years and get you know 1.2 billion that might that risk adjusted that mightn't be worth it if your current net worth is $40,000 and that's actually good good financial advice. I mean it doesn't in other words if you turn down a big ass offer you better be sure it can be way bigger. You better have high certainty and high bigness. I I think that's a fair comment.

Yeah. If it's 10x this is my net advice. If it's 10, if you know in your heart and soul you are building a company 10x bigger than this, right or wrong, like like I I don't know, then go then effing say no and go for it. Here's a few more shares. In fact, friends, let me reload you. But but they only best at 10x.

It wasn't what I thought where I thought you were going cuz I actually thought you were going to say yeah something that you also Yeah. Don't sell also just because financially you feel you should. I mean because the other thing you're not taking account is that depends on the person. Some people just love running that company and frankly don't want to sell. It's their life's work. And I also think you have to respect I mean my point you also have to respect that. I mean again this gets back to the there's no one answer the founder decides. I've known people who are like this is my first hit. I'm going to take it who read exactly that logic. I am not I'm going to make 60 million bucks. I don't have one million buck and maybe I can make 120 in four years but I'm taking the 60. And I've also known other people who to a rounding error have said this is what I want to do for the rest of my life. Why would I take that money? I've got I've made three or four million in the secondary. I got my house. I'm done.

Can I ask more more more thinking is we said it doesn't matter RAMP but ramp doing their own data bricks doing their own. I just interviewed the founder of fireworks who announced their 17.5 billion valuation. Like is there any value in this layer if it's as commoditized as everyone? That's why I would sell with my limited knowledge but as a user right as a customer I would sell just because I think there's some commodification at a minimum right sometimes you're l I mean as to your job by this team but sometimes if you're early you can gain a lot of traction in something that becomes somewhat commoditized it's just it's just the way it goes and if you and the perfect outcome is to sell the moment it becomes commoditized but before everyone fully realizes it. That's when they'll give you the money, but that's before the value decrease rather than increase. And it my gut is it might be. It might be now. That crossover moment. And I think Rory kind of made a version of that point. It might be now. It spaces commodify. It doesn't kill everybody, but it might maim you, but it also makes it attractive. It also makes you attractive to acquirers for a window and then that window closes. The commod the commodification window closes. And um probably why Curser wasn't dumb to sell at 60 billion. I think we can agree that's true. I don't love the commoditization description. I think it it it it's an overloaded term, but yes, I

well an included feature and more and more folks will include your function some version of your functionality in their product, right? That's that that's exactly it. Where Yeah. which segus to the next topic,

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which is fireworks. Yeah. And inference in general. Yeah. I mean, take it away, Rory. I'm going to butcher whatever context that you want to take it on. No, no, you do. No, you do first cuz I'm I'm just Are you sure? I'll lay the framework and then you can just destroy it. Steamroll away.

Fireworks uh a leading inference provider uh announced their latest round which was a $1.5 billion round done by um uh index Gavin Baker uh Nvidia Lightseed 20VC. Amazing firms. Um they're incredible. Uh thank you very that they're really good. Lynn is amazing. Uh doing over a billion in AR got there in three and a half years and they announced around 40 trillion tokens a day up from 15. I mean I think the story is inference. Yes. First of all I agree. Yeah inference is a hu it goes back ironically to the prior comment on openweight models. it this kind of standalone inference is a big business right and you know obviously you know inference is both something that's done within the the frontier model companies where they do their own inference and people like Microsoft and Google provide the capex and provide the compute for that but people like fireworks and base 10 they and file they all make their money offering a variety of these open openweight models to third party developers and enterprises that want to use open source models to do AI, right? And it, as I said, the two trends go together. They're exploding because the open source trend is exploding.

So if you're base 10, if you're foul more media, if you're fireworks, if you're together, this is your marker than your moment, right? So yeah, I this is cuz this is how you access those because I can tell you one thing. We can going back to the discussion about open weight models from China. It's one thing to decide to use an openweight model on fireworks in the US. What you're not going to do is be using the API back to China even if they'd let you. Right? So this is a onetoone linkage between the open source the open way trend. Right? These are the companies that are benefiting massively from that trend and it's not the only kind of route for inference. There are you know inference for US-based models etc etc. But the vast bulk of it is oh my god I'm sourcing Quen. I'm sourcing Kim. I'm hosting Quen Kimmy. I want to use it as Cursor. I want to get someone to provide me some inference. These guys exist and you know they have lots of customer skew at the high end. I believe you know companies like cursor are probably big customers of all these guys. At least they were until they were acquired by um acquired and probably still are right. So yeah, I mean it's a great candidly.

I think you know it actually goes back to the point I made earlier. some businesses where and I think you know you can look at and say oh my gosh the cost con you know you have margin compression in your future because you're buying your compute from the neoclouds and you know you're offering this product and are you going to be scrunched and margins you know were probably slow for a while but now the beauty of it is demand is massive so whatever compute you have today whatever compute you've already signed up for and these guys sign up for compute from the neo clouds in general are bu are starting to build their own. Whatever compute you own now, you can charge way more, which means what looked like a grow a lowish gross margin business has now probably become a very attractive business. So, not only are they probably going grow growing 5x to a billion, but they're probably growing 5x to a billion with expanding gross margins. And just just to add some details there, Lynn said specifically that they were at mid30s in margins and that would move up as they eat more of the stack and they do plan to move into the data center uh layer themselves.

Yeah. And just to be clear for people, what that means is Yeah. And that's exactly where I thought they'd be and good on them, right? 30%. In other words, what they're saying and this is going to be an and this and I agree with that sentence. It also means that the challenges I hinted at are there in the future, right? Because what they're saying is if I'm buying data center compute and then effectively selling data center compute with hosted LLM, at some point I'm going to want to own my own data center assets to have more control of my destiny, which means vertically integrating downwards, which also means a ton more capex. So these are going to become way more capex intensive businesses. There is a risk of commodification here. Even though even with massive complexity and massive capex,

there is one one thread of the Twitterati who has said for a while like um all this stuff's interesting but ultimately it's the you know the application layer is going to be the most interesting. It's going to benefit from all this. Everything's commodified, right? Um all the good investments sure seem to be in the infrastructure. Absolutely. Even the ones that look good in software, the numbers pale in comparison anyway, right? The the absolute numbers pale. So, I'm waiting for the for for the for the era of the application layer in uh AI and um making bets and seeing some good stuff, but I don't believe it's here yet. I actually don't believe the application layer is here yet. To to put again, Lynn said in the show, she expects to double by the end of the year. Totally.

And that's and that's just a slice of the market. Listen, people have gone all back. You know, when we started the show, uh it felt like vibe coding applications run a muck. Everyone thought you'd replace your sales source. You even had a guest the other week who was I forget saying how great it was. He replaced Salesforce. Who cares, right? Um didn't kill software, but where where where is the software renaissance? I I mean the revenue is there. We've talked about leaders, right? But it it's so trivial compared to the infrastructure. It's so trivial. It's almost a rounding error uh the application layer. And

just to dimension that because I agree, Jason, I mean look, I'm an app investor. It hasn't, you know, you look back and you what's going on here? You've got companies like, you know, um, fireworks doing a billion dollars. There's very, there's very few apps companies doing that. And, you know, zooming out a million miles. You my mental model is I divide the AI world up into three buckets. It's the making AI, the infrastructure layer, right? And you're right, the spend there is 8 $900 billion a year. Then there's the two foundation model companies themselves and they're doing plus or minus hundred billion dollars a year, right? And then taking those guys out, rounding up every other apps company, right? You struggle to make 40 or 50 bill. You struggle. You start with cursor at four because I think coding is an app. You know, you by the time you're chucking in Harvey, you're adding two 300 million, right? It's amazing. I mean, just the difference in spend. And you know, at some point, the people spending a want some apps to pay for all this, right? But right now the volume has it's been front end loaded on the infrastructure side and at some point the revenue has to match it. But right now info has been the place to be. Like there's probably more money being spent on training data for the foundation models you the merker surges and that than pretty much any app company outside of cursor. In fact, probably the sum of all the apps companies outside of cursor, right? You know, are probably less than the amount that Entropic and Open AAI are spending on training data, which is just amazing.

That I can guarantee when you look at McCoring 2 billion in AR, two billion for Merco surge, another billion, you get to four or five billion and you know, Surge is three. Handshake's one. I mean

I mean yeah maybe if you start throwing in on the other side the the consumer products like Higsfield you get to roughly the same place but it's astonishing the scale of the investment versus the scale of the apps at this point means that all the actions on the info side for now if we bring this all together we you know we mentioned fireworks at the start Lynn said in the show the future would be every company having specialized models with their own data um we mentioned Harvey there who've been building their own models Jason I'm just intrigued In the last week, you spent time labeling data, building your own model through that data. Any lessons, reflections from the last few days, labeling data, and going through that process that you've been through?

I've been building this Aentic recruiting app just to recruit from the Saster community. It's been fun. I've learned a lot building it, right? Hopefully, it can ship in the next week or two. But, but to really get it great, it needed it needed labeling to make its Now, I'm going to put model in quotes, right? it it uses sonnet and opus but so there's different definitions of model and it was good and but man once I started labeling all of this it it got exponentially better right um built my built my own it built built our own little labeling tool and so you need your own micro model whether it is some sort of reasoning layer that you build on top of uh claude or or chatg or kimmy or shmimmy like it's still your own model even if it's not technically a model right because you you have your own reasoning layer with with your with your own rules, your own weights, your own and um but you want more you if you have the resources you want to go further than that, right? You want to your big M model as soon as you're at a certain amount of scale and it's not cheap all in, right? You are going to want to have your own model, right? Like like like a Harvey cursor. So some version of this I think and the folks that are going to want to you at any application level folks that are going to want to use just the generic models is just going to decline to to to to prototypes, right? Prototypes and proofing.

Yeah. Or absolute state-of-the-art kind of small parts of the overall task. But agreed parts. Yeah. Little parts, right? Like I mean again, you're going to want to use the expensive tool for the expensive parts, right? And you're going to want to use the cheap tool for most of the parts. from the customized tool to your usage. But man, the outputs are just or order literally an order of magnitude better once you do it. So every everyone wants your own model. Um and um so I I do think whether whether that always benefits fireworks or not, it doesn't matter. as long as they pick up the some of the bigger the bigger end right that scales it's uh uh it is yeah the don't the generic models are great but it is amazing how much how much better you can do than them for any specific workflow you can do epically better

would that change your confidence on the data labeling market a lot of shade is thrown at at it as an investor in Mor I definitely see it is does that change how you think about Personally, I'm totally I totally get it like having a subject matter go in and answer 20 questions about a disease about a history. I mean, it's a lot of professors and teachers that they have there, right? That that model, right? The amount of power you can get in a domain by having a subject manager answer just 20 or 30 questions, right? 5 minutes, 10 minutes. the amount of power you can add versus the the generic LLMs which are a sea of mediocrity combined into one giant LLM. Okay, every mediocre history professor, every every mediocre doctor that doesn't even know what what caused your runny nose is in the LLM. But if you get the the best people training on the best answers, it's a step function. I'm less smart on the the this seeming low end of the model, right? This commodity thing that people made fun of Mccur, but I ain't making fun of it anymore. I I tell you that much. Um, and these models are are a sea of mediocre all combined in a giant soup that gets better.

These domain experts are so powerful in tuning your model to get the the better output. So powerful. I I I think the answer though is really a derivative of the big question which is you know because your statement your companies are going to want their own model is probably true right and the real question is not that the real question is will that be additive to the rough trajectory of the foundation models as it's established today in other words coming you know at or close to 100 billion combined revenue growing nicely or does it start to take away significantly Because you know to answer your specific question if the foundation models continue to grow and we just saw an article information that you know for for all the training data companies the vast majority of their revenue comes from the foundation models to which your correct response is no Of course it does, right?

If that continues to grow and you have an additive market in enterprise of all these companies you JP Morgan building the JP Morgan Morgan model on top then you know it's net expansive and net expansive is by definition good and reduces customer concentration and I think that's what people like are forecasting right if on the other hand you know which is hard to contemplate today if these enterprise models if these openweight models really impacted the growth rate of anthropic and open AI Then obviously when your 80% customer slows down it would have a significant impact on your growth rate right but you know if it's any consolation Harry if that happens worrying about your merur valuation will be the least thing people are worried about because you'll see an implosion of much bigger market cap entities right and you that's that frankly is the billion dollar question you know can these two foundation models maintain their growth trajectory which is starting to become profitable at least in the case of open of entropic in the face of all this openw weight competition in the face of this push back um on costs and basically kind of push for ROI if they can maintain this trajectory for even another one or two years then everything's fine and everyone's fine and right now the data says they are if you start to see slowdown on those two ARR growth rates then you know all bets are off because the pressure because the amount of commitments they've made assuming that 10x growth rate continues will mean that even if it slips to a 2 or 3x growth rate there's going to be a mad scramble bets on yes or no answer will open impact that trajectory for anthropic and open AI in the next 1 to two years

yes Harry it will impact it might impact at 1% or 50% what you're really saying what the question you're really trying to ask is does it produce a sustain you know does it reduce that growth growth rate to sub 100% within one or two years. Right? And the answer to that question is I genuinely don't know. And if I did, I'd be trading that stock. Because if let me be clear, if you know the answer to that question, that one question, you know the answer to the entire direction of the US stock market for the next two years because all the hyperscala RPO, all of it is a function of the commitments they've gotten from the the hype from the foundation model companies. And yeah, you can say if the open models, open weight models explode, there will be demand for inference. And yeah, you will have this kind of transition from oh, I sold it to open AAI but I should have sold it to um I don't know cursor or B base 10 or someone else and the capex will get repurposed, but it will be a big ass dislocation and I just genuinely don't know. I mean it's the million-dollar question.

I think the tough the really tough part I mean it's Captain Obvious, right? is uh can they afford for it not to? And what I mean is look at what's happened with Fable this week. Okay, Fable went from you can't use it, it's not secure. Then the government let you use it. Then hey, we're going to turn it off except for variable usage on June July 15th. Now it can be 50% of your whole usage for the month. Why did they change when they don't even have enough capacity to serve it? Competition, right? Competition, right? So it if listen if they price Fable at sonnet rates I think they'll own the market. Yes,

I'm oversimplifying because you don't need fable for anything but literally so the question is can can they afford to compete and this is the stressor right? Of course they they could have 17 variants of the model at 17 price points like like uh that's not the issue. The the issue is the because they have to they have to pay to train these damn models um and other reasons. They have just this this high cost base and they're subsidizing it with venture capital, right? We whether we call this venture capital or not, private private capital. And so, but listen, you just cut the price of Fable 5 by half tomorrow, you don't need these Kimmy shmies, but can they afford to? And and and if they and and and over what schedule and the fact that you can use Fable for half your credits is pretty telling, right? They're they're pushing it as far as they can, but that's the limit today. They can afford to compete 50%. And we don't have time for it because I do think we should spend at least half the show on stuff other than, you know, a AI model companies, but I think Jason's insight is correct about price. And if this was a software product with no gross cost of goods sold, that's what they do.

I mean, Microsoft, I mean, and this is one of the big I've seen a bunch of articles on this. Again, it's as you'd say Jason Captain Obvious, but it's worth emphasizing in the great software wars of the last couple of decades, someone like Microsoft was able to take an you just use price ruthlessly because there was zero cost of goods sold and they just bundled the browser in with the operating system, bundled all Office in together, didn't cost them anything, and it just wiped everyone else out. But as you're pointing out here, there are real even at the margin, even after you fully paid for your training costs, there are real physical costs to serve these models. And you got to cover your nut. You got to cover the marginal cost of the model of the ser of the inference which gets you to I don't know two, three bucks kind of blended average token. Then you got to recover the cost of the training and you got to recover it pretty damn quick because it only lasts, you know, 12 24 months before it's obsolete. And then on top of that, you want to make extraordinary profits because you're being valued at 20 times revenues.

And if you're valued at 20 times revenues, you better be like Microsoft with 40% operating margins. So when you look at all that, you're right. You know, it's kind of back to the thing I said, you can squint at that and say, "Oo, there's lots of things that could go wrong here." When you look at that those fundamentals as yet the thing that's saving you right now if you're growing 10x year on year and you have any kind of positive and improving gross margin it just covers all the nut right the minute that growth rate stops Jason to you if the only way you can keep that growth rate up is by lowering your kind of price per then your gross margins start to deteriorate instead of continue to improve that in itself would be a different ballgame. So you are right price could solve it but it would be a painful way to solve it. Yeah, you have to start building your own chips and building your own everything, all the stuff you're trying to do to solve this problem. Um, but I think it's just a I mean, not to be, I think it's just a pricing problem, right? I mean, there's a bunch of issues underneath, but um, and I would argue they've already bundled it.

Like the consumer apps of Claude especially, but also CHB, they bundled everything. I can get $10,000 worth of tokens for 200 bucks and I can just do just about anything in it, right? It's just outside of the consumer, it's not it's not massively bundled and subsidized, right? Just cuz you're still Yeah. You remember the old days in software, Jason, when you'd have to say, "I promise I'm only using this for personal use." You remember that? And licensing, right? Well, if you're saying, "CL, if you're telling those nice clawed people that you only using your personal subscription for personal use," they're going to find you, dude.

They're going to find you. Well, yeah. It's just It's just Fable is very good. Yes. It that's why that's why they're going to find a way to charge for it. Very good. Rory, you were like, "Are we going to get away from this like AI stuff at some point?" Yeah. Yeah. Yeah. So much we What were you hoping to talk about? Like I mean a vertical dentist company like Benick making 500 million for his Oh, that is an AI. Sorry. Sorry. Sorry. That's an AI story. Oh, it isn't it? 587 million. And fun fact, his top three movies paid. Yeah. Didn't add 60 million. And so it's 10 times more than his three highest grossing movies combined. Wait, wait. Say that. It's higher than the Batman. What are you talking about? For his pay, like how much he got. He got like $8 million. The amount he made from it.

You know, context is so funny. I don't want to get distracted. We're like, how much did Ben Ben sold it for 500 some odd million to Netflix, right? 87. Our jaws drop and uh like and we're arguing whether we should sell a portfolio company for 6 billion. Well, is it really worth our time, gentlemen? I It's really only a 4x to the last round. I you know, and on the last fund, it's not even a returner. Um, I I don't even know. I don't even know if I may not even be retained as a GP at the firm if this is as good as I can do. Oh my god, he sold sold the company for 500 million. Rory, do you know what? I find that triggering.

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Look, get on him. I mean, look, I mean, you know, no surprise. It turns out you can make more money with capitalism, techno capitalism, than acting. I mean, you know, turns out Bill Gates is richer than, you know, the most famous actor in the world, right? It's Yeah. No, no surprise. All right, Rory, I'm going to listen to you then. move away from this AI pure play discussion and we're going to move to some some uh Irish Irish twins. Uh the Stripe and Advent deal to take PayPal private. Does that sound okay? Passes the good. I mean, you got to talk about it. It's we got to talk about it. So, this is a big deal. Um was it inevitable Stripe would acquire PayPal? There were rumors of it a couple of months ago. This is obviously taking those rumors one step further with with the offer. Um Rory, how did you think about it?

I think that price clears all I mean I think it's it's super interesting in a lot of different ways. One is just a diff I mean they both process kind of 1.9 1.8 trillion a year, right? And as yet Stripe and we'll talk about revenues and profits in a second. Stripe is valued at like 150 billion and I think what was the offer for PayPal? I'm I looked at it this morning but didn't is it 50 bill 35? Hang on. It's about I thought it was 58 or 6

50 something billion right and re and you know re so yeah I mean it's like Stripe taking advantage of PayPal trading at sub 10 times profits and deciding to go for it here right I mean it's in one sense it's it's a ballsy move because it's you're taking on a lot of operational complexity on the other hand it's a chance to really you know transform and double your footprint because I As I say, the revenue, not the revenue, the payment process is roughly the same. Revenue is tricky because Stripe supports revenue net which is around six billion plus or minus. PayPal reports gross and I think it was and I checked it but with my cold I'm a bit feeble-minded today. It was about you know 20 around 30 billion. So it was trading about 1.7 times revenues. So if you look at that five versus 30, I'm like, "Oh, it's 5x. PayPal's 5x bigger." But it turns out on a like with like basis, PayPal is still bigger, but it's about one and a half times the size. It's still a company buying something one and a half times its size for what looks like, you know, a third less because it's kind of they're doing a joint deal with Advent, a PE provider. So for, you know, a lot less of its market cap.

if they pull it off they will look back and go wow that was an amazing deal right it also gives them and you know and their economics will be amazing it's a little like the Dell transaction you know obviously the scary thing is it takes your perfectly wonderful company that's nice and running smoothly and you know is a desirable place to work and all the positives that we all know about Stripe you know smartest guys ever killing it nice place to work good reputation and they're going to have to do a lot of hardnos stuff to turn PayPal around and there'll be a lot more pushing and shoving in the future because you know you're probably going to be looking at that place and saying we're going to get rid of a lot of people. We're going to rationalize a lot of stuff. So, it's a different muscle, but I give them credit for it. It's a big ballsy play to double your market cap.

Yeah. The part that I struggle with a little bit um the you know, listen obviously there's there's there's at least a a decent synergy here, right? And in a PowerPoint slide there's a ton of synergy. Um plus you get Venmo, you get a lot of stuff, but um two methods. The the thing that is always a head scratcher to me is blending something that's growing 7%. Because no matter what you say or do, unless you can radically shove those products through your channel, your blended growth rate goes down. What's Stripe growing today? I don't know, 30 40%. It's between 20 and 30. So, it's not that much bigger, Jason. That's why. But seven, but seven. So, okay, hold on. Help me, Rory. You're better than math than me. But if I take 30 and seven, that's 37 and divide by two. I'm only growing like 18% now. I've fallen below the Mendoza line of 20% growth at scale.

There's no such thing as a Mendoza line for growth at 5 billion and above because you can get out, right? I mean, I think the real point is but to take

but I found it stressful in M&A observations. Not quite at the scale, mind you, but it is stressful when it meaningfully decelerates you, right? It will meaningfully decelerate them in the short term. Even if I'm not sure how the accounting works, right? Even maybe they only have to recognize half of it because of this advent thing, but they're gonna have to recognize some of this revenue, right? as a joint venture, right? So, it's going to accelerate their growth. It's not stress-free for plus you have the operational need. Plus, I mean, even all the layoffs they're going to do, that alone may not reacelerate growth. We've certainly seen this at a handful of portfolio companies, right? Um, that's just the stressor for me. I've learned over the years uh that when you have one messy code base and another codebase and you're like, how the hell are you going to combine these companies in different motions? You figure, as crazy as it sounds, you actually figure that part out. And the answer is you don't fix it. You fix it over five years or you have an LLM lift.

But the real answer is you don't fix a lot of these things that seem like you can't rationalize them between the organizations. Everyone's got 11 products spaghetti together. Um even tech leaders have it, right? It's just the nature of M&A. My guess is this is one where you have frankly one well-wrun company for the last decade and a half in stripe and you have another company that you know ever since the PayPal mafia walked out has been just a revolving door of executives and is a real mess and they've dissipated their opportunity. So yes, I mean the interesting thing is normally this is kind of did the public. Normally this is the kind of deal you do after you go public because you have the market cap and you just price the deal.

And you know I was thinking my first glance was ooh it's probably a lot harder to do this as a private company because you can't issue 50 billion of stock right so you have to look at debt you have to do advent on the other hand and again I wanted to read the detail I didn't get to it fully before this meeting on the maybe they're using advent to almost keep it slightly off balance sheet for a period of time while they rationalize it right so I don't know it would be easier to consummate this deal and just be done as a public company but obviously Stripe has chosen not to go public. So, um, at least yet. And so, but it may well be that even though that makes it less easy to do, it may also have pushed into this kind of contained strategy with Advent, right?

Will this happen? I will actually getting done. I think it happens. I think I think it does, too.

Let me just step back. Rory's got even more experience, the two of us, but it's just a dance. The board rejected it, right? And the fact that the board rejected it means to me that they're going to accept it. You reject it because no no investment bank will tell you you're allowed to make your highest offer up front. It's like not a it's like you probably breach your fiduciary duty if you make your you have to offer like uh whatever. You have to have another five or 10% to put into the deal. So it's a dance. They they they're going to accept it. They're just uh it's a bunch of mercenaries in a brand new CEO who's probably going to make nine figures for uh 10 or 12 months of work. They're go by rejecting it. It means they're going to accept it. You know, I think Jason is could well be right. I think it I hinted at this when you're a private company, you going remember we talked about the sale king, Harry. You when you're a private company, you can decide not to sell for any reason. When you're a public company, you know what the bankers are telling them right now is you're right. First thing you do is instantly reject cuz you got to look strong.

And then you've just hired the bankers and they're going to say to you, you can only and the lawyers in particular are going to come in the room and they're going to say to you, Delaware law, you can only turn this down if you have good business judgment belief that on a standalone basis, you can do better than this offer in a reasonable period of time. So, even as we speak, the PayPal team are building a three-year model, a five-year model, trying to prove that, you know, they're going to be amazing and um therefore this is a this bid is too low and they can they have the they are comfortable in the risk of turning it down. But what's going to happen is this the and they'll be able to make a model because they have smart people and the banks are smart people and and the MPV will be wonderful because the banks will make it that way. But the push back will be, "Well, guys, if you were so smart, why didn't you fix it in the last 5 years?" Right? And then you're sitting there as a board member going, "Am I really sure that this guy can turn it around?" You know, do I believe if I got an extra 10 or 15%, would I say risk adjusted, I should take it?

And as Jason pointed out, I don't know the CEO from Adam, but he's sitting there going bird in the hand versus slogging at PayPal being the third CEO in a row trying to turn this thing around. At some point, if this if Stripe wants to own this thing, you kicking a little more in and you probably will own this thing. I think it's it's hard to have the stomach unless you can see maybe unless you could see evidence within the PayPal numbers that it is turning around already. That's probably the only thing that could give the board the courage to say I'm just not doing this. In other words, I haven't there's probably five key internal metrics that matter. You know, take rate, new merchants per quarter, you know, usage of wallets, whatever it is. If those numbers are already starting to turn because the new CEO is doing amazing job, then maybe the board can say, I will extend that trend. I will say, hey, look, the last two quarters have been 10% better each quarter. If you extend that trend for five more quarters, it's an amazing company. We'll work twice as much. Let's turn it down.

If those trends are still flat and it's the new CEO's plan might start working next quarter, then it's really hard to say as an independent board member, you're getting 300 grand a year in RSUs. Do you really want to be a hero here? Do you want to, as Jason said, do you want to say no, negotiate for 15%, discharge your fiduciary obligation and take the money? Yeah, I mean they could for certainly the argument would be the stock price is depressed, they're missing it, right? It's down from its lows and there you pro it probably could tie into the business judgment rule if you really believe it. But my guess is this is engineered. They made a 28% premium offer. The average take private like this is in the mid30s. Now, average does not control any deal, but that is the perfect amount of back and forth. 28 to 35. It's already presscripted.

it's already presscripted. And the bankers will charge a couple hundred million bucks for the

How are we going to get from 28 to Well, we could just we let's just offer them 35. We'll never get there. We have to offer them a 28% premium to a public company stock so that we can land at 35. Um, and they'll they have to go shop it. And if there are any other offers, they would have gotten them in the last year. There are no other offers. Now some may sometimes it materializes Rory K has been through this but but usually if there are another offer the offer already soft happened like there've already been discussions at uh you know at um at the whatever media summit or whatever and so there probably ain't so it's probably just a dance from 28 to 35 and then it gets parked with advent to while they figure out antitrust and uh capital issues. So so stripe finally the powder one finally becomes the Jedi. Stripe takes over PayPal. It's just a matter of time and it lands where where it should have been. And all the early PayPal guys that did the preede along with uh Sam Alman's 2%, they're going to do pretty well in the end.

Totally. Yes. They're coming back through the back door.

Yeah, they're getting the old gang back together. So for for for listeners who may not know it, one of the the very early Stripe rounds, I know Peter Teal was an investor, some other a number of the folks who were involved or connected with the PayPal mafia back in 20201 before they sold to eBay, subsequently went on to be great investors, Peter Teal most notably, and stuck early money into Stripe and now 15 years later are having the joy of buying PayPal back. It's probably a sweet moment if you're one of those investors. you know, the first time you move into the headquarters, you'll probably say, "Can I come along?" You probably ring the Collison and say, "Hey guys, if you're doing the victory lap on the PayPal headquarters, can can you include me in on that trip?" Now, Rory, I I want to hand the ball over to you because you you you said no more AI, so I gave you no AI and then

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you were like, you missed topics. So, what what did I miss that you wanted to cover? Maybe maybe the better comment I will say that maybe the better comment is not there there's more to I mean I've been thinking about this a lot actually in one sense I want to say there's more to life than talking about open AI and entropic because they're only two of 2,000 interesting companies on the other hand as you would be the first to point out cap weighted in other words weighted by dollar they're two trillion of five or six trillion of privately held market value so on a cap weighted basis we should be talking 30 to 40% of our time on open aanthropic boring as it is if you are kind of trying to be representative of private tech. So I I hear you Harry it's hard not to but I just don't want to be totally boring. I mean you know I thought that you know the other fun things and the fun the odd thing about you had a list of other companies that to talk about and in a weird kind of way every single one of them is a company that's being pulled by this trend. I mean you had Valor Atomics down there to talk about you know yeah new new technologies and nuclear then you had kind of um TSMC and ASML and the truth is all the dynamics for those two companies are about the insane demand for semiconductors which is all about AI. So you know when you actually get to trying to talk about something that's not AI I ain't got

Yeah. Exactly. And then and data bricks rockets to 188. Why to buy GPUs? Buy GPUs. Silly. No. which is which gets back to my comment. The the growth rate of those two foundation model companies, as Jason has pointed out many times, is a thing upon which you're 401k at an all-time high dependent, right? But I did think it was interest one thing that I I do find interesting. It's like another one, but it's like emergent AI coding startup. Um 120 million in AR uh raised 130 million series C at 1.5 billion post money in July 15th. The thing that I find really interesting here is I'm seeing series A is priced at 3 to 500 on 2 to 5 million in revenue, but I'm finding the B at 100 million in revenue priced at 1 to 1.5. It's a 3x price increase for a 50x revenue increase. I think it's just a very interesting market analysis today of where is a good insertion point for investors. Oh, it's true.

And it's like risk adjusted always now. Like we did factory at the one and a half round and I think yes, that was a worse deal than the 300 round. But the 300 round, they had next to no customers, very little product market fit. And well done to those investors. They saw what a lot of other people didn't. But risk adjusted, you're only paying 4x for incredible PMF and 70 to 100 times revenue scaling.

I think on those numbers, you're correct. The short answer is is that would you prefer to pay 300 for no revenues or 1.2 billion for a lot of revenues? Absolutely. Well, look, I think for what it's worth, there obviously is, as we talked about the history of show, there there there is real multiple compression even in the hottest agentic folks at scale, right? There's real revenue multiple compression. There's plenty of folks compressing to 10x revenues, right? Which is even far less than forward revenues, right? I mean, maybe unhelpful comment. I think the real pressure is it means anything below that growth stage you better be a damn good picker because it used to be it used to be when Rory and I met series B even into series A you actually didn't have to be a good picker you just had to be good at math and good at assessing a team um the picking wasn't wasn't so hard as it looked it was all the rest now a series the the the that gap you better be like a you have seed investor skills at the series B or the maths math's going to be tough with with those with that, right? It just it just it just it there's a lot of pressure on the picket.

That that's just what I think it is below the growth stage. And so so be it. That's the game, right? But uh you just uh that that that's how I think about it. And it's hard it's harder. It you know it's it's it's you don't really want to be a picker. You want to be a pricer. I again going back to my point risk adjusted here. Would you rather be doing a series A two million in revenue at 300 million price which is the going rate for a hot AI company at series A especially in the valley or would you rather stick money into fireworks which says they're going to hit 2 billion by the end of this year at 17.5 billion you're paying less than 10x

if you want it depend I mean Rory's better at the math it depends on fund size and other numbers but you want to own the most you can of winners you could argue at some point I guess it doesn't matter it's just put in the absolute amount of money you can in the elastanthropic round. But for most of us without unlimited capital, um you know, if you if you can pick better earlier, you end up you'll end up owning more. It does pay off. That that extra 3 to 4x isn't terrible. That extra 3 to 4x on the way to the to the to the billion dollar round. It's not it's not a terrible. I think many people can pick and I think we are here.

They can't. It's hard. I mean, pick is a more complicated than it sounds, right? pick sounds like uh everyone's waiting outside your office for four hours in the lobby like at a doctor's office and you get to pick like it's uh 2006, right? Um but um but it is true and and the the change that the that that the biggest brands will pay the highest price in many cases uh is is is makes that in between round tough, right? At least the growth round is sort of object like it is just in many cases is just priced by the company one way or the other and you either you're either in the round or you're not, right? And and and you know what? On top of that, and Mory, you can forgive me for going off on this rant, but you know, Brandon at Mccau has mousthed off uh and I say that nicely, but mouthed off on Twitter about Sequoa's tranch rounds. I think it's brilliant marketing for Sequoa. Honestly, I would have retweeted it, but

the amount of tranch I see I saw around the other day with four tranches. Yes. But but but those I thought it was a multi-story car park. Those two things go together, right? that you that tranch comment goes together with your prior comment, right? Which is I'm going to paraphrase it. It's like doing classic early stage ca AB investing is really hard because prices are high and you've got some really talented firms. So to win, you got to have differential access, differential picking and you got you're going to be competing in every deal. Conversely, Harry's saying I'd look at these companies at one a half billion. They're doing a couple hundred million in revenue. Yeah. that on an absolute basis they're expensive but on a relative multiple basis they feel a little cheap. That's what you just said. Correct.

And I think that's correct. And I think there's no what you're basically saying is growth for the last two or three years money, right? Because those kind of deals at one, two, and three billion have been subsequently marked up a lot. And I think you're entirely correct, right? I mean, we I shared a statistic before. But we looked at every I mean if you look at all the unicorns that were minted in Q1 or Q2 of 2025 by the end of Q226 at least 40% of them will have had a subsequent markup. In other words, good things get more good things. We've been in the momentum side of the marketplace. So late stage that kind of growth investing to your point and the reason you've been doing it it's been a very good place to play and I think you found that that's what you've seen in your portfolio. you've put, you know, 10 million in. Pick a hot company at a billion and six months later you're getting a mark up to three billion. You're like, I'm a genius. I haven't lifted a finger and I just made a 3x. It's been a great place. So now what you're seeing with these tranch deals is, you know, nature appora leaving a dollar on the table.

So what's happening is people are realizing everyone wants these growth rounds. And this is how these trends end. Everyone they're going, "Oh, everyone wants these growth rounds.

So now what we can do is do this trunch structure and effectively price the excess return away from Harry and back to us right so yes because it's been such a good place to play that capital's rushing in at some point it won't be a good place to play right but you are correct I mean and we got we talked about this last week there's always the tension and do you stick to what you're doing because you should do it or do you move around within the overall environment and you know I know what you're going to say you think you should move around and I agree from a pure if you can pull it off from a pure like logically over the long term over the long term and by long term I mean you know longer than you've been alive Harry 30 years like the truth is early should have a higher overall return multiple than mid than late because otherwise CAPM you know the rational market theory isn't correct and over the long term it is Harry but where you're absolutely right is there are these disconnects in the short term I mean three or four years where you kind of go wow you yeah a combination of increasing equity valuations and a new trend means from 2022 on latest stage be amazingly good.

Yeah. Yes, I completely agree. Obviously, if you are in the best early stage firm, it will obviously have better numbers. I completely agree. But I'm also fully cognizant that Venture is a crap asset class for the majority and actually Thrive and many other very large funds will have much better numbers than the majority of funds. Agree. Totally agree. I I don't think we're saying anything different to be clear,

right? I think that um yes, because I think that look, the earlier you go, the more dispersion you're signing up for. When you get it right, you get it very right. And when you get it wrong, you get it very wrong. The later you go, I mean, there's two things. The later you go, logically, the less dispersion you should have, the more bounded the thing. But on top of that, you have also this phenomenon which is you go late at certain periods in the marketplace, you get this kind of equity rising tide perspective, which carries everything, right? And look and you know since the crash and not crash small small C since 2022 you know you've just had tech lift and equity lift for three years. So yes it's been a great place to play. I wonder if I was a founder if I would really do uh contemporaneously trunched rounds. I don't know that I would. Is it not a good deal for them?

I I think I would feel like I mean I might do it in the moment. I think we're all caught up in the moment. I don't know that I would be comfortable charging one investor 1 billion and another five billion uh within the span of the same week. I I don't think I would feel good about it. I I I I I I think that it it it doesn't it's suboptimal for my 40 409a. It if it's a tiny amount of capital, I don't know that it materially changes the dilution. If it's a massive amount of capital, I would do it right. Don't get me wrong. If I'm raising a hundred at a billion and 500 at five billion in in the same 24 hours, I can't I have to say yes to that as a founder, right? Because of, you know, I can't I can't raise 500 at a at a billion. But if it's if it's if it's if it's if it's all some sort of aesthetic, I don't know. I I I maybe I'm a fddy duddy. I just want my investors to make money and I and I want my investors to get uh not under not I don't want them to rip me off but uh you know 80 to 90% of a good deal to me always seemed to de-stress my life. Always just not taking that last nickel off the table always made me worry about one less thing and and maybe and I just don't know I would do it. I don't know if I would do four four different prices in one week.

I just think the world is a lot more transactional sadly. It is. And I and I've rolled with it. I I've rolled with it, but I don't know that I would do it.

I I I'm kind of with Jason for the record. I think I think you're right, Harry. The world is a lot more transactional. It leaves me with an icky feeling. And the real and it is all aesthetics cuz you know, every founder is wildly smart and they can calculate a bl a blended pre money. If it's, you know, 100 million at 1 billion and 300 million at 5 billion, they can calculate that the effect of pre- money is 2 something billion. These people are doing advanced AI. they can do simple freaking right the interesting question is is there anything in those ter I mean I tell you what I think is there anything in those terms that subsequently bites you in the ass as a founder and this gets to your point Jason which is you can yeah if you don't care about the one you know sub you effectively raising money in that example at 2 something billion right two years later you decide to sell for 4 billion this is where you're right Jason if you don't care that the five billion guys only get a 1x then whatever you I don't think anybody I don't think anybody cares and I think it's liberating for founders but I don't think anybody cares anymore.

You better make damn sure you have a dragalon and you know but but on top of that it makes it more difficult for stock options. Um but but it but it does give you sorry this is important to say it does give you bragging rights and you're like oh cares about bragging rights as markets get more and more competitive. If I can come out and say I've raised at five billion with SEOA leading, it will create fear among other VCs to fund competitors.

Agreed. No, agreed. Look, it has if if you're optimizing for bragging rights, it optimizes bragging rights. It's generally the kind of thing that looks look it looks like a really good idea in a good market and then the real question is are the consequences horrific in a bad market? And I will say they're silly but they're not horrific. I mean, if you look at that versus other alternatives, like, you know, taking a high price but with a ton of structure, real structure, that's a worse mistake. If you look at it, you know, not raising money, taking on a ton of debt, that's a bigger mistake. So, in the in the litany of mistakes that you can make with your cap table, doing a two trunch round that makes all your second trunch people feel like secondass citizens, it's not the worst thing in the world, provided you don't give a damn that they're secondass citizens, you know, and clearly you don't. Is there anything else we should cover, boys? Is there another story here that I've missed that I should cover?

Yeah, it's kind of further a field, but

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I mean I did spend a second on we just on the I mean I did think that the the the kind of the valor atomic stuff. It's just interesting is that you know there is just continued progress on nuclear energy lots of risk you know lots of big step ups lots of private companies doing this some public companies doing this not trading as well but you know progress on that dimension and you valor atomics looking like they're about to raise at a 3x step up in you know four or five months so it's interesting they're still private but what's really funny I did realize one weird comment I had two weird one weird comment on this was if you think about the kind of companies that should be private and the kind of companies that should be public. Companies trying to do, you know, next generation nuclear products should probably be private. As yet, there's three of them that are public. They spacked and they're trading like crazy men up and down 50% in one day. And then call me strange, a company that's doing 6 billion in revenues and wy cash flow profit profitable like Stripe or like data bricks should probably be public as yet. Here we are with data bricks and stripe private. you know, data bricks doing a series M P Stripe doing some kind of acquisition that's kind of convoluted which are typically both public company stages and then you got a whole bunch of these not valor but the other kind of wild frontier tech companies being public. It's just a weird world. The spaxs are taking stuff public that should probably be venturebacked and the very best venture assets are staying private long after they're kicking off cash and should be public. It's weird. I mean there's nothing to say except weird series.

You know the one this it's minor if I had to phone in just um it's so minor but the C square IPO is just m mildly interesting as a footnote. Can can you just give some context Jason? What what is C squ? What's happening? It's a data center. Yeah. So they're a Ctier data center uh leveraging AI. They're doing a billion dollar run rate growing 16% right. um and they IPOed uh at with a $3 billion market cap. So if you kind of reach this slow growth in a in a and and you put a veneer in a wrap around it, it's still growing at a billion revenue and you're trading at I I mean I I I need to know the enterprise value, not the nominal uh uh it's probably lower, right? The enterprise value. Got to figure out the debt. It's higher because they'll have probably debt, too. They'll

higher. Yeah, you're right. But it I mean this is meh. Maybe Rory's going to say three billion is a great outcome, but I I bet it's not when you trace back the history and all of this. The lesson for me to see score is you got to deliver. Like the market may be exuberant. The market may may go nuts, but it's not stupid. This this one wasn't doesn't have the the big AI boost and it didn't get the the the revenue boost. It didn't get the multiple boost. Yeah. No, I agree. It was like a eh public but not I mean older assets not as compelling. Agreed.

You know, the counterargument to so many things, but yeah, these other assets can IPO. I mean, I guess I guess you finally get to a billion in revenue with a bit of an AI veneer and you're worth three times that. I mean, I guess it's okay, but um I it's not why I'd want to be a founder. You got to go got you got to make it you you have to deliver. You guys done any deals in the last seven days? Not in the last seven days. No, sir. No.

I do I do want to come back to the one other thing that really struck me as interesting. You put them in there separately, right? But I've been thinking about this a lot. You had the Yeah. TSMC's announcement, ASML announcement, and and I was thinking, oddly enough, about different kinds of trusted supply chains. And I'm just going to contrast two because it's quite funny, right? You have the Nvidia relationship with TSMC, which famously they don't even have a written contract. They've dealt with each other for 30 years. Nvidia is now TSMC's largest customer. And you know, it's, you know, there's there's tensions because they're pushing TSMC to invest more. Um but you know they're managing that rel and then the same kind of relation TSMC and ASML. ASML makes the machine that enables TSMC and TSMC makes the wafers that makes Nvidia and no one in that entire supply chain has ruthlessly gouged each other. ASML has raised prices gently. TSMC has raised prices gently. They're pushing people for forward commits. And it's a real, hey, we know we're going to be dealing with each other for you 10, 20 more years. Trusted relationships.

How do we cooperate for the long and there's tensions but it's not all that crazy. And then you just compare and contrast that to the adjacent market for DRAM. There's three suppliers in there, right? You've obviously got the two Koreans and Micron, right? And they're selling to the same customers. They're selling to the Nvidas. They're selling to all the other things. They're selling to Apple, right? And there the dynamic is totally different. It's like screw you. We're raising prices 40% this quarter. Oh, next quarter you still need our stuff. raising another 40%. Right? It's just hilarious to watch. I mean, you see these huge launch. I mean, TSNC and ASML kind of thinking long term. How do we position ourselves so that we're great and cooperative for the next decade or two decades, right? All the memory guys are like, "This is a commodity business. You all screwed us three years ago. We're going to screw you now for every dime we can. We're going to raise prices on you every quarter. we're going to make 80% operating margins in what Harry would call a commodity because we know that two years from now you're going to screw us.

And it's just super fun to watch because they're like literally adjacent supply chains benefiting from the same kind of broad trends on AI and one of them is just a super long-term oriented one with single player at every level and just once you get to three players it's just brutal. So fun to fun to watch. I mean there's no action from it. It's like unless you're trading DRAM which is up on the day which is today's Tuesday and but who knows down on the month it's kind of crazy way to live but just an interesting dynamic and when that the big aha for me is when that pricing breaks it'll be brutal to the downside but maybe that's a year two years from now.

Core weaver is just depressed for a long ass time huh jeez.

Yeah. I mean well partly I mean one of the things no one ever says is the fact that memory prices the cost of building the product you're trying to build has gone up by 2x because the suppliers are charging you more right so it's getting more expensive to build stuff and then you know obviously they have the big open AI commitment and you know at some point people get worried about that and also I think there's an element of once you're public for a while things kind of gravity takes over and you start thinking what is this company? It's still, you know, I think attractively valued on a sales multiple basis. I'm I don't understand why Kimmy and why the open models don't make Nvidia a little bit more elevated. I mean, Jesus, I'm like just looking at my Nvidia position going, how long are you going to stay flat for? I think that what's happened there, it's interesting because again, it it boils I mean, I've been thinking about it boils back to the same big question. I mean, Nvidia got this massive step up over the last, you know, 3 years. Yeah.

the CH GPT step up to plus or minus 200 bucks a share right and if you look at their projections for the next two or three years they're basically saying yeah capex which exploded from you know 150 billion to 700 billion growing much more slowly over the next 3 to four years so it's basically a we had a one-off step up and now it's going to continue but not amazing growth rate and you know one of three things going to happen if I I if capex stays elevated but doesn't double and double again. Stock stays roughly where it is and it grows into that valuation. If there's another uplift like the claw lift that happened at the start of this year, you'll get your step. You get your next acceleration, Harry. And if there's any kind of slowdown, then even this valuation will look crazy and it's kind of in that middle until you get a signal either way. I mean, I think Gavin Baker had a very interesting term. He said, I think it was something like cross-sectional comparisons. I can't remember the exact phrase.

He was basically saying whatever assumptions you make to value Nvidia about the future of to a rounding error you should make roughly the same assumptions in valuing the DRAM providers in valuing all the other beneficiaries of that right and you know and I think what happened is Nvidia got the step up first and then every all the bottleneck investors suddenly realized oh my god if Nvidia is going to spend they're going to spend 400 million with Nvidia or 300 million with invid billion with Nvidia they're going to spend 300 billion with memory and all the other bits and pieces and all those guys like SanDisk kind of popped up in the last 12 months when Nvidia as you say plus or minus has been in that kind of 180 to 210 range and now everyone's at the level that says okay let's see the next card going back to the first sentence the only thing that matters is the open AI and anthropic growth rate in 26 and

I I love that as a way to finish you know what we did miss though Jason from this episode we missed like a Shakespeare quote from Rory. Do you remember last week Rory came out a quote? You don't have one for I think it wasn't Shakespeare. No, no, it was it was another intellect. Um uh Rory, you got anything from the Odyssey? That would be great. I got a good I need a good one from the Odyssey. I I I'm I'm actually just really looking forward to seeing it, you know, right?