The Exchanges

Q So once, once you can, what does that mean for everyone listening just to put option?

A Well, look, my understanding, having read it, it's discussed, but under discussed is the last round investors. Obviously they weren't fully aligned on the price, right? And so there's structure and I don't think this is a bad thing. It's okay for late stage investors to be more conservative on price than founders. Like, and so they agreed on a deal. Look, if we don't trade up 70% from the IPO in two years, you have to buy all our stock back. You have to buy all our stock back. And on paper, that might make sense to a late stage investor. It's not like they're making a profit, right? It's not like getting your Money back is any profit for the VC. But the problem is, what tends to happen if the company isn't generating mass cash flow, where are they going to get two billion? And CoreWeave doesn't have the two billion per se, right? I think they'll probably get it. I would imagine OpenAI or Microsoft would give it to them. But if it doesn't, what happens is, And Andrew, I, I think it puts massive pressure on the stock price when people don't think it's going to happen. It sets you up to have your head cut off in two years, right? Because the shorts come in hard. They come in hard. Um, I, I just worry about it. It's stressful.

AI assessment note: “if we don't trade up 70% from the IPO in two years, you have to buy all our stock back.”

Q Do you think VCs are doing their diligence like they should do? Do you think we learned from?

A No, no. One of these deals, I just, I've raised it an insane valuation, but the, I think we are become addicted to, we don't care about gross margins. We don't care. I mean, open AI said they're not going to be profitable until one hundred and twenty seven billion in revenue. A hundred and twenty seven billion. Okay. So we don't care about margins. We don't care about profitability. Right. Um, I mean, a handful of folks care. And even when we care, then the deal gets hot and we all want to do super pro rata. Like we cared yesterday and then, When we're, when we have to give up our pro run in the deal, now we don't care about burn rates or gross margins or anything, right? We're just addicted to top line growth.

AI assessment note: “No, no. One of these deals, I just, I've raised it an insane valuation”

Q Yeah, and you said it won't churn. So are you saying?

A Yeah, but it's not, it's not as good as it sounds, ok? Because the amount of energy and time it takes to deploy CrowdStrike is so huge that it would take three to five years to churn out for real, ok? You have to test Sentinel one or whatever you're going to do in a small group. You have to do it on stage and you have to make sure it doesn't bring you have to learn. Like that is a three to five year initiative to move a core infrastructure. OK, if it happens at all. So even if there is churn, it's going to be so far out. We're not going to see it, but, um, and talk is cheap. People talk about churn, but then we're onto the next thing, right? The airlines were terrible. Like this is a, a, a, a destructive brand moment, but, but, um, not everyone was impacted the same way or the same extent, right? And some people are just don't, If it didn't really bring down my business, it's IT's problem to deal with, right? So we don't know. But here's the problem. CrowdStrike relies on selling 30 products. Talking about multi-product, they have 30 products. When CrowdStrike brought my company down, Harry, how's the sales team gonna, how the, how the upsell's gonna go this week? Hi Harry, it's Jason from CrowdStrike. I've got a couple more security modules to sell you, and you know what, you're gonna get the call, and you're just gonna get your head cut off for an hour, right? So I think almo…

AI assessment note: “it would take three to five years to churn out for real”

Q are cannibalizing the shit out of them. Zendesk, oh, the buy price that Zendesk was, you think you're going to make money? Yeah. On that, on that growth rate and that decay rate and churn rate of customers, I don't think you're going to make fucking money. You're not innovating at all on both. Sorry to say, are they going to lose that money given today's multiples in today's world?

A Yeah. I think they'll lose money on, on, on these deals. Right. The question, the question, well, there's a micro question and a macro question. The micro question is just like LPs are coming around to giving VCs mulligans for their 20, 21 funds. Are they going to give P funds a partial mulligan? Right? Are they going to give P funds an okay if they, they do a one X on some of these deals, right? Um, even, even, even together, right? I don't know if, if, if he gets a mulligan for these, for these bubble deals, right? Then, then it doesn't really matter, right? If they, if they have to sell all these deals for 50% of what they paid, but the LPs have moved on, we'll all kind of quietly, quietly forget about it, uh, because that's what's happening in venture. Everyone's getting a mulligan. Everyone is getting, the LPs have decided they just, there's no point in being a critic for your, for your, A hundred X deals in 20, 21. We're gonna more be a critic for your hundred X AI deals in 20, 24, but the 20, 21 deals are, uh, are behind us. So I don't know if they're held to the same standard, it's gonna be brutal. And it also shows, you know, I, I I'm, I'm gonna mangle the quote, but you know, there was that thing that Bill Gurley said about how important timing is for exits, right? And how important 20, 21 was for exits and slack selling, slack selling for twenty seven billion at a bi…

AI assessment note: “Yeah. I think they'll lose money on, on, on these deals.”

Q What do those great CTOs show you in those seven minutes that distinguish them as world class versus the five or sixes out of tens?

A Well, first I do give them an hour, not seven minutes, right? But what do I do? First, I ask them to do their own demo. Even if the CEO did the demo, I want to see how they think about their product and what they're excited about. I want to see surprise and delight. I want to see them show me the things they, they love. I want to see, show me, listen, this is this badass thing I just did with AI that, you know what, you know what, um, open AI can't even do this. Let me show you, Harry. Like, these guys at Anthropic, they don't even know how to do this, right? This is so cool. Let me show you something I know how to do that the rest of the world doesn't even know how to do yet. That's magical.

AI assessment note: “I want to see how they think about their product and what they're excited about.”

Q Final one for you. You can invest in a seed fund. A Series A fund and a growth fund. Which one do you put money into for each?

A Well, first, my advice to everyone out there that, like, emails me, hey, can I invest in Sastra Fund? Don't put money into any of them, is my advice to individuals. To individuals because I don't even think everyone's full of shit. I think even making three, if you do a seed X, a seed funding, you make three X net after 16 years as an individual, that's put, put the money into, into, into S and P 500, put it into VTI. It's not worth the, the, the, the extra gains for the illiquidity and people don't put enough. They don't write a large enough check into funds as individuals, right? If you put half your net worth into it, I would get it. But if you're putting a hundred grand or 50 grand And that triples to 150 grand after 16 years and it's illiquid. It ain't worth it.

AI assessment note: “Don't put money into any of them, is my advice to individuals.”

Q Listen, love it. Now, I want to dive in, and we're going to set the scene with two different parts of the show. We're going to do one, which is a review, and then we're going to do a predictions for twenty-twenty-four. So if we start on the review of twenty-twenty-three, I want to start with a view of optimism. What do you think was the standout slash best company?

A Well, look, I mean, I, I, there's only so much we can talk about OpenAI, right? Um, but if literally they are, the funny thing about OpenAI is, you know, if they ended the year at 1.4 billion run rate, uh, at which the information said, and let's assume it was a hundred, you know, a hundred million at the start of the year, then, you know, we thought it was crazy when it raised at twenty billion, and then it raised at 80, and then it fell apart, the tender offer, now they're raising it a hundred, but if you can grow at those rates, I mean, you know, I, I mean, every, every CEO I talk to, At SAS, it's at scale. Every public company CEO is like tired of talking about AI, but we didn't know if that revenue, I assume it is real. It's, it's, it's epic, right? It's generational growth of revenue, even if the gross margins may not be great.

AI assessment note: “there's only so much we can talk about OpenAI, right?”

Q Listen, love it. Now, I want to dive in, and we're going to set the scene with two different parts of the show. We're going to do one, which is a review, and then we're going to do a predictions for twenty-twenty-four. So if we start on the review of twenty-twenty-three, I want to start with a view of optimism. What do you think was the standout slash best company?

A Well, look, I mean, I, I, there's only so much we can talk about OpenAI, right? Um, but if literally they are, the funny thing about OpenAI is, you know, if they ended the year at 1.4 billion run rate, uh, at which the information said, and let's assume it was a hundred, you know, a hundred million at the start of the year, then, you know, we thought it was crazy when it raised at twenty billion, and then it raised at 80, and then it fell apart, the tender offer, now they're raising it a hundred, but if you can grow at those rates, I mean, you know, I, I mean, every, every CEO I talk to, At SAS, it's at scale. Every public company CEO is like tired of talking about AI, but we didn't know if that revenue, I assume it is real. It's, it's, it's epic, right? It's generational growth of revenue, even if the gross margins may not be great.

AI assessment note: “there's only so much we can talk about OpenAI, right?”

Q the end of twenty-twenty-four? When you look across the funds and the media and the events business, we have relatively similar businesses in terms of how we think about venture especially. Where do you want the events business to be? Where do you want the media business to be? Where do you want the funds business to be? How do you think about your goals for twenty-twenty-four on those components?

A Okay, look, uh, for investing I'm hesitant to put a goal, but I would like, I would like if I could, 20, 24 would be my fastest investment pace since 2014. That would be my goal. That would be a goal. I don't know if I can be achieved, but that would be the goal. I think now is the time. Uh, and, um, have the mental bandwidth and the clarity and, uh, the schedule. So I, I would like it to be the most prolific time for, for a variety of reasons is 2014. In terms of like community, it's, it's a constant learning, right? Um, uh, some of this is, is, is pretty niche. Um, It would be great. It would be great if marketing budgets reflated in later, 20, 24. Right now for Saster, if as a media business, it's kind of interesting. Basically all of, all of our revenues from big tech. Right. And, and it's true of a lot of companies too. Right. So like the small, the, the unicorns have no money or they have money, but they're not deploying it. Big tech had a really good year. Right. So it's great to have added sponsors and partners like Cisco and IBM and others that we did not have before, which is great. Um, but we lost a lot of unicorns, right? So it'd be great for folks that for marketing budgets to reflate a bit, that would just help us invest more in the community.

AI assessment note: “for investing... 20, 24 would be my fastest investment pace since 2014. That would be my goal.”

Q I totally get you. Good example. I think the big question is like performance and like, What makes one better and what makes one produce the best results? If we start, like, how does operating make one a better investor, do we think?

A I haven't seen the data in a while. Oren's pretty good with data. Um, I remember a few years ago, I forget whose analysis was, there was no advantage, like, to being an, an operators were no better than professional. That may not include pre-seed, right, or other things. Um, but it wasn't, when I wrote this up a few years ago, that whatever data source I looked, it, I think founders preferred it. It didn't necessarily benefit the LPs apples to oranges. Like the CEO that worked at Benchmark, maybe Benchmark's the wrong example, that worked at wherever, didn't perform better than the person that had the Harvard MBA, right? But the world, the world's different, and founders have more choice today, right? They can make their own choices right or wrong.

AI assessment note: “there was no advantage, like, to being an, an operators were no better”

Q Jason, do you have any final questions before we do it best?

A A final question. Can I, can I ask a real, a real life example for fun? Do we have a minute? Kind of a grounded in the state of the growth, and I know, I know Devin's like, I want, You can't give me specific ends or some specifics, but I literally had a board meeting this week. Here's a question about efficiency day. SaaS startup, um, SMB, over a hundred percent NRR from, from SMB, so pretty good. 50, 50, zero. Fifty million ARR, 50% growth, no burn. Okay, but not a hundred percent growth, not 90, not, is that growth fundable? What's it worth? Can you, can you give us, I know you don't want to, but can you tell us, is it fundable for growth? What's, what, what's the most it would be worth if it's not AI? What's a 50 50 zero worth in today's world?

AI assessment note: “Can I, can I ask a real, a real life example for fun?”

Q on what it takes to five or six X, a five hundred million dollar fund. The math to make a two billion dollar plus fund work is simply eye-watering. I guess my question is, what, what happens to these mammoth funds where there's now 10 plus of them? Do they reduce? Do they go away? Do they maintain and find new LPs? What happens to the era of mega fund?

A I think they're going to reflate at the end of next year. I think there will be a resurgence of mega funds in late 2024 and 20 25. I think we're all looking backwards. And we talked a little bit before about the flood of IPOs and the return of liquidity that's going to happen. The pendulum has swung the other way, right? That we, we, on TwentyVC, there's so many stories of how hard it is to raise a fund and how LPs are, are cutting back. It doesn't last. It doesn't last. It can't last, right? You're either in this asset class or you're not. So I know it may seem contrarian, but I don't think so. I think is, you know, 20, 21 was a great year for LPs, right? 20, 22 for some LPs actually was still great because of the time lag. Right. You could actually have a great year as an LP in 2022. If you're finally getting your post lockup distributions, a lot of folks had a good 2022. Some had a terrible, but it bled in. But when times are good, money will re-flood into this. So I think we just have to be careful about drawing short term conclusions when I actually see so many things getting slightly better, like slightly better. And it's really hard to see that curve, that logarithmic or parabolic distribution.

AI assessment note: “I think there will be a resurgence of mega funds in late 2024”

Q From a growth perspective, as we mature down the pipe, is growth dead too? And how do you analyze the growth stage?

A I'm seeing something different in my, and look, we have very different portfolios, right? What I'm seeing today in, we're talking now, Is a very active growth, but with very specific boundaries. Okay. For example, I'll be like, listen, there are, let's put aside the AI outliers. Okay. It's a, it's a conversation we won't have today. We're on a time for traditional cloud companies, SAS companies at growth. I would say, generally speaking, there's a 15 a X AR ceiling, a pretty universal. Now there are exceptions out there, but there you got to work them. There are all the growth investors. If you have a good company that it has to be a fit, it does have to be more efficient today. Okay. But if you're at the growth stage, 30, 40, 50, sixty million in ARR. Okay. And you're not, and you're not burning epic amounts of cash. You will have a series of term sheets laid out in front of you at 15 X ARR. If you're a good company, if you're at 34 50, if you're at 50, whatever, six 50. Right. I mean, 10 X, 15 X is sort of the reach. And maybe that will flex later this year if multiples continue to re-expand. The only problem is, and when I talk to growth investors, there just aren't enough candidates like that. They've raised at too high prices. That's the main reason. And the secondary reason is today is because they're efficient. Sometimes they just won't take the deal today. 15 next is no…

AI assessment note: “Is a very active growth, but with very specific boundaries.”

Q Speaking of it should get harder. You tweeted before, I'm leaving out the company because there's a friendship there for me. As usual in VC due diligence, no one actually cared. What did you mean by that, Jason?

A Well, I was having a little fun, but, um, You know, I remember, uh, my entire life as an entrepreneur or investors, I try to avoid any time a VC wants to do diligence with me. I try to studiously avoid it. And I remember my very first company as a founder, actually, we made implantable batteries from nanomaterials, very hard tech. Okay. And it was, what we did was impossible. Only a handful of people could do it in the world. And this fancy VC fund asked my co-founder, my CTO and me, and she knew more than me. We're looking at the startup in the space. What do you think? And my co-founder who's very cautious, very, very cautious engineer, right? Very calm. She gets on the call and she says, let me tell you, I have, I've worked in this space for a decade. I actually did some work here. It's impossible. What they're doing is impossible. It's a fraud. It can't work. And then she explained calm, not the emotion. I am very calmly. Here's why. And the data, the data that you're looking at is accurate, but you're reading the wrong things from the data. Right. And they said, very, thank you. And wrote a twenty million dollar check that they quickly lost. I'd never really done that before, done diligence for a VC fund, and I found it very frustrating, right, and not profoundly frustrating, and then I learned subsequently every VC diligence calls like that, right, and there are certain s…

AI assessment note: “they said, very, thank you. And wrote a twenty million dollar check”

Q Do you think we'll see a wave more of fraudulent companies come out?

A No, it won't come out because VCs aren't talking about it. Um, they're just marking them to zero. Frauds everywhere. And there's different layers of fraud. Um, for example, just lies. Lies are not always crimes, right? Um, this is like the great Trump debate. What did he say that, like, I think what the indictment said, it was okay for him to lie about, uh, the results not being right, but, but something else he did was illegal. Like the founders can lie about certain things and it's not fraud. Are you, I actually think it's all fraud myself, but, um, Everyone's got a founder that claimed they had ARR that really mashed months together, that their financials were not accurate, um, that misrepresented a plan that was impossible, that, that literally, or, or compressed a bunch of revenue wrongfully right before fundraising that wasn't really quite there after fundraising, or misrepresented their gross margins, right? It's, it's just all over the place, and I, I, Everyone's got one in their portfolio. Any VC that says they don't either isn't close to their portfolio, uh, or is, uh, ignoring it. Everyone's got fraud.

AI assessment note: “No, it won't come out because VCs aren't talking about it.”

Q So Jason, help me. What happens with seed then? We have this increase in supply from operators, a temporary increase in supply, but still an increase in supply, no matter how temporary from multi-stage funds. What do we do at seed then as the traditionalist seed investor, and what happens?

A Well, look, I think you have two choices. Um, one is, uh, find outsiders. Outsiders are, most of the world is not privileged, Harry. Most of the world did not graduate from Stanford or Stripe or Y Combinator. And when you find outsiders, they're, they're not dumb. These are the best entrepreneurs, but there is, the, the prices are much more reasonable with outsiders, right? They're much more, they always have been, and they still are today. And they even were in, in. Insiders are priced to perfection, but if we take a pause, shouldn't they be? The venture markets have changed so much in my, when I started as a, as a founder, venture was so small, the firms would collude. I remember when I got my first offer from a VC, I went to meet another VC and they'd already called each other, agreed on the price and agreed to lower the price and split the round. Okay. That doesn't happen so often today. Now, like if you have the hottest startup in the world, why shouldn't she be 700 Pre in your seat if you want it. I mean, there's downsides to racing at 700 because the next round may be tough, but let's put aside that, that meta issue. Why shouldn't the perfect seed round be priced to perfection, right? And that may make seed investing impossible for seed funds, right? The, the, the seed round price to perfection only works for mega funds. It does not work for seed funds and see the seed i…

AI assessment note: “I think you have two choices. Um, one is, uh, find outsiders.”

Q For VC funds. Would you agree with him, and do you think LP markets are shut for funds, largely?

A I, I think the problem is that we're still using twenty-twenty-twenty-one into twenty-twenty-two as the reference. Yes, it's brutal compared to those three years, right? When I, you know, when I start, it's easier than when I started in venture, I'll sure tell you that. It was like impossible to raise a fund when I started 10 years ago, or when I raised my own first fund in 2016, like, it's still so much easier than it used to be. Um, let me give you just three stories, my three largest LPs, ok? Who, again, I all met with, and they all said don't take the secondary, the, the, you know, the billion dollar plus secondary, they all said don't take it. One which is a wildly successful university endowment. For their category number one. Okay. They're dropping two managers this year. Good managers. No new managers. Dropping two good ones. Good, good, better than me. Good ones. Second one, not going to do that type of venture going forward. You're going to do other stuff in PE and venture and other things, but not going to do these traditional seed series A funds. Third one's done three new managers this year. Three new managers this year and did zero last year. Just like Iconic did the five versus zero. This other top tier massive LP already did three seed investors this year and did none last year.

AI assessment note: “Yes, it's brutal compared to those three years... it's still so much easier”

Q Oh no, I totally think you do, but do you know your winners early? For those that are the figmas and the HashiCorp or the sales lofts or the Algolias. Do you know it earlier or you ever surprised?

A I can only share my experience. I think people will have different experiences. I think, you know, that they are operationally successful early. Um, you know, that they're going to grow. I had no idea that any of my cash unicorns, right? The ones that were exited for billion. I didn't think any of them would except for talk desk. I did. I, and it's not that I didn't love the founders. It's just, it's just so hard, right? It's just so hard to build these companies that I would not have predicted that pipe drive Algolia sales loft would get that big. I knew talk to us would just because going from, you know, one to fifteen million with so few employees in a year was so much product market fit in there that you're like, okay, well, this is going to be worth a billion, but not more, right? Not the ten billion on paper. But I think, so I think the meta learning is just like, Get into winners and just, just don't worry about the stock market. Don't worry about multiples because you can't control it. And it's going to change so many times. Like it takes 10 years to get a billion dollar exit, like M&A. I don't, IPO can vary. It's 10 years for, so the market's going to change a lot in ten billion, right? Don't, don't, you don't even need to look other than to understand follow on capital and burn rates. Just, just do it. But I do think, I know people will disagree. I do think if you're …

AI assessment note: “I had no idea that any of my cash unicorns... except for talk desk”

Q company, not in a founder to be clear, like you are a shareholder of the company. And so do you meet those like head of marketing? Cause I, I meet some head of marketing as a sponsor of the show, Jason. And I'm like, You are shit. Like, that was, that was terrible. And I would never have invested in your company if I'd known you were head of marketing.

A The latest I do is late seed, um, but I'll tell you a story. I do, I don't meet with the whole team because usually there isn't much of a management team. I do for sure always spend a lot of time with the CTO. This is my cheat. Um, I view the CEO as the proxy for sales and marketing. Like if the CEO is great with some help, maybe you and I can, we're working on a search together day. We can help you find a sales and marketing leader, but I don't really care who you have at a hundred K in error or one million. Like you, you are that person, but the CTO is the product, right? Usually. So that's, I think the mistake. 90% of VCs make is they haven't built product themselves. They don't even know how to talk to a CTO or a technical co-founder. And I find them the funnest conversation. So that's as far as I usually go. But, uh, when I've invested at the edge of a, right, I certainly do. And I remember when I was starting investing, there was a founder. I really, I just liked him. I knew him. He was so charismatic and they had pretty good traction and I went and it was great. And I kind of wanted to do the deal. It was cheap. Always a good sign adventure when it's cheap, right?

AI assessment note: “I don't meet with the whole team because usually there isn't much of a management team.”

Q stuck to plan, and you actually prioritize the relationship, this is where I, you know, I love people, you know me. Like, if you did build the relationship throughout cycles, and didn't just take money and say fuck off, Actually, and you start to plan, they should be there, but likely in the same, not an expanded capacity where they would have expanded normally. Do you see what I mean?

A I think that's right with, with maybe the only family caveat for newer men, like, yes, I forget someone great on Twitter said, like the ultimate LP judge was how many exits did you have in 2021, right? So I'm new, but I did have three billion dollar cash exits in 2021 in my investing career, but I didn't make those investments in 2021. So if I hadn't started investing or I didn't have any like B to C stuff, if I had invested early, I would have zero instead of these good looking cash. So I think new managers are, it's tough because there just wasn't enough time for all, but you know, unless you're in these super hot deals to create those cash exits, right? You probably are sitting on no DPI and it doesn't mean your investments are bad, but it's just, that's a time trouble, right? Is that these, There is secularity there.

AI assessment note: “I think that's right with, with maybe the only family caveat for newer”

Q How did you learn how to lose money, Jason?

A Look, I'm not the smartest investor out there or the highest velocity. Honestly, I had to get up almost 10 X on my initial investments to realize that losing a one X doesn't matter. I had to get there. I was terrified. As a founder, I was terrified of losing my VCs money. Like I sweated it every day. I raised, oh my God, I raised eight million dollars in venture capital. I thought the world would end if I lost them a dollar. Didn't, didn't matter. Right. To, to, especially to, I was in emergence too. That's like a 12 X fund. They didn't care if they lost four million dollars on that fund, but I, I worried every day and I, I did the same thing, but then once you're up literally, you know, hundreds and hundreds of millions, at least on paper, if you're a seed investor, you fought. I was slow. I finally got the perspective. I'm like, listen, I gotta like take a little bit more risk. And, and a lot of the, the, the great GPs that were investors in me, then the Byron Dieters and others were like, you gotta take a little more risk, Jason. Like it just doesn't matter, but I was slow. I just had to feel it. And I just, um, I didn't want to, I didn't want to lose much money until it really did not matter.

AI assessment note: “I had to get up almost 10 X on my initial investments to realize”

Q Can I ask Jason, you mentioned there about burning half the money before the launch. We've seen a whole generation of SaaS companies raise near fifty million plus with, I don't know, 30 to 500 K in ARR in that range. So really pre-PMF still. What happens to them who've raised that much at a hundred and fifty million plus? What happens

A I don't know. I, I literally, for better or worse, I, I've invested in none of them, so I can't tell you empirically as, as I, I, I'm scrappy. Uh, I don't see any way any of them succeed. Um, I'm, I'm very concerned. I'll take it back. I might have done one investment vaguely similar. What I mean is what, however you define this term zombie, I do worry about zombies. Zombies are the ones that took advantage of evaluation last year, whether they raised 50 or a hundred or they raised 30, right? Um, now they have infinite runway. They have runway forever. And, um, and when you get an investor update is, you know, good bad news is we're not growing, Harry. Our growth has dropped from one 50% to zero percent. The good news is we have 10 years of runway. So we're gonna take the next couple years to kind of think, like, this lack, it creates, these zombies have a lack of urgency, I think, and I think the VCs have kind of given up. In the old days, the VCs would be all stressed and yell at them, bring in a new CEO, liquidate the company. I, I think VCs just want to ignore their zombies for the, for the moment, because they have bigger, they have bigger problems to solve than their zombies, right?

AI assessment note: “I don't see any way any of them succeed. Um, I'm, I'm very concerned.”

Q the best decision-making bodies? You have one person like you in this case with the domain expertise, the relationship, the knowledge, and then the other partnership, which not specific to this, but just generally, they don't have the relationship. They often don't have the knowledge. They may be specialized somewhere else, and it's a very different level of knowledge barriers. Are they the best structures to make the best decisions?

A Well, look, here's the thing about what I've learned, what I've thought about this over the years. I think forget about VC in most true part. Think about real partnerships. You know, how many partners are there typically? That's the right number. So VCs are legal partnerships, but I think once they're beyond two, They become dysfunctional almost. They have to be dysfunctional. You start to lose or at a minimum, you're only there because of the fun size, because it, you lose all the benefits of a partner. Once you're past now, there are great three co-founder startups, right? But, um, even three, it's usually two plus one, right? So that's the problem is this corruption. We confuse the term. And I think, look, if you're going to deploy half a billion dollars, traditionally, you know, you'd need at least five GPs to do that. That's the way the map, you know, there, there's, there's crazy exceptions the last couple of years, but so you, you had to kind of do it for the kids, for the LPs, and then you had to find a way for this to work. But no, I don't think when you have more than two partners that it's particularly helpful for, but I do think too, I think I would have been, A much better investor. We were talking about this before we started. I would have been a much better investor with a partner than as a solo GP. I'll say it with a hundred percent certainty, a hundred percent.…

AI assessment note: “once they're beyond two, They become dysfunctional almost.”

Q Would you have done that deal today? I know how you invest today. Would you have done that deal and taken that ownership?

A No. Well, there's so many lessons when you start learning. I think you and I might have talked about this when you started investing more aggressively. No, well, first of all, I would have done the million at 15 in a heartbeat, right? And that would have been my bare minimum of investment, right? Because then I would have owned eight percent or something in the company. And, uh, no, I would have passed on it. And of course it would have been an error, right? But, um, I'm sitting here at this stage of my investment career and, and really anything under 10%, um, I, it's hard to take seriously. It's just hard to take seriously. I will do it. If I fall in love with the founder, I will do it. If it's a friend, I will do it. If there are other reasons, right? Um, frankly, I will do it to help build a more inclusive portfolio. Um, uh, the majority of the companies I've invested in have a woman CEO and, and right or wrong. I, I, one of the ways I've done that, which is probably not the best way. Was to mix and match ownership stakes a little bit, but yet if it's not at least 10% and I want to have each in each batch of investments, I want to have at least one as a solo GP that I own 20% or more of. Like I want that because honestly, it's the only way you can make Enough money. You, you want to own 20, if you, if, if you're a seed investor and you're a solo GP and you own 20% of somethi…

AI assessment note: “No. ... I would have passed on it. And of course it would have been an error”

Q Boys, you can choose. We have Stripe hits rule of 80. We have monday.com lays off 20%. We have Mark Pincus's quit if it's too hard. Life's too short to struggle. Can't believe that's actually advice. Where do we want to go, boys? You can choose.

A The Pincus one, I don't want to spend too much time on. I, I, I did, I didn't quote that one, right? And got some traction around it. Arguably, he did say that, right? Uh, he's a consumer guy. He, he comes out of games too, right? In a sense, it's quoted out of context by me, but, uh, there is a point where a game, you know, unless it's, unless it's cyberpunk, which is back now, right? After five years in the oblivion. But in most cases, you should quit on a game, right? Probably at some point, it's just, you got it wrong and you move on, right? It's like quitting on a movie at some point. You got to move on. But, um, but I really, it, it is what it is. I don't want to be grumpy. I, I just feel like I, it just, it, it makes me sad when a founder quits one of the ones we just talked about, a 40, a 50, a 60% grower, ok? A founder with material ownership quits to do something hotter. And I, and I'm cool with that in the age of AI because, and everyone's like, well, there's so much opportunity cost, Jason. I can found etched in a week. At ten billion, I can get into YC and raise it a hundred, a hundred posts. Uh, my round will be fully, fully subscribed before I even finish the batch. And I can't argue with some of that. I just, um, I, I, uh, most of the founders I've worked with over my career that have done that, that have quit something pretty good to do the shiny penny, uh, the…

AI assessment note: “The Pincus one, I don't want to spend too much time on.”

Q Boys, you can choose one more topic. What topic should we discuss?

A Well, look, I think you hit a lot of good stuff. The, the one that maybe we've discussed before, but I still think is a, is a topic that, that resonates, right? Is the, um, the 11 Lab, I added this one, the 11 Lab secondary at twenty-two billion, right? I don't think, like, it's a high valuation, maybe that's interesting, but I think the growth in today's world, it's, it's consistent with other rounds, right? I don't think the price is actually that interesting. I do think, even though it's not a new topic, the, the one I said is interesting, it's like, as an employee today, why would you join something that you don't believe will have secondary options? I really think this is a big issue. Like one issue is why would I join you rather than Anthropic, right? Where I can make so much money to open AI, but there's plenty of reasons to not join in Anthropic and open AI. We could talk about that, right? They're pretty big companies. Your role is going to be very narrow, right? It may not be the job you want. Um, 11 Labs probably is more agile than Anthropic or open AI, right? Your job is probably a little bit more interesting in some, for some folks, but Jesus, if I was a, a hyper talented employee, I would not want to go summer without liquidity. I, it just doesn't seem worth it today. It just, and, and so it's just questioned. Do you have to create this as founders? What do you do…

AI assessment note: “the 11 Lab, I added this one, the 11 Lab secondary at twenty-two billion”

Q Before we move on to Anthropik's perspective on distillation, Jason, I love you, my friend, but what do you want from these CEOs then? Like, candidly, he's being very factual and innovative in how he's presenting what the company is doing. Like, what do you want from him to just shut up and do the work?

A I want to see how AI Listen, I value the data, ok? I'm not, I'm, I'm, I'm, I'm not being facetious. I do feel this way. I value the data, so I appreciate that. But I want to see how AI, I want to see how AI, if at all, can give Coinbase a revenue lift. That's what I'd like to see. Even if it's just them, I mean, listen, Coinbase is subject to the whims of the crypto market, ok? And, and investors should understand that. And when crypto roars back, Coinbase has grown at rates that, uh, are almost anthropic levels for brief periods of time, right? So, so it's part of, Being on a non-recurring revenue journey in a very volatile market, but I'd love to see how growth is five percent higher from, from AI, AI something in crypto. I'd love to see how it's driving up insurance premiums and insure, I mean, insurance margins. I just want to see how, where this, where this, um, magical boost is from, from this utility. The LLMs are a utility, right? They're tokens. They're, they're, they're not fungible utility. Like we're, we're kind of teasing at whether They're becoming fungible utilities, right? Is one token replaceable for another is the meta issue. I just want to see a boost. I, I'm tired of folks like Adobe saying we have five hundred million of agentic revenue and missing the quarter. That's performative too. And listen, what would I be doing if I was the CEO of a company not acce…

AI assessment note: “I want to see how AI, if at all, can give Coinbase a revenue lift.”

Q I know. I just want to actually articulate a bull and a bear case rationally for an audience for how this acquisition could be seen from both sides, because it is very confusing. So if we were to start with a bull case, Rory, and Jason, please chime in too, because you're, you're the master also of kind of media and venture as well. Um, What is the bull case?

A I'll give you the bull case. There's, there's two, the, the strategic one's more interesting, but let me hit the tactical one because Rory, because Rory made a good point. If you, there, this is, look, this is not gonna make or break the company, right? There are certain acquisitions that can, right? There's certain acquisitions, like stipulate that. But there are some things you acquire where it, it, they run almost on autopilot. They are not massive distractions. And if the price Is small relative to what you hope to get out of it. That does factor into the equation. If you have to rebuild your whole team, it's a total distraction. You're going to rip out your guts. That's a big deal. When once in a while, one, it's pretty rare. You can acquire something that isn't massively distracting to some management team level. So even if it's not the perfect acquisition, I don't think it's a huge, it's not going to require a huge amount of senior executive time. So it's just, it's just important general to the calculation. The one point I'll make And I wrote a post that every, every profitable public company should do a deal like this, of which OpenAI is neither, right? It is clearly not profitable. It is clearly not public. But let me tell you why, Rory, and you might end up agreeing with me on this, um, because, and this is why the Barstool deal almost worked but failed, right? If yo…

AI assessment note: “I'll give you the bull case. There's, there's two, the, the strategic one's more interesting”

Q drives a lot of decision making, I'm sure, tied to that. I do want to be cognizant in terms of how we discuss the topics we have on the agenda. We mentioned Oracle and OpenAI. Microsoft and OpenAI's relationship is slightly changing, it would seem. Announcement of Jason, why didn't you give a snippet on what this is in terms of the news between their relationship and how it's changing?

A We got, we have more to learn. It is, I, I, it's, it's going to be interesting. I mean, Microsoft, I think today said they're moving not just parts of office to Anthropic, but that it is the default choice for several other products and that Microsoft today said several months ago, they told their teams to start using cloud code several months ago. So they've been breaking up at some level for a while. Um, and, uh, I guess it's fine. I mean, I guess it sounds like we don't know the deep, maybe Rory knows the detail of the deals. I guess it sounds like OpenAI is going to get what some of what they want. They're going to get this revenue share, uh, reduced. Uh, they're going to get their freedom to partner with whoever they want. And I'm not quite sure what the price and blood is going to be back the other way. But already Microsoft's moving on, right? They're already moving on. They got the IP. They're going to keep the IP, I guess, right? That, that they're going to keep whatever IP they're allowed before AGI. So they've got all the code if they want to do anything with them. They've already moved on to Anthropic, which is good because I think, um, ChatGPD is probably going to end up being almost as good for coding as Anthropic. So the whole thing, the, the shifting sands of AI, it's, it's, it's, it's, it's a, it's a lot to process.

AI assessment note: “Microsoft, I think today said they're moving not just parts of office to Anthropic”

Q That's Satya's perspective though, isn't it really? Which is that, you know, in an agentic first world or an agent first world, you basically have all of these applications that become databases and then agents basically become the data transporters and you never need to engage with the core database then.

A Yeah. I thought it was too nerdy when he started saying it, right? And too technical, too Microsofty. I thought it was too Microsofty, right? But time goes by and now that I can see MCP applications just starting and the problem today is you need to, listen, I'm not an expert, but everything I've tried, you need a key. So a key is annoying, right? I got to go to some website. I got to get a secret key and I got to add it to my thing. But when those keys go away and I can just talk to all my apps through my, through my chat GPT or Claude, man, I just don't think we're ready for this world. I don't think we're ready for this world. And I'll give you an, an, a personal example. Like Harry knows there's a company I invested in, um, that I, I love called mango mint. Okay. And it's, it's, it's next generation SaaS for spas, doctors, offices, and the like. Okay. They're coming up on twenty five million. Love the CEO to death would do anything with them. Like he was all over MCP the day he could use it. Okay. And he's like, here's the problem for me. Let me be clear. And he's the best in his space. That's why they were able to do it. Right. Not a huge tam, lots of issues. Like now let's say I want to, I want a, an appointment at, uh, what, what's at watercourse way in Palo Alto, right? Where, where Rory goes to decompress after, uh, after a tough, tough pod. And let's, but right now he…

AI assessment note: “if it can just abstract away and you'll have no more relationship with this application”