The Exchanges

Q What does that mean, sir? We're suffering for the bigger cousin because PE hasn't had the liquidity.

A Because they're putting five times as much into PE or 10 times as much as venture. putting Venture's a rounding error in most of most endowments, right? It's a subset, just like seed is a subset of venture. Venture's a subset of PE. It's not that important. It's just juice, right? It's just a way to juice your returns. P.E. is where you put, deploy more capital, and if it's been five years and your cash flow models are off there, right? They haven't brought, it's great we bought Zendesk and Anaplan and Shmanaplan, but if none of them are returning cash, that's an order of magnitude bigger issue than these little, you know, these little eight or nine figure checks into scale of 20 VC. Those don't, those are rounding errors. Those are just juice. Those are to get some extra basis points on the overall endowment, right? I mean, there's exceptions, right? There, there, there's, there's, but, but mostly it's juice, right? Mostly it's a little extra alpha on the endowment.

AI assessment note: “Because they're putting five times as much into PE or 10 times as much”

Q What is no one saying that you're willing to say? Like you said earlier, we're all pretending. What other thing is no one saying that we're all feeling?

A This one isn't like, uh, epic, but I just think we're sitting on a ton of one X funds in venture. Just so many one X funds. They'll never get out of one X. A whole generation. And listen, I barely saw I, when I was, when I first joined venture, I could see the tail end of the 2000 funds. I mean, I wasn't there in venture, but I could see what they looked like 1415 years out and just doing one X in a 2000 vintage fund was like top decile, I think. I'm not saying we're going through that, but there is such a, there are, there are so many funds that will end up the whole generation of one X funds and how it's just founders aren't yet paying the price or, or, or not getting the benefits, but that's one thing people aren't touched. I, you know, I wouldn't be surprised if the majority of funds from the last few years are one X funds.

AI assessment note: “I just think we're sitting on a ton of one X funds in venture.”

Q me think of that, because do you want to go through the worst regulatory antitrust process that could kill your company with distractions, or do you want to go through a long road to IPO, IPO, and then be under the intense scrutiny of public markets, have lockup periods, have short sellers, activist funds, and all the shit that comes with being public? Is this not two equally shit options?

A Well, I listen, I think it's the right question. I'm sure they had that discussion last week, right? As successful repeat founding team, a successful repeat team, they, they had to just, did we really want, we wanna, we, we, they're clearly, it's hard, but probably having their times in their lives at a personal level, it's, it's an incredible run, but yeah, is it worth it? Is it worth the going public and seeing the variability and things and just dealing with the, the, the headaches and the stresses? Is it worth it or should we, uh, Should we leave the keys on the table? And I think 99.99% of us should leave the keys on the table. And that's why I've decided forever. I've changed my mind. We talked about this before since 2021. Every founder with a decent exit, I tell them to take it now. A hundred percent. I tell them to take it for this reason. And, and listen, if they don't, if they push back, that's great. Then I just help them get to the right conclusion. But I no longer am neutral when I talk to, I tell if a soft, the CEO called me and I say, take it. Not because I think it's zero to five hundred million. There's any need to, But that's how I challenge founders now, because look, it's just that this distress of dealing with these activists and the drama and, you know, we're, we're, what we're, the other stressful thing we're finally seeing is, you know, we, we never bel…

AI assessment note: “I think 99.99% of us should leave the keys on the table.”

Q What's the margin on events business like Sasta?

A Basically all the, when you look at things that are vaguely similar, like a shop talk or money, 20, 20, and again, these don't have communities, but they, or con lions or other things. And a lot of these are public, so you can, you can parse them. Basically you need to get above 20 to make money. And then, or Coachella, but once you're above 20, it, it becomes, I'm way oversimplifying. Then, then you get, start to get very high margins, but it's very high. So when you look at the public companies in the space, they do have like 30 to 40% operating margins, but you, you have to get above a twenty million dollar nut to, to, to do it as a business, right? Not that we started as a business, but you do have to stay above that, right? So you do 30 or 40, Um, then it could be very lucrative if that's what you want to do. If you want to create, if you want to take cash out of the business, you could make a lot of money, right?

AI assessment note: “they do have like 30 to 40% operating margins”

Q Do you think that is also because events are less exciting than they were? Events in SaaS used to be the thing. Now content is the thing.

A It's mixed, because on the one hand, field, every report I've read recently, field is still 40% of all marketing spent, field marketing, ok? So the budgets are still there, but some people don't even want to deploy them, ok? So that, that's one issue, right? Um, and then yeah, the, there's a, there's a whole issue where we thought That when we came out of lockdown that people would want to be together more. Right. And I think what I've learned from the events thing is it cuts two ways. On the one hand, there are, it is great. We're all look, even we're here in your office, your team is here, but almost everyone's at least running some kind of hybrid team. Okay. No, almost everybody. And so, so, so we we've had to learn about this, but a lot of people just don't want to get out of the house.

AI assessment note: “It's mixed, because on the one hand, field, every report I've read recently”

Q What does HubSpot's pipe drive competitor product at seven hundred million CRM? Yeah. But what does that teach you? When you look at them getting to seven hundred million so fast, and Pipedrive being an amazing but much smaller, hundred or a 150, what does that teach you? Distribution is everything? Brand?

A It's not even, distribution helped them, but it's very interesting if you listen to Dharmesh and Brian, they had some distribution, but remember, back in the day, it was a single product company selling to marketers. The distribution to sales professionals was very adjacent. It was attenuated at best, right? Um, and I had a long conversation with them just on this point. I remember at saster annual when they came together and they're like, yeah, like people thought it was crazy. Like it's not the same buyer. It's not the same ICP, but here's the, the, a bunch of learnings. One of it, and this is how I met them early. Like if you have a founder led company and they, this is, and a bigger company is going to do this. Like this is a top, like this was our top priority beyond marketing was to do CRM. It might've, might've been a dumb idea because it was a different buyer. It was a different time. But they were willing to invest multi-years in a free version, a decade in doing this because they knew it was the right decision. If it's founder-led, be wary, be wary. That's what Olivier has done at Datadog, uh, uh, decimated multiple categories because it's a founder-led company, and he comes in and says, we're gonna own these categories. We're gonna keep owning a product after a product. No, they don't win in everything, but that's why, you know, a, a huge percent of Datadog company c…

AI assessment note: “If it's founder-led, be wary... they were willing to invest multi-years”

Q Do you think you have any frauds in your portfolio today?

A I don't think I have heavy fraud, right? But I think this five million dollar loss when you, when you take 12 months of revenue and you recognize it all in one month, that's at the edge of fraud, isn't it? That's why I like this, this quick bank statement check, like, okay, just go through it and just make sure that the expenses and everything matters. It sounds silly, because it doesn't really matter when you're making a seed investment, whether there's 200 K in the bank or a million, it doesn't, but what does matter, I find, is, it's just, I don't want there to be any, when we're investing faster, Harry, And we're investing broader. I just don't want any shenanigans. I just don't want it. Life is too short. I don't want any, I don't want any bullshit. I don't want any manipulated metrics. I don't want, and the problem with these bullshit artists, Harry, is they're bullshit artists for years. It'd be one thing. It was one and done if they just bullshit you in the financing, but then every investor updates bullshit and every board meeting is bullshit. It's just an endless stream of bullshit. And, um, you can't make, it's not worth it.

AI assessment note: “I don't think I have heavy fraud, right?”

Q Do you think enough GPs have taken the red pen to their portfolios and been open with their LPs?

A No, I don't. But here's the thing. And again, everyone talks at big game. We're not allowed to mark up between rounds. See if we were allowed to mark up between rounds, which a lot of PE firms can and late stage folks do, right? They, they can mark up traditionally. It's a weird world. So like, uh, everyone's like, take your markdowns and you should take your markdowns. But what about the markups? What about the ones that never raise again that are worth billions or whatever? We're not allowed to value up, are we? Maybe in the UK you can, in the US you basically can't mark up between a round. So I think it's all a weird world. And, um, I think that it, at some level we, uh, LPs have gotten over the Sony baloney valuations and it's just show me the business. And if L and if a GP doesn't mark down a given deal, they just don't. I mean, I just, I just, I don't know that it's as high drama issue as it was. Last year, um, I don't, I don't know that it matters, and I asked my own, and listen, you have a broader group of LPs, but I asked my own LPs, and they didn't carry their way that much.

AI assessment note: “No, I don't. But here's the thing.”

Q Right. We're going to do a quick fire, uh, and I'm going to pepper you with a couple of statements. Number one, what have you changed your mind on in 2023?

A I have changed my mind that there is any chance on planet Earth, any chance That a pretty good founder can produce good venture returns. I will never again invest. I only invest in founders that are much better than me. I will never invest in pretty good founders, no matter what the traction is, no matter what the growth, no matter what it is, maybe it works in consumer. They say, they say, but now that, now that our lemons have ripened, this was the title of my last LP report. So much great progress in the portfolio in our core positions, but the lemons have ripened, but the lemons have ripened. So, uh, I took every write off in my last LP report. There was, I just wrote it off to the max. Anything that wasn't good for my first time, I just wrote it. I just, I aggressively put the, the, uh, the, the, the red pen or whatever to it. Cause I had enough of good, but not great founders and all the ones that, that I had to take the red pencil to were good, but not great.

AI assessment note: “I have changed my mind that there is any chance on planet Earth”

Q Bringing that back to the SaaS early stage market. What does that mean?

A I don't think I, I, this is why I struggled to give you the great growth investor answer. I don't think it's going to impact early stage much. I think there will always be wedges. There will always be new tools, new things to take advantage of technology. Um, new, this has been true since the dawn of software. People will figure out new ways to build neat things at seed, and there will always be a hundred X opportunities for the next one that comes out of left field, right? That does something we didn't know about. We didn't know we needed Riverside. We're on Riverside right now, right? We didn't know. We didn't know podcasting would be big enough, right? But that could be a hundred X, right? So those will, the beauty is for those will still exist. Um, Whether there will be enough folks that can achieve a billion in revenue growing 20 or 30% or more, uh, that's the, that's the bigger issue, right? Will it be enough? Because the, the real math invention, like, oh, we can talk about all these exits and stuff, but they're predicated on hitting a billion in revenue with real growth, right? That, that's sort of the terminal state of SaaS. And when I started doing all this, we didn't think it was possible. Now it's kind of commonplace. Like there's so many, forget it, growth has slowed, but there's so many that have crossed a billion. Um, but, you know, a billion can't cross a billio…

AI assessment note: “I don't think it's going to impact early stage much.”

Q with you. I sat down with, um, one of the best investors in the last 2025 years, and I said, how do you feel about the changing nature of venture? And he said, what the fuck are you talking about? I said, what? And he said, there's two to three great entrepreneurs a year. You need to invest in one of them. It's simple, but hard. Lunch is on you.

A Yeah, but you know what's changed, Harry? It's a good, I don't think that's changed, but that's why I thought a lot about Oren's point. If you're going to be early stage, there's so many startups today. And you know, it's funny when I started investing 10 years ago, and I remember when Slack and Zoom took off, I was like, I didn't see them. I'm a horrible investor, right? Even though they actually were like Saster community fans, right? Um, I felt like an idiot today. I never feel that way because there's too many stars. Like you could never, I could never open up a tech crunch or strictly VC and feel like an idiot for not hearing something because it's, it's you, if you want to see ever those one or two, I actually think it helps to see 10 times more startups than it did five or six years ago. 10 times. You don't have to, if your top of the funnel is perfect, like if you can get everyone in, but it's just such a big world. How do you do it as one person?

AI assessment note: “Yeah, but you know what's changed, Harry? It's a good, I don't think that's changed”

Q We're going to move into that over time. I do want to kind of do it staged because it's easier to follow then. I do want to move into the Series A. We discussed their seed being untouched. We discussed pricing being relatively untouched. Capital supplies. Series A. How do you think about the Series A and B market today?

A Terrible. I think it's terrible. And actually, I would ask you, you may have, in some ways, you may have a better perspective. Look, everything's better than a year ago, let's be clear, no matter what Twitter says. Like, it was interesting, you know, Iconic Growth published their data when they came to SaaS Europe in June. Iconic Growth, I think, had done four growth deals in 2023, zero in 2022, zero. So from zero to four, I don't know what their traditional pace was, but zero to four is pretty, pretty different, right? Um, the deals were lower valuations, right? They were lower perceived risk, which is important, right? And, um, so everything's tougher. I just think, you know, A and B's today, the reason there's a huge slowdown at A and B is not because the money isn't there. Everyone that's good has a fund, Harry. I'm sure you agree with me. Everyone that has a track record has a fund today. And in fact, they often have an undeployed fund, an under-deployed fund. Everyone is good, right? Uh, yeah, LPs are calling names and folks without a track record are having trouble raising another fund. But if you're, if you're pretty good, You got a fund to invest today. You're in, everyone's in market. Let me, in some, in some sense, in some sense, everyone that's good is in market, but A and Bs want a return to rationality, right? And founders aren't there yet, or, and they may never …

AI assessment note: “Terrible. I think it's terrible.”

Q I totally agree with that in terms of market expansion there. I do want to ask, you know, when we look at, and you look at portfolio companies today, when you look at the buying path What are you seeing in terms of overall SaaS buying patterns today?

A Yeah, I have a very different perspective than Twitter. There is a, a subset of categories that are doing fine. Let's, let's be clear. They're doing fine. There is a subset that's deeply troubled, and then there's a bunch in the middle where it's just a little bit, a little bit or a lot harder, and so be it. That's called life, right? But these folks who are saying this is the worst, worst recession since the tulip age in Holland are out of their minds. They haven't, they have no life experiences. Um, and it's not evenly distributed, and let's talk about a few examples for a minute, but before we even get there, think about folks maybe in your portfolio, Harry, that are selling to healthcare. In the US, there's no downturn in healthcare right now. There's nothing, and I can't imagine it's different in the UK. So yes, I'm sorry if you sell only to overfunded startups, you may think that this is the worst recession since 1811, but if you sell to healthcare, and then we'll just give some others, you don't see an issue. For example, in my portfolio, like, let's, let's take a really interesting example, which is B to B e-commerce. Okay. Now B to B e-commerce. I have two leaders I've invested in a gorgeous, which is number one contact center in Shopify and then Algolia, which we talked about before, or about half of Algolia's businesses in e-commerce. And interestingly, you can see t…

AI assessment note: “There is a, a subset of categories that are doing fine.”

Q at a 5.5 billion dollar price from DST, and they hit seven hundred million in ARR. And then you have Lovable, who raised a new round from Menlo. They're around the 607 hundred million ARR range too, raising at a 13.3 billion dollar price. Big price divergence for very similar revenue numbers, which I find interesting. Guys, we've talked about these companies a lot. How do we think about them?

A Well, you know, on the lovable thing, the thing I was thinking, I mean, it's so much so crazy since when we started the show, right? And lovable and Replit were both raised in like two billion and were really terrible products when we started the show. Now they're great products. They're, they're truly generationally great. I do think today, I know the engineers and developers will mock me for saying this, but I do think that they deserve us, arguably a somewhat similar to be in the cursor conversation. In terms of stickiness, strength, capabilities, they were not when we started this show. So is the level, okay, did Mendo pay up a little bit as an existing investor, right, who was already in at four? Maybe. But is that multiple that far off the cursor multiple that we just saw? It's not radically off, is it?

AI assessment note: “is that multiple that far off the cursor multiple that we just saw?”

Q Oh dear. I, I totally agree with that. But we mentioned the reinvention of, like, incumbents there. Service now popping 24%, growing 20%, well, almost 20%, at twelve billion in ARR. I just want to hear, like, what do we make of that? Bill McDermott coming out with another masterstroke? How did we evaluate this?

A First of all, at a meta level, we're all trying to wonder, And everyone in enterprise exaggerates how much AI has had an influence in their business, right? I mean, Marc Benioff's great, but he said they've had 500,000 transactions on AgentForce. We've had over a 100,000 on Sastra AI. I don't think 500,000 if you, it sounds great at first blush, but if you think through it, it's early, and he's acknowledges that. It's not a criticism. He acknowledges it's early, right? So I think all the talk about ServiceNow of all these agentic automations, I still think it's, it's early, right? So on the other hand, we're all kind of wondering, listen, do these guys all win the most? Right. I mean, you know, these, you can, you can put a really, really good AI on top of almost any system of record really good. You can make Zendesk better. And so ServiceNow up 24% Palantir, even though, you know, it's, it's kooky up SAP up 14. I mean, SAP, you know, that was founded in the 1800. I think Rory, it's up 14% growth at thirty two billion in revenue. Right. That's the meta question is, will they really benefit from AI? Right. And what I think, but the data, like, The data doesn't totally support it. What I actually think, but Harry, you hinted at it with Squarespace and Wix. I think AI helps the enterprises on balance and hurts the SMB players on balance. The SMB players just don't have as deep. Th…

AI assessment note: “I think AI helps the enterprises on balance and hurts the SMB players on balance.”

Q Don't laugh. What's high burn? As a percent of revenue, like if you're looking at a company that's a millionaire or that's doing largely SMB, um, what would be like an acceptable burn?

A You know, it's funny. I, I, I, uh, you know, there's the burn ratio, right? The David Sachs popularized and, um, I've watched different companies. I don't know how often you get in your investor updates. I probably get half my investor updates, get the burn ratio. Okay. And I, then I started to see its flaw. The burn ratio, the David Sachs is basically one or one or less is really efficient, right? If you burn less, uh, then your revenue, your bookings, it's super efficient. That's great. If you're clear, the next round's coming in. And you have, like, a 120% NRR and 80% margins. If you're not clear the next rounds coming in, your NRR is SMB, so it's 60% or 70%, and maybe your gross margins are lower if you have a hardware component or other cogs, your, your burn ratio may need to be much shorter. You know, because when you look at our friends in B to C, right, they talk about, um, going profitable on a customer in 60 days, 90 days, 30 days. You know, we had, uh, Jacob from Revenue Cat do our, you should do it sometimes, we had him do our little workshop Wednesday, and, you know, I think their churn rate, they have 10,000, you know, consumer SaaS companies on their platform, right? I think that it's, they have a 60% annual churn rate. He's like, our customers have to go profitable in like 40 days. That's the B to C world that you and I are less familiar with, but if you're gonn…

AI assessment note: “burn ratio, the David Sachs is basically one or one or less is really efficient”

Q Tell me what happens to Anaplan? Like respectfully, terrible product, getting eaten alive by pigment, bought by PE, fuck all innovation. Like what happens there?

A I don't, going back, I don't know what happens to these PE companies that invest less after they, after, after they do. I don't, I don't know. I mean, we are, um, you know, our little team at Saster, we are accidentally stuck on Marketo. We would be on HubSpot if we could be, we have huge data issues for migration, but we're stuck on Marketo. And so, but it's kind of fun as a case study. I mean, literally, I don't think they've launched a feature Uh, in six years or whatever. Even, I mean, I guess it's under a P and then Adobe. Nothing. It's the same, same clunky app. A lot of people still swear by it because it is powerful in the enterprise, right? Um, what happens when companies stop innovating? I don't know. Um, I guess the meta question is, can they grow in the teens? This is the Dropbox question. Can you grow in the teens, right? And sure pigment, maybe pigments on fire, but me, I mean, again, I can't segment the market. Maybe Anaplan is stronger in the, in the true enterprise, for example. For example, or maybe they have, maybe they're impossible to rip out. Could be, it could be the case in the place. I don't know. I think if you can grow in the teens, um, you're still gonna hit the rule of 40. I think if we look at our public companies, you still have a lot of enterprise value if you hit the rule of 40. Doesn't get, there's no point in venture, but in the public markets…

AI assessment note: “they may have a decade to run if the growth is in the teens”

Q What sectors would you say those are that have been neglected?

A I think just that what is, it's not so much neglected is maybe the wrong word. It's more just that every single, every single part of the global economy is being satisfied today. And it can be hard to see how enterprise speaker training could be satisfied or enterprise for one K training can be satisfied or how we need the 78 version of call center software, um, or how onboarding Could be a five hundred million dollar business. I'm picking examples of companies I've done. These things don't like seem obvious as slack seems today, but, but the growth rates are, are, are amazing. So I think what's not obvious is that probably almost verticals and industries that were not big enough to be satisfied a couple of years ago, like they're all big enough today. And so, and that's why I say that my, my most important Zen learning from this that people miss is I believe that market size, the TAM is what you make of it.

AI assessment note: “enterprise speaker training could be satisfied or enterprise for one K training”

Q Is it not a good deal for them?

A 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'd be comfortable charging one investor, one billion and another five billion, uh, within the span of the same week. I don't think I would feel good about it. I, I, I, I, I think that it, it, it doesn't, it's suboptimal for my for, for a nine a 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 1,000,000,500 at five billion 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, maybe I'm a fuddy-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, uh, To me, I'll always seem 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 why I would do it. I don't know if I would do four, four different prices in one week.

AI assessment note: “I just want my investors to make money, and I, and I want my investors”

Q Ready to go? Guys, I'm so excited for this. We were just talking about where to start. So much news. And Jason, I think you are absolutely right. It's very important to start with GTC and Jensen and data centers in space. Obviously Rory said, no, not going to happen, but maybe it does. How did we think about the data centers in space and last night GTC, Jason?

A To me, I mean, listen, the interesting thing What you don't even have to watch anything. You just have to look at the Twitter stream is the sheer sense of energy and momentum and confidence there. And the confidence to do things, not only talk about data centers in space, but launch things like Nemo claw, which are their version of open claw to launch a partnership with thinking machines and others for their own open source LLMs. I mean, they're just going for it. Right. And you can just smell the, I mean, obviously NVIDIA is a pretty good stock. And a pretty good company at the center of AI, but you can just smell the companies in decline. You can smell the company struggling. You can smell open AI struggling right now. You can just smell it. You can smell the code red and the fact that they, they said yesterday, we have to concentrate on enterprise. We have to stop side projects. It's not a criticism. I mean, anytime you've worked with any startups, you see the, the, the, the, the seasons, right? But man, this is summer at NVIDIA. I mean, they're on fire on everything and all the things where you see, and they're at risk, they're at risk from their customers using, uh, using, um, TPUs from, uh, from, uh, Google and from Amazon, but man, everything from already integrating grok to data centers in space to crossing a trillion dollars in bookings to Nemo claw just feels like a c…

AI assessment note: “everything from already integrating grok to data centers in space to crossing a trillion dollars”

Q Let's move on. Let's discuss, let's discuss Anthropic. Anthropic inference costs, 23% higher than expected. Are there economies of scale in AI after all? And how did we read this?

A You know, look, there's a lot here, but I think this is so important for, for, for B to B companies. Um, I just, I, I mean, literally I was at a board meeting of a, of a, B to B company with a powerful AI agent class in a hundred million and just seeing some of the dumb points in this board meeting of saying, Hey guys, in 20, 26, we've really got to drive down inference costs now. And I'm like, do you realize you have six mega funded competitors and a huge amount of your, like the only differentiation is who has the best agent. Now you're going to cut back your inference. It doesn't make sense, right? And this is the point Amjad was making so many times. I'm sure Anton from lovable has made his own version, but Amjad has always been like, No, you're, it's going to, everything's going to get more expensive because as soon as we figured out how to do this stuff, we're going to burn even more tokens. We will actually burn an infinite amount of tokens. If we can, it even happened to anthropic, right? It happened to everybody. And I think for a lot of soft, a lot of folks, especially folks that aren't quite growing it at the open evidence levels today, um, or ramp are thinking, God, I got to, what am I going to do with these inference costs? And I got to tell you the idea that you can use. Uh, cheap models and cut back on your inference and still be competitive? That's the thing. St…

AI assessment note: “as soon as we figured out how to do this stuff, we're going to burn even more tokens.”

Q You, you, you go. Dude, I do just want to stay with you on this one, just because you said there are a couple of things I really want to understand, because I don't understand this, I'm sure. If it happens, Jason, how likely is this to actually happen?

A So strange things have been passed. Strange things have passed, and the only thing that stops them from not getting passed is We're all kind of lazy, and we all vote no in general, but you whip folks up into a frenzy. It doesn't matter what anyone in the governor or the legislature says. It only needs 50 plus one. It is direct. California, it's, it's, it's wonderful and terrible and crazy. It has a type of direct democracy that the rest of the country doesn't have. So all you need, you can go around everybody, get people upset about billionaires, and many people should be upset about billionaires, and you just need half and plus one, and it passes. And so that is why no matter, it doesn't matter what people say or think, you just need half plus one.

AI assessment note: “Strange things have passed... It only needs 50 plus one.”

Q Dude, did you see Toma Bravo's, uh, kind of analysis that said, we're gonna see tech spend go from two percent to four percent of GDP? Um, I'm intrigued to hear what you thought of that.

A I think, um, it is, we are now entering the golden age of, Software and technology. It's the golden age. This is the golden age. And I think we delusionally thought 20 21 was the golden age, right? And 20 21. Harry, let's look back. 20 21 was small compared today, but it was also crazy. The average public B to B stock was growing 70% in 2021. Public. I'm not talking about Cursor, or I'm talking about moldy oldies. The moldy oldies of SaaS were growing 70% in twenty-twenty-one. We'll never see that again. Ok, that was a pandemic bubble that we all thought we were geniuses, but the revenue was real. No question, the revenue was real in twenty-twenty-one. The oldest companies in the world were reborn. GoToMeeting was on fire. Webex was on fire. We hadn't heard from these guys since the sixties. Ok, they were on fire in twenty-twenty-one. Um, now this Tomo Bravo thing is what we're feeling, which is that this is, I don't know, I, I'm not sure I'm sure that like every knowledge worker is going to be replaced with software, but I do believe if this trend of software going from two percent to four percent of, of GDP that they point out, that, that's going to birth a hundred decacorns, a hundred or more, and it is the golden age of software. It's just, there's going to be a lot of stress. In the golden age. A lot. It's not all freebie.

AI assessment note: “if this trend of software going from two percent to four percent of GDP”

Q Okay. We're going to have this chat at Christmas time. Where is CrowdStrike then?

A You know, here's the thing. I'll tell you why it, it, it, it may rebound. Um, because I just wrote it up for tomorrow. They were own, they were, They have extremely conservative projections for next year. They said they're only going to grow in the teens from 33% this year. Super conservative is what they already told Wall Street. So they have a big buffer. Like, they may still, all the analysts downgraded them. I'm sure you saw it, right? They all downgraded them and said growth's going to be lower. But they had such a big buffer because they projected such a seller growth that they may well be able to still make their number even with all these issues. It's a little thing. So, like, I would be careful to To, to bet against them because they, they just put, they just, they just put such a buffer in hitting the numbers.

AI assessment note: “I'll tell you why it, it, it, it may rebound.”

Q What did you mean by this and how does that impact the advice that you would give to founders listening?

A Let me give a, let me step back for a minute. Everyone's still giving too many founders are still giving you terrible advice from 20, 21, 20 into 20, 22. They're still, they still give it like run a process, give people one hour to decide. I literally got an email while I was here, Harry. The email was pretty good. Okay. From this founder, you know, we're at, I think they're at a hundred K AR. Okay. And they're doubling. Okay. So they're growing, but like, this is not a rocket ship yesterday. And then in bold, it's like the deal's moving really fast. I don't know who told you to write this or where you found this on the internet, but no, this is not the right way to approach it is. Listen, we have something that's early. Let me tell you why it's going to be great. Right? So, so much of the advice is bad and people are still asking for too much money. They're asking for too much money. And, um, You know, I was pulling this up for, for SaaS Europe, but you know, Gong Series A was seven million. Series A was seven million. That wasn't that long ago. That was 2017. That used to be a Series A. Now it's a seed round. Okay. And so you see these numbers in the media and you hear about them, but be very careful that that's appropriate for you because along with, you can just rule yourself out from investors. It's just such an unforced error. It's, and it's hard. Founders, there's things…

AI assessment note: “be very careful that that's appropriate for you because along with, you can just rule yourself out”

Q Don't laugh. What's high burn? As a percent of revenue, like if you're looking at a company that's a millionaire or that's doing largely SMB, um, what would be like an acceptable burn?

A You know, it's funny. I, I, I, uh, you know, there's the burn ratio, right? The David Sachs popularized and, um, I've watched different companies. I don't know how often you get in your investor updates. I probably get half my investor updates, get the burn ratio. Okay. And I, then I started to see its flaw. The burn ratio, the David Sachs is basically one or one or less is really efficient, right? If you burn less, uh, then your revenue, your bookings, it's super efficient. That's great. If you're clear, the next round's coming in. And you have, like, a 120% NRR and 80% margins. If you're not clear the next rounds coming in, your NRR is SMB, so it's 60% or 70%, and maybe your gross margins are lower if you have a hardware component or other cogs, your, your burn ratio may need to be much shorter. You know, because when you look at our friends in B to C, right, they talk about, um, going profitable on a customer in 60 days, 90 days, 30 days. You know, we had, uh, Jacob from Revenue Cat do our, you should do it sometimes, we had him do our little workshop Wednesday, and, you know, I think their churn rate, they have 10,000, you know, consumer SaaS companies on their platform, right? I think that it's, they have a 60% annual churn rate. He's like, our customers have to go profitable in like 40 days. That's the B to C world that you and I are less familiar with, but if you're gonn…

AI assessment note: “one or one or less is really efficient”

Q Do you find that they do reveal their frustrations given the fact you're an investor and you could be writing them a large check?

A I have never met a great CTO that isn't at the edge of hyper transparent. Never met one. If I did, I would run, run, run for the door. The best CTOs, that's the environment they're in. They're challenging everybody. They surround themselves with people better than them, engineers better than them. There's a couple secrets they'll hide. They're going to hide some secrets, right? Don't get me wrong. There's two or three secrets the CTO might hide, but they're so technical. I can't understand them. They're not going to hide anything that someone can't figure out playing with your product for two hours. Why would you hide something that your competition can figure out? Because your competition is using your product, aren't they? They sure better be. So, and your competition can actually pretty much expose anything that you can see in the browser. You got, there's only so much you can hide, right? You can find out your stack. Anything you can expose in the browser and what the product does. So you've got to be a pretty weak CTO to hide that stuff, right?

AI assessment note: “I have never met a great CTO that isn't at the edge of hyper transparent.”

Q Okay. Well, let's just unpack that a little bit in terms of the diligence process then that you have today. We mentioned that spending time with obviously the CEO and the CTO, um, What else do we do? Do we do customer references? How many, how do we document them? Just walk me through the diligence process.

A My third one is the bank account. I used to do all these customer references before when I had three months or two months at sales loft or three weeks with talk desk. I used to, I used to, I used to leisurely get on the phone and do, and I just saw you said you did 15 in one day. I'm, I'm proud of you, Harry. Um, but I can't do 15 in a day and it takes me a while to do customer diligence the way I do it. So I've re-sequenced it in order, right? Now I assume the diligence will be tolerable, right? And I'm up front in the timing, right? And now I'm quickly after my losses. Now, instead of doing financial diligence at the very end, right, just, you know, just to check the box before I wire the money, now I do it in the beginning, because I want to just make sure there's no shenanigans. I want my, I want my financial term, my finance, my, the, the accounting firm, the auditing firm I've worked with for Over a decade to make sure that the financials and the bank of statements are close enough to accurate. I want about 80, 90% accurate. I, I don't, I don't need it. I'm not expecting you to have a CFO or a CPA or CFA or I, I'm fine if it's wrong, but what I'm looking for is bullshit. I, if you, if I look at the investments I'm most stressed about and, and frustrated with, it's where there's any bullshit in them. The best founders don't bullshit. I don't think the best founders bullshi…

AI assessment note: “instead of doing financial diligence at the very end... now I do it in the beginning”

Q Do you know what happened there? There was something funky there.

A My general assumption in all these situations is the most logical thing happened, which is look, one problem, you know, if you have one guy getting, owning the management company in like 50 or 80% of the carry, and you have a day-to-day exit, and then it gets harder. Everything gets harder. Why would you keep doing it? I mean, you gotta really love it. So like if they made four or five billion off a couple hundred million dollar fund, let's have some fun for the audience. We should do the math better, but let's say they made three billion and carry. Okay. And let's say it was just 20%. So that's six hundred million of the partners, but the one guy owned got 60%. So let's say he made 354 hundred million. And now you're in your new fund and it's hard, Harry. We're sitting at one X. I got a hustle, and like, valuations suck. Datadog, every investor that got into Datadog until the late one got in cheap, right? I mean, we did, we did a fun one together with, uh, IA Ventures, and others, I think they invested like four or five million in Datadog in the early days, right? OpenView, I think, did it in the teens, right? Now they're like, the next Datadog's at 400 pre, and I'm like, would you, and okay, and you're, and you're, you're running the fun, and you're like, okay, listen, I gotta sign up for 14 years, and I'm gonna make like, Nothing in carry or a couple of million. I made three…

AI assessment note: “I'm assuming that's the answer. I could be wrong.”

Q Does that work? Because the founders that I meet are like, that's like forcing me into a marriage. I don't want, I, I don't do that either because I'm like, it's your free will. I don't want to impose myself unfairly.

A I think about a couple really good deals. I mean, great companies, great companies where, and this is what I, and I'm self-critical where I didn't nudge into my way into the deal. Like people do. You see VCs that are fucking nudges. They nudge their way. And you know what? Maybe as I love it, maybe my moon's a nudge. I think he might be a nudge, and I think it might be part of his skills. Now, a nudge that you want on your team, right? And I mean this at a 10 out of a 10, and I'm not saying, I might be, I might be, if Mamoun listened to this earlier, I mean this with the most respect. I think he's a good nudge. I remember meeting Parker Conrad early at the Zenefits day, and I bumped into Mamoun like the next week. He's like, yeah, they just raised around, but I'm going to go over there and hang out with Parker and see if maybe there's some room in the round in Zenefits, right? And then he did it in Rippling. Right. He waited. He did the thing. And so I don't mean that they're all nudgy, like sit in your lobby with the term sheet. There's good ways to do nudges and dinners and, but I'm not a nudge. Like, I'm like, I'll meet with the founder. I will try to help them for free. I will give them some advice. And I will say, if you want me, let me know if, if you don't let it go. And I think, uh, if I were a nudge, I would be much, much better investor.

AI assessment note: “if I were a nudge, I would be much, much better investor.”