The Exchanges

Q just on geography, we've spoken about Lovable, we've spoken about Lagora, two companies based in, obviously, Sweden, and then you have Anthropik and you sitting on the west coast. How do you think about the centrality of power with AI moving back to San Francisco, all the brightest minds, all the best researchers are there, being the common theory, with also a portfolio that's very global in terms of winners?

A Yeah. San Francisco was a weird place for a few years, you know, like all the cool kids wanted to be in New York and, and San Francisco felt a little bit like a, you know, a ghost town, very concentrated in sass, not like that much interesting stuff going on. And I love seeing it have its mojo, have its mojo back, right? That's like when these waves come, the Bay Area usually leads. And so it's just giving so much more energy and people who are like, Lifetime New Yorkers who would never think about leaving, you know, living in the Bay are now coming out here. I think more college grads are saying, yeah, New York's cool, but I got to get out there and be part of this AI thing. So I think it's great for, um, the Bay Area. I think the, the, the concentration of that talent is what has always made the Bay special. You know, you just kind of, you, you're, you're just constantly talking and meeting entrepreneurs and understanding how everyone's pushing themselves, not just like their work ethic, but more like, Technically what they're working on your context that you have by living in the Bay area is probably like 10 or a hundred X. If you're just some really great company somewhere else now, you know, uh, kudos to you and not, you know, just you personally, but like, you know, what's going on in Europe right now, like that whole, um, deep mind diaspora, you know, you mentioned a cou…

AI assessment note: “concentration of that talent is what has always made the Bay special”

Q The margin structure of Lovable will be changed greatly with the utilization of open source, which is obviously much cheaper. Um, that goes against one of the other investments being in Anthropic. Do you see them as like hedges against each other? Do you worry about the progression of open source given how much can be done now with open source? I'm intrigued. How do you think about that?

A Yeah. I mean, first of all, I think like, uh, Anthropic is a fantastic partner to Lovable and vice versa. Um, But like this market is so big. So there's really two dimensions that one, you know, uh, people, some people worry about lovable and anthropic tripping over each other. I think love anthropic always comes to things a little more like the technical user and lovable comes at it more from the, the lay user. And sure there's probably some overlap in the middle, but I think there's plenty of big space, uh, for each one to do extremely well. And, you know, look, cursor was about as in the crosshairs of anthropic as possible. And they, I think they still had a pretty darn, Darn good outcome. Um, but the whole open source topic, look, it's, it's like any market. When you, you start off in a certain way and it's just like, look, I want to get something running. I want to get it out there and, and, uh, just prove I've got, you know, a cool product. And so you just default to the simplest thing. Over time, you do more optimizations, right? And so I'm also on the board of Open Router, a company that you all talk about quite a bit, and I love hearing you guys mention them. And, and, you know, that's, that's kind of like this, the north star there is like, hey, you would have some intelligent layer that intercepts an API call from any application and basically says, what's the best m…

AI assessment note: “there's plenty of big space, uh, for each one to do extremely well.”

Q The margin structure of Lovable will be changed greatly with the utilization of open source, which is obviously much cheaper. Um, that goes against one of the other investments being in Anthropic. Do you see them as like hedges against each other? Do you worry about the progression of open source given how much can be done now with open source? I'm intrigued. How do you think about that?

A Yeah. I mean, first of all, I think like, uh, Anthropic is a fantastic partner to Lovable and vice versa. Um, But like this market is so big. So there's really two dimensions that one, you know, uh, people, some people worry about lovable and anthropic tripping over each other. I think love anthropic always comes to things a little more like the technical user and lovable comes at it more from the, the lay user. And sure there's probably some overlap in the middle, but I think there's plenty of big space, uh, for each one to do extremely well. And, you know, look, cursor was about as in the crosshairs of anthropic as possible. And they, I think they still had a pretty darn, Darn good outcome. Um, but the whole open source topic, look, it's, it's like any market. When you, you start off in a certain way and it's just like, look, I want to get something running. I want to get it out there and, and, uh, just prove I've got, you know, a cool product. And so you just default to the simplest thing. Over time, you do more optimizations, right? And so I'm also on the board of Open Router, a company that you all talk about quite a bit, and I love hearing you guys mention them. And, and, you know, that's, that's kind of like this, the north star there is like, hey, you would have some intelligent layer that intercepts an API call from any application and basically says, what's the best m…

AI assessment note: “Anthropic is a fantastic partner to Lovable and vice versa... this market is so big”

Q Do you think the costs have to come down for AI? Sam Altman said very clearly that they are doing cheaper and cheaper. Uh, uh, kind of tokens and, and reducing the cost significantly. Does AI have to get significantly cheaper, and will we see this cost curve come down massively?

A Well, I mean, I think it's like, like any product, you know, the, you can argue that the cheaper it is, the more it kind of opens up the market, because it's, ah, you know, you, you can, you can do more for less than that, you know, that, that, those economic curves always spark, um, activity. But, you know, I mean, look, even within the Anthropic family, right? Like you, you've got Sonnet, you've got Opus, you've got, uh, Fable. So, I mean, even the, even Anthropic itself is innovating around, you know, hey, it's not one size fits all. So I think, you know, you're going to have the combination of something like that, a family of models from Anthropic, and then a set of open source models and things that you train with your own data, and you're going to look across that whole tapestry and say, hey, I'm using 50% this, 30% that, 20% this, and that's, those are the kind of optimizations that happen at scale, and that's the stage of market that I think we're just entering into, which makes it a lot more fascinating, frankly, because there's going to be so many Kind of second and third order companies that, that spike and take off versus, you know, the whole market being concentrated.

AI assessment note: “the cheaper it is, the more it kind of opens up the market”

Q Okay. Okay. Totally understand. Two to three. Two is a very big number. How do you think about firm sustenance when there is such a big win? We have seen firms candidly struggle to maintain dominance when everyone makes so much money, bluntly. How do you think about sustenance post such success?

A You know, I think Menlo has always had a challenger mentality since myself and Venki came over a little over 10 years ago, and kind of, Sean Carrollin came back, and, and, you know, Mark Siegel was the partner who was there who kind of put the band together, and ever since that moment about 11 years ago, it's just been a grind, a fight, a, a build exhilarating to kind of get to this point, and I feel like everyone we've brought along has kind of felt Menlo Move up that stack and be more and more successful. So I think what's driving us is what you would expect less about that monetary outcome. And holy shit, we've put ourself in a place to be one of the hopefully leading firms in AI. And how do we really compound and double down on that advantage? And that's the energy I feel every day, certainly from myself and all my partners. And I, I just can't see that going away. It's kind of like, it's kind of like we arrived, we're here. What we, what do we do with that? And you know, the money's great, but that's not what, that's not why we did all this.

AI assessment note: “what's driving us is what you would expect less about that monetary outcome”

Q sake, it's like Friday morning. I wanted a chilled interview. You can put me back down, but everyone tells me, oh, Anthropics, the real threat. And I'm like, are you kidding me? This is like a heavy GTM business focused on building relationships with lawyers, doing legal deployments, With, I mean, it's, it's completely different. How do you answer that statement when everyone's like, well, anthropic legal's gonna beat them?

A Yeah. Well, first of all, Max, Max is special, as you know, part of my diligence was watching, uh, you know, your, your interview with him, but he, he's, he's just an execution machine and, uh, just a lovely person to be with. I think, you know, there's always, for a while here, we're in this period of, for a long time, it felt cleaner, like, Hey, there's a model and there's an API, and then there's application companies. And, and obviously that's kind of gotten blurrier and blurrier. And there was a period a couple of months ago, it's like Sasspocalypse, you know, Everything's going away. And I think some of a lot of that has kind of faded and now we're kind of sorting out like, okay, well, which, which applications really deserve to live and why? And I think, you know, not speaking for Anthropic, but my, my view is they're kind of like, look, if the model just kind of does something and your application isn't distinctive enough, the workflow, the value built on top of it, and the model takes that market away, well, then it probably wasn't that, you know, defensible anyway. I think in the case of Max and Lagora, you know, they have Lawyers and FDs getting in there and understanding these, these workflows. Um, it's kind of like crosses organizational boundaries. Like I think it's very hard for a model just to come in and be like, oh, you know, there's multiple constituents here…

AI assessment note: “it's very hard for a model just to come in and be like, oh”

Q Do you think the costs have to come down for AI? Sam Altman said very clearly that they are doing cheaper and cheaper. Uh, uh, kind of tokens and, and reducing the cost significantly. Does AI have to get significantly cheaper, and will we see this cost curve come down massively?

A Well, I mean, I think it's like, like any product, you know, the, you can argue that the cheaper it is, the more it kind of opens up the market, because it's, ah, you know, you, you can, you can do more for less than that, you know, that, that, those economic curves always spark, um, activity. But, you know, I mean, look, even within the Anthropic family, right? Like you, you've got Sonnet, you've got Opus, you've got, uh, Fable. So, I mean, even the, even Anthropic itself is innovating around, you know, hey, it's not one size fits all. So I think, you know, you're going to have the combination of something like that, a family of models from Anthropic, and then a set of open source models and things that you train with your own data, and you're going to look across that whole tapestry and say, hey, I'm using 50% this, 30% that, 20% this, and that's, those are the kind of optimizations that happen at scale, and that's the stage of market that I think we're just entering into, which makes it a lot more fascinating, frankly, because there's going to be so many Kind of second and third order companies that, that spike and take off versus, you know, the whole market being concentrated.

AI assessment note: “the cheaper it is, the more it kind of opens up the market”

Q Did Dario set the price? Did he come into meetings being like, hey, the round is four billion?

A I don't remember exactly that part of it. Um, but basically, you know, if, if there was a mistake and, and it's hard to look at this, uh, through the lens of having made any mistake, it's basically like, hey, look, the opportunity's there for you to lead. And what I'm like, well, you know, we can't really do this out of the growth vehicle in the venture fund. We can only do so much. So we said, Hey, we want, we're all in, we want to be part of the round. And I'm very grateful that I have a set of partners who were just like, look, let's just do this. Let's just get into this. This is one of the biggest waves. We've pivoted the firm to be all in AI. Let's jump on this thing and see what happens. And that led to everything from there. But if I had a partnership that was more rigid around, Hey, that doesn't fit, then this never would have happened. And we would have never gotten to the point where we led the next round and all of that. Um, but anyway, so that's, that's kind of the, the, the quick story of it. Very fortuitous.

AI assessment note: “I don't remember exactly that part of it.”

Q Did Dario set the price? Did he come into meetings being like, hey, the round is four billion?

A I don't remember exactly that part of it. Um, but basically, you know, if, if there was a mistake and, and it's hard to look at this, uh, through the lens of having made any mistake, it's basically like, hey, look, the opportunity's there for you to lead. And what I'm like, well, you know, we can't really do this out of the growth vehicle in the venture fund. We can only do so much. So we said, Hey, we want, we're all in, we want to be part of the round. And I'm very grateful that I have a set of partners who were just like, look, let's just do this. Let's just get into this. This is one of the biggest waves. We've pivoted the firm to be all in AI. Let's jump on this thing and see what happens. And that led to everything from there. But if I had a partnership that was more rigid around, Hey, that doesn't fit, then this never would have happened. And we would have never gotten to the point where we led the next round and all of that. Um, but anyway, so that's, that's kind of the, the, the quick story of it. Very fortuitous.

AI assessment note: “I don't remember exactly that part of it. Um, but basically”

Q What company are you not in that you would most like to be in?

A There are, there are several, um, the one company that I've really admired and, you know, uh, as the kind of like outlier entrepreneurs, we, in my history going back, like you look at the companies that became great, you know, when I was early days of client, there was like, you know, uh, Jeff Bezos and later on, uh, Danielak and, and the Collison brothers. And like, Somehow or another, these amazing founders end up manifesting the company. I don't necessarily think it was that they chose the right market or, I mean, somewhat they did, but it was really just the force of nature, the creativity, the vision, the execution, their ability to raise capital, hire the best talent, all that. So anyway, I think, um, an example of that in Europe, just because it's close to home for you, would be someone like Matty at 11 Labs. Um, very, uh, big respect, um, for him. So You know, you know, I don't want to give everyone on the podcast my whole pipeline, but just because that's when you, you know, well, I'll, I'll throw that out there.

AI assessment note: “an example of that in Europe... would be someone like Matty at 11 Labs.”

Q I think richer investors make better investors because you do not worry about downside mitigation, but you focus on upside optimization. How big can this be? What happens if this works? You're not worried about LPs not re-upping. You're not focused on risk mitigation. Do you agree with me in thinking that?

A Of course I do. And I think it's, it's, it's at a firm level and it's an, at an individual level. And, you know, there's been times in my career, you know, where you, where you feel some, some doubt either from yourself or those, those around you, and it makes you dramatically worse. Right. And so what we try to do is have a high trust environment, build people up and everyone is going to fail in this business. Right. It's just kind of recognizing that sooner and kind of landing the plane or doing the right thing. The worst thing in the world is to kind of hold on and just go to try to, you know, um, act like the reality is not, is not the reality. And oftentimes you're doing a founder a favor by even helping them, you know, kind of, kind of land the plane. So, um, so yeah, I, I, I think it's an, an important point and an important thing, you know, to, to, to manage in this business.

AI assessment note: “Of course I do. And I think it's, it's, it's at a firm level”