What Does it Take to Be Good at Series A and B Today?

1x is not good enough for me anymore at this point in life, and it's not worth it. I want 3x the fund.

The problem with Series B is that if you get it wrong, you end up effectively paying Series B prices for Series A risk.

And it's exactly correct. At Series A, you're paying Series A prices for seed risk. But the whole point of having to be good at this job is being able to figure out which is which.

Ready to go? [Music] Guys, I am so excited for this. First, thank you so much for joining me today. There are 3 of you, so I'm just going to dive straight in. We have more LPs listening than I quite realize because I get pinged by all of them.

I wanted to start with: What the fuck are we seeing in venture right now, and what is your 1 takeaway from the last week? Reggie, you're our new joiner. When you think about what you've seen in venture in the last week that has struck you, what is it?

I'd say what struck me in venture, and the new trends, is that we're still in the middle of an AI bubble. If you look at the amount of money going into AI versus every other category—in terms of valuations raised and the number of companies getting funded.

I thought we were at the peak a year ago, and then venture went to $100 billion in investments in the category, so it doubled from Q1 to Q4. The other categories aren't seeing much love, and I think venture as an asset class has been somewhat in the doldrums because LPs have felt overexposed. They haven't had distributions in 2022, 2023, 2024, and frankly, 2025.

We were hoping the markets were going to reopen, but so far the IPO window has not reopened and the spigot of M&A has not reopened. I'd say it's become an unloved asset class. I think it's the best time to invest, but in a way, investing in venture right now is contrarian. I think you should be investing in funds that are not going after the AI-all-the-time category.

I agree on the time frame. The big comment, stepping back, is that nobody cares. I always thought no one cares about our problems. We're VCs, right?

One thing I've learned is that when you start bitching and moaning and then step back and talk to anyone else on the planet, they're like, "Let me get this straight. You have this wonderfully interesting job. You have a reasonably good current comp. You get to pay a percentage of the upside. You have visibility over 3 years in your comp. Nobody cares about our problems."

Then, when you start explaining that our number 1 problem is that valuations are too high, they go, "Let me get this straight. Your number 1 problem is that you have to pay the entrepreneur more money for their company. I like your problems. I'm glad you have problems. I want you to have more problems."

That said, I do think it's a weirdly tough time right now. It's simultaneously a hard time to put out new money because things are expensive and a hard time to get money back because exits aren't there. If you think of the 2x2 quadrant, normally one of those things is hard and one of those things is easy, and it's good.

Like 2021: easy to make money, easy to get money back, hard to put money out because it was expensive. Right now, we have the low-low quadrant. It's very expensive to do these new, great deals, and at the same time, exits are tight. So, it's a tough time.

But again, after I say that, I go back to first principles: nobody cares about my problem. I just had a conversation with one of the largest endowment funds in the world, and they said, "The lack of liquidity—the big question that we have around that is, is it a temporary adjustment in the venture ecosystem and public markets, or is it a permanent structural shift in company-building and maturation stages and liquidity cycles? If it is the latter, we cannot be in this asset class any longer to the extent that we have been. If it's the former, we will be patient."

The sentence has the answer, because the only time it will change is when they get out of the asset class. It's what we said 2 weeks ago: as long as they keep putting money into the asset class, it will remain a stay-private-for-longer asset class. Once the capital in the asset class reduces, then we'll go back to going public earlier. Economics is about seeking equilibria, and things push things back into balance. So, the very statement sets up the solution.

I would just say 2 things, Harry. I think you asked what's changed in the last week or something. What was the question? Some version of that. I'll tell you my microlearning.

We live in this new-news cycle, even in VC and LP land. We had a company close a unicorn round on, I think, April 7, when there was actually a downturn in venture because of the Nasdaq, right? We had the Trump dramas. I think the stock market fell 15%—the Nasdaq or something.

Everyone was freaking out in growth-stage VC for at least 3 days. Already, this company that did a unicorn round has an offer to do a top-up round at an even higher valuation. It used to be that when there was a downturn or something, it would send shocks through the system for at least a few months. Right now, the shock doesn't even last until the next 20VC comes out.

I hear all this stuff, but all I see is a gold rush. All I see is a gold rush in the San Francisco area. All I see is OpenAI saying they're going to grow 1,000% by 2029. Everyone's just looking to make an insane amount of money, and they don't care about the nickels and dimes or the casualties. They will deploy every dollar they can.

I think we can talk about liquidity and all this, but I honestly think that today is a much bigger gold rush than 2021 or other times we think. I've never seen such a gold rush. This gold rush goes all the way down to high school kids. It's up and down the stack of tech, and it's both fun and a little cynical, a little crazy, but I've never seen anything like it.

In the 2020 gold rush, you had to be a crusty old B2B guy who had been doing this for years, or have something interesting in consumer. Now, every 17-year-old kid is dropping out. They're in the gold rush, and it's glorious and weird and risky and full of baloney. Never. Never, right? And yeah, we need the but. Again, we talked about this before. I honestly think almost every GP in the market will deploy every dollar during a gold rush. This is the way booms work: you will deploy every nickel possible in the boom, and then we pull back. For those 3 days there was a pullback in growth, April 7th through 10th, and then back to the gold rush.

Reggie, are you not concerned that, given that gold-rush realization and the speed at which revenue strategies are operating today, you're going to miss out on the gold rush? I have new AI companies like Mercor and Lovable in my portfolio that are scaling at the most insane rates. Then I am in ERP systems for concrete businesses that are going from $1 million to $4 million, and I'm going, "Fuck me, Lovable does that in about a day."

Look, 9% of our investors remain in AI. It's just that I try to be disciplined, and I try to invest in companies where I feel they have differentiated data sets, valid business models, and less competition.

What worries me about the gold rush is that there are too many companies doing the exact same thing and going after the exact same category. It's unclear who's going to win, and historically, I've waited until there was an emergent winner before investing.

I was happy to pay up, and frankly, you don't necessarily even pay up because the prices adjust with traction over time. The traction-to-valuation metrics start aligning as you get to Series B, C, D, and so on.

What worries me about the Lovable-type examples is that they can go from $0 to $18 million in ARR in 3 months, but I think they can go back in the other direction. I don't know if people remember that AI company where everyone, for a month, basically changed their profile photo using AI. The name might come back to me, but their MRR went from $250,000 a month to $30 million, with 99% churn a month later, and they were back to $500,000. They raised at that moment in time, and these things are riskier than people think they are.

Do I think GitHub—or maybe GitHub is not the best example—can launch coding tools to compete with the likes of Lovable and Cursor? Absolutely. I don't mind missing the bubbly elements of the bubble.

I worry that people are underestimating the orthogonal risk of disruption from OpenAI extending its stack. I built my own AI for fun. I built Fabric AI, and I started using LangChain and Pinecone. Then OpenAI released GPT-4o and became so much better, so I ripped out my entire backend stack and moved to OpenAI.

In there, I was using a different stack for text-to-voice, and I used Whisper. I feel people are underestimating the risk of zeros, even though something can go from $0 to $100 million in ARR very quickly. Usually, they're priced accordingly. I care about what returns you need to underwrite so you can still get your 30% IRR, and I think the risk of zeros is too high.

How do you weigh the absolute, undoubted risks of technical obsolescence, being crowded out by the model companies, and the massive amount of competition when you're on the megatrend, versus having none of those risks but being so far off the megatrend that you might just be in a backwater when nothing happens?

To some extent, I always think that any company that has to go from $1 million in run-rate revenue to $300 million, which is what an IPO looks like, needs something more than hard work.

You need some kind of mega trend behind you. So we always wrestle with this question for Breeze: How much do you have to play in the spot where the trend is versus how many orthogonal deals can you find? What do you think?

So, first of all, I think I am actually playing a mega trend. It's just a different mega trend. The mega trend I'm playing is that the penetration of digital at large in B2B is very, very low.

In your consumer life, you're at about 25% penetration of commerce at large, so you can get anything you want in 2 days. You can get food delivery in 15 minutes, you can get groceries, you can get anything on Amazon, you can get Uber and Airbnb—your life is amazing. Then, all of a sudden, you go to the B2B world and you want to buy petrochemicals, and this isn't even a catalog. A catalog is just a list of what's available. There's no connectivity to the factory to understand manufacturing capacity and delays. There's no online ordering, no online payment, no online tracking, and no financing.

All this needs to happen in every vertical, every industry, and every geography. It needs to happen for inputs. It needs to happen for helping SMBs digitize. It needs to happen for helping entire supply chains move out of China into other countries. There are so many of these mega trends where penetration is currently below 1%, and these are multitrillion-dollar categories. Petrochemicals is like $4 trillion. Gravel is like $1 trillion. We're talking about these ginormous categories.

So it is a mega trend; it's just a slower one. It's happening because boomers are retiring, and the new managers replacing them want to be in marketplaces rather than using RFQs. It's slow, but it is a mega trend. I'm coming in at 4 pre-seed, 10 pre at seed, and 20 pre, and I feel very comfortable that in 10 years these will be much, much larger, with valid business models and less risk of disruption.

I'm really interested in what you said there about it being slow. I'm sure this is for the whole group, but Josh Kopelman tweeted this week something that really struck me, and I respect the hell out of Josh. He said, “Speed matters in venture. How fast you win matters as much as how much you win.” Being able to return in 10 years versus 17 years is a huge difference to the performance of your investors. A 3x in 10 years versus a 3x in 17 years is obviously enormous, and people just talk about 3x funds. I wanted to hear your thoughts and lessons on the importance of speed of returns and how big that is.

I saw the tweet, and obviously it's true, because we're being evaluated versus other uses of their money, and the common denominator of capital allocation is going to be some kind of rate of return per unit of time. So the tweet is definitely true.

I think the interesting thing is that it's actually the hardest of the 3 things to control. Let me tell you how I mentally think about it. There are really 3 things that determine your return at a fund level. First, picking: out of 20 deals, 4 of them have to be great deals. That's 100% in your control. If you can't get that right, you should lose your job.

Then the second thing is valuation on the way in and valuation on the way out. That's controllable a little, but not as much. We have an excellent 2014 fund that exited in 2021, and we always tell LPs that 1 entire turn of that fund we don't deserve. It was multiple expansion. The other turns we do deserve because of our picking, but sometimes you get lucky on the upside in terms of returns, and sometimes you get unlucky on the downside. So valuation coming in and valuation coming out are a little bit within your control.

The hardest thing to control is IRR, because of the timing of those exits. Everyone now is suffering IRR erosion. They're going to get the same return in 2026 that they thought they were going to get in 2024, right? It's just very much outside your control. It's a very unsatisfactory answer, but the nature of our business is that we are judged on IRR. It's very hard to impact it directly. You have to get the other parts right.

Then, to some extent, if you do your picking really well and have reasonable control of valuations, delayed exits simply mean more compounding and perhaps good IRR. Take the Founders Fund example: They compounded for a decade and a half at 20%. Sadly, a lot of the time, pushed-out IRRs and pushed-out exits just mean lower IRRs, and it sucks. But, to some extent, it's the hardest element to control.

So I have a cheat code for that. Oh, sorry, Jason. Go for it.

No, I was thinking about this a lot, Harry. It's interesting that Josh wrote that. I was literally thinking about it this week, and I wanted to hear Rory's thoughts. I thought it was very interesting that Breeze led with IRR to describe his fund.

I do think it's impressive, but I was literally looking at my 2017 fund when Josh said that, and it is at—here's the question, maybe especially to Rory, my virtual mentor here—it's at 4.31x with a 32.56% IRR. I was doing some modeling. I'm not that good at math; that's why I do late seed. But I was modeling what would happen if the winners do a certain amount under different scenarios.

Honestly, unless I was delusional, the IRR would never go up. It's at 32.56%; it will be a 5x fund, a 6x fund, even an 8x fund. Let's say this fund does 8x. It would require a lot of things to go well. I'm not a chest beater, but the IRR still wouldn't beat 32. So I asked my LPs if they cared, and here's the thing: They didn't care.

I think maybe that was too simplistic an answer. For early-stage managers, we're just looking at multiple, right? But I've never understood this since I started investing. I'm looking at this and thinking, “I can't do better. I cannot do better than 30%, even 32.56%.” It's great, but that's all the way to get to 4.3x versus the Nasdaq. It's still a tough one, the IRR thing, right?

Yeah, I wouldn't say the cheat code I use for IRR is why I can get 30% IRR today. The virtue of being diversified means I own 2% to 3% of any of the companies. So what I've been doing is getting secondaries on the way up.

I've been doing the anti-VC strategy of selling my winners. When a company gets overvalued and I can no longer underwrite a 10x, I'm underwriting it at 3x in the future. If a round is happening and Sequoia, Andreessen, and Greylock are all competing to get in, and the founder doesn't want dilution of 15% at a time, they'll take something like 30% primary and 15% secondary.

I've been doing secondaries, and now that you have things like SharesPost, Forge, and other secondary marketplaces, the vast majority of my exits in the last 3 years have come from secondaries. You have to get the secondaries to get that IRR with it.

Yeah, nothing wrong. The only thing is—and you know, there's another tweet, Harry, and it was talking about tax efficiency at the GP versus the LP level.

Right now, for me, I'm not selfish, but I wouldn't want any—I like QSBS, it's good, don't get me wrong—but for me, I have some personal liquidity. I'd rather go long, right? It's so much more valuable to me, selfishly. I don't care about IRR as a GP, right? If I can get another X as a GP, tax-deferred or tax-free, I can't beat that, right? And everyone wants that.

So I come back to you because I don't think the algorithm is to maximize IRR. Logically, and I'm such a geek, subject to some caveats, the real algorithm is to maximize multiple subject to a constraint on IRR. They don't want you to maximize your multiple by holding at 7%. But if you're at 32% and the cost of funds, or the target for your sector risk-adjusted, is 20%, and you can hold another year and get 20% for that extra year, which brings down your overall IRR, you should do it, right?

So explain that to me. My IQ isn't that low, but I don't get it. Why should I do it if that only matches their cost of capital versus 21%?

You're right: 21%.

No, no, I'm not challenging you. I'm honestly just trying to learn. At or above the target return, right? Because it's extraordinarily hard to find other places to compound money at 20% or more.

So I don't think the algorithm is to pick the fund with the highest IRR, because you often see interstitial 1-year 100% returns, but they're not sustainable. I think a smart LP—and, in aggregate, LPs are smart—is looking for 700 or 800 basis points above small-cap, pretty consistently. So at 20% or more, you're probably crossing the cost of capital.

Therefore, to your point, shortchanging a multiple for the sake of optimizing IRR isn't a mistake; it's a mistake for you and for the investors, right?

Because the truth is this: What you end up doing always amazes me. I end up selling the company I know really well, where I've been on the board and have a pretty good sense of what it's doing, and I'm 6 years in, only to reinvest at a slightly higher revenue multiple than in a company I know nothing about. It's such a risk escalation.

If you have good shares, hold on to them. Now, there are a couple of reasons why you don't.

The first is the institutional imperative. Either if you or your LPs need capital back, then give them capital back to show you have a pulse. And then the other thing is if people offer you—and this is where it is tricky, and I'd love to get Fabrice or Harry's thoughts on it—when people offer you, quote, a crazy price where you kind of go, “I believe in this company. I love it, but I'm getting, I don't know, 2 years of forward credit for revenue.” At what point do you say, “Hey, even though I'm a believer, it's a smart thing to take some money off the table?”

I think sometimes it can be. By the way, these are the only companies I can sell, right? No one's buying your dogs, right? The only companies you can sell are the ones that everyone knows are winners and thinks are amazing. And look, I sold so many companies at 100x ARR in 2021. It was obvious: I love the founder, I love the company, I love the traction, I love the growth, I love everything, but the price is too insane.

What I need to believe to underwrite this valuation is every star in the multiverse aligning, and I just don't see that happening. And that's even to just justify the valuation, let alone get a 3x or a 10x from here. And by the way, I disagree with you on when I see that a company is only at 2x or 3x from where it is, because on average we've been shooting for the 10xes earlier. I'm very happy to recycle.

My problem with selling in the secondary, I think—listen, I don't, I don't, I don't—I mean, Fabrice is obviously an excellent investor, but because you have so many names, right, there's not pressure on every number to return the fund. I feel like, for me, I want every winner to return 3 times the fund, not 1x, because if I just return the fund—let's say that's my first distribution—I don't make any money. 1x is not good enough for me anymore at this point in life, honestly. It's not, because maybe it makes someone on Twitter happy, but that doesn't even put me into real carry mode, does it? 1x the fund, right? It's not worth it. I want 3x the fund. It's just not worth it. I don't care about 1x. It's just nothing. Even 2x is nothing. Right, Jason?

What I love about you is I'm always learning. But you said last week, “If I know I can 5x a check, I will do it.” And then you're also saying this week, “A 1x of the fund isn't enough. I need to 3x it.” Those to me seem paradoxical. Can you help me?

Almost paradoxical, because it's funny. What I've learned, I think they're paradoxical and they're both true. Imagine you're in carry mode, right? Then you'll be like, “God, if I'd only put $5 million in Lovable and it went from $1 billion to $5 billion, that's another $20 million. That's another $5 million bucks in my pocket. I mean, that doesn't go far in London, but I could take some good holidays. I can't buy a good flat, but I can live well in Monaco or wherever for $5 million. That's $5 million.”

See, that's the weird thing I'm still trying to learn, which is you want your winners to be huge, but the ones that aren't winners—the ones in that next bracket below—just making money on them is terrific, right? And if you get an exit, the other weird learning I'm still learning is, in that 2017 fund we talked about, I got an extra deal in 4 years later that's almost a fund returner. An extra deal. So think about this: an extra deal in that outlier year of the fund.

I just think the extra money is where you can make money, too, right? It's not always in having the 1 huge winner. The extra money literally—you can buy at least a decent flat in London for $5 million, right?

You know, especially if you're like Fabrice and you pay no taxes, then your $5 million goes further.

When Marie Antoinette took this attitude, she ended up with her head chopped off. So this is why no one cries for us, Jason.

Do notice that $5 million bucks won't carry you far enough. I'm still willing to get out of bed for a million bucks. I just want to be clear on that.

I'm having some fun, but venture isn't about little numbers, is it?

It's not about little numbers. You're exactly right. And that is the part where I agreed with you more at the margin than with Fabrice: I do believe it's so hard to get a winner that, if you do think it can run, the compounding in the outlier years is the only way in which the venture thing really, really works commensurate with other equity businesses.

You know, we're not playing with big dollars like the PE guys, right? Most of our stuff doesn't work, unlike the PE guys. The only thing that's good about this business is that occasionally you can make really great companies, and ending up holding on to lots of them is the way forward. That's one of those almost-always-true rules.

There are times, however, to Fabrice's point where it's not. 2021 was one of those periods where that's not a good rule, because everything is so overvalued that they're never going to return to those valuations. But most of the time, compounding on your winners covers up for your mistakes. Bias long.

It's why Sequoia did the evergreen fund thing, which was a brilliant idea. Unfortunately, in the only year in the last 20 years where it was the wrong timing, right? But fundamentally, across 20 or 30 years, it's the correct insight, and they've had it from way back when, when they did Cisco and you distributed at $200 million pre-IPO. Anyone who's still holding their stock feels pretty good.

Yeah, I think it's different based on portfolio construction, right? You guys have concentrated funds; I don't, right? In my case, 2% of my deals follow the power law and return the fund 1x, so even 100x doesn't return my funds, because I have 500 deals per fund. So 2% of the fund's returners return me 1x, and these are like the 4–6x average.

8% of the fund's deals return another 1x, and these, I think, were 8x average. Then I have the remaining 90%. I actually make money in 40% of—or a bit less than half of—those deals, which return another 1x. So for me it's 1, 1, 1, and that's how I end up with 3x and the 30% IRR, because I DPI early through secondaries on the way up.

And that's been true for the last 28 years, right? I haven't seen it change despite the bad last 3 years. It's just a different way of playing the game. So far it works, and it keeps working.

I think the right question to ask, if I'm an LP, actually, is: are the IRRs actually reliable?

You're asking the very basic question: are the numbers on the page correct?

Yeah. And it's a great—look, we're in this, and it's hard to know that. I say that not being glib. We're in this weird period where we appear to be all, quote-unquote, creating value. We're getting unicorns, we're getting markups, everything's working. These companies appear to be doing really well.

But as a very astute friend of mine in late-stage business said, because there are relatively no IPOs or M&As, there's no feedback loop. We're grading each other's exams and we're all saying we're getting A's, but the teacher hasn't graded the test yet, right? And the teacher appears to be on strike right now, prohibited from doing anything or caught up in antitrust.

Until the teacher grades the test, we're all just saying, “Yay, I'm great,” because Jason said I'm great and Fabrice said I'm great. At some point, all these companies are going to have to have that horrible moment. I've lived through it in some companies, where you filed the S-1 and you have that moment where you've got it on file, cold, and no one's seen it. Then you know tomorrow morning you're going to unveil the numbers, and it's like you're going to take your clothes off and everyone's going to see what you really got, right?

That's when we'll find out what things are worth. Until then, it's an ungraded test where everyone's getting A's. Rory, do you agree with the Gurley statement that you should go public earlier? It's great to be public for discipline; everyone should go public as soon as possible—that theory.

Well, Bill's in an odd quadrant: pro going public early, which I agree with, but anti-IPOs, right? So I would argue that's a little intellectually inconsistent, but that's not fair. Bill is a very smart man.

But I think companies stay private because they can. And as long as they can, they will. At some point, I think we'd all be better off if they could go public earlier. That will happen. As I've said, people don't do what they should; people do what they must, right? When they can't get cheap private capital, they'll all go public.

And yeah, being public has some good strengths. Yes, it does force discipline earlier. It's not perfect, because you also have to deal with activists. There are some good reasons why people stay private. A lot about being public is a bit of a pain in the ass, but I do think IPOs will come back and come back earlier once capital gets withdrawn from the private ecosystem, which I think it will.

Have you guys been founders before? Because when I was a kid, because I was crazy, my dream was to be a public tech CEO. Then I built 3 large venture-backed companies, 2 of which ended up being public. And I was like, “The last thing I would ever want is to be public ever again.”

In fact, that took all the fun out of being a founder for me. It's like, all of a sudden, having to create the annual budget, the quarterly budget, update the quarterly budget. Literally, if I could never go public as a tech founder, I would do that.

It is so painful and so expensive in terms of time. All your information is out there. It’s bureaucratic, and it slows everything down within the company. I would rather not go public.

There are significant negatives around being public that I think we have to fix as a country if we’re going to have a more successful, dynamic ecosystem. But I also think the cost of that capital is so much lower most of the time than what you can get privately—not for the last couple of years, but across 2 or 3 cycles.

It just logically makes sense that liquid money should have a lower cost of capital than illiquid money. When I say it like that, it’s pretty obvious, right? It’s absurd to think that 1 company is getting capital where you can trade it every day and another company is getting capital where you’re locked up for 5 years. How in God’s green earth, if the companies are the same, does the 1st company not have a lower cost of capital?

But right now, it doesn’t. It’s a point-in-time absurdity, and it will change. Everyone that I know, directly or indirectly, who has had a subscale IPO—who tried to IPO in the $100 million to $200 million range and is growing 20% or 30% today, or wherever they are—they’re all miserable. They’re miserable. They have to be profitable, and they’re not enjoying it.

Great. You have a $600 million or $700 million market cap. It’s sort of illiquid as a founder anyway, right? You could sell a little bit, but again, it doesn’t go that far. You could sell your 10b5-1 plan; you’re selling a couple of million bucks of stock a year, right? It’s not fun to be at a $600 million or $800 million market cap with no analyst coverage, no liquidity, a 3x multiple, no one to buy you, and miserable employees who now know exactly what their equity is worth to the nanocent.

Sure, if you can go public at a—what was HubSpot? Rory, you guys invested in HubSpot. That was a rocket ship. It IPOed at $100 million, but I think it was growing 60% at $100 million or something like that. Those deals no one wants to do today. Sixty percent growth at $100 million, right? There’s a shift between those 2 examples, to be clear.

A company at $150 million with 50%, 60%, 70% growth should be able to go public, is my belief. In other words, $500 million is too high.

You’re exactly right. However, $200 million growing at 30%—the math is starting not to work, depending on the multiples, right? Your life is miserable as a CEO. Your life is miserable, I think.

The bar should come down from today, where it’s effectively 0. In the year of the dot-com explosion, it was literally 350 IPOs, with median trailing revenue of $18 million. That was clearly too early, but that was the venture environment.

Coming back to IRRs, that was the exit environment where a bunch of 1996 vintage funds posted 6x net, 100%+ IRRs. It was the best of times, as Mr. Dickens would say.

Can I ask you something? I think people are starting to realize that we saw the CEO of Discord and the CEO of Ironclad both leave this week. Is the realization finally dropping that being a public-company CEO sucks and people don’t want to do it?

Ninety percent of B2B companies that IPO have a founder CEO at the top. Ninety percent.

Will that go down with a 20-year life, now that it takes so much longer to get there?

What I’ve learned is that you really do have to reinvent yourself as a CEO every 5 years and sign up for another tour of duty. If you squint, a lot of these turnovers happen in 4- to 5-year cycles, right?

Coming to the Discord point, is Jason Citron coming to Jesus and saying, “Listen, I don’t want to be CEO post-IPO”? If you’re a founder, you like big teams, and you like scaling, but you don’t want to do the IPO, leaving 12 months before the IPO is the right time. The market’s not going to be shocked, and you like scaling and people; you just don’t want to deal with Wall Street. That’s the perfect time to leave, like Discord, and hand it to the professional guy.

I just personally think most of the other ones go into terminal decay. That’s my concern. But that’s a different issue. I just think they go into terminal decay.

Yeah. No, right. They definitely do, especially where the hardest thing to do is a CEO change when the founder CEO doesn’t want to do it. But for whatever reason, if you think you have to make that change, you should.

For me, that’s an extraordinarily high bar, because a founder CEO with some managerial limitations usually performs a lot better than an excellent, or even a reasonably good, manager with no founder DNA. I’m not one of these grandiose people who says, “Oh, we’ll never change a founder.” Statements that use the word “never” just don’t tend to work as well.

When you take longer to get to the same place, you’re going to have more change, right? It turns out that in 1999, as I said, it was a sprint: found the company, go public in 3 years. Most people can do a sprint. Then it was 10 years. A fair number of people can do the 10K. Now we’ve converted this into a marathon—and, by the way, at the end, you have to run a few more sprints at the end just for fun, right?

It’s not surprising that when it’s a 10- or 15-year journey, lots more people tap out. Life takes care of a lot of this. People get older, and people have other things going on. The longer this private holding-company period lasts, the more these kinds of dynamics are going to have to be wrestled with.

I find it easier to pick founders with that realization than with the shorter-term horizon.

Very specifically, because you have to be a fucking psychopath. I’m deranged. I run 2 marathons a week, and I’m an addict in every way. I have more energy for 20VC than I’ve ever had before, 11 years in. I’ve done 3. There is nothing normal about me, and I look for nothing normal.

You can’t make fun of normal people, unfortunately.

No. You can if it’s 5-year or 7-year windows, where you can scrape by. Over 15 years, you have to be so deranged and obsessed by a problem that it’s your unwavering life’s work. I find it easier, almost, to pick founders that way.

When you and I were in London this last summer at SaaStr Europa, there was a CEO speaking, and he told me that he’s in a WhatsApp group of companies at scale. They’re at 9 figures in revenue. He said, “They’re a 20% club. They’re all telling each other that 20% growth is great today.”

I get it from a human perspective, but you can’t invest in these people. They’re in the 20% club. They’ve all convinced themselves, as a form of group therapy, that 20% growth at 9 figures in revenue is as good as it gets. You need people who won’t join, who log out of that WhatsApp group and delete it.

I think there’s a really interesting question, which is: Are we going to see the acceleration of terminal decay? What I mean by that is, if you look at companies like Pinecone, they went up and went down very, very quickly with changes in technology cycles. Squarespace, Wix, any of the website builders—I’m not picking on them or being horrible—but Lovable and Bolt are absolutely killing them in consumer and premium models. Are we going to see an acceleration in that terminal decay rate?

Short answer: of course. That’s almost a given. All technology companies have obsolescence written into them from day 1. It’s sad, but it’s true. Anything before Microsoft and Apple at this stage isn’t here, and Coca-Cola has been cranking for 100 years. Obsolescence is inevitable in general.

On top of that, periods of acute technical disruption are going to increase the amount of technical obsolescence that companies face. Then overlay that with longer holding periods. My number-one fear is that the technology life cycle to obsolescence is now shorter than the holding period of privately held software companies, which means every company will have at least 1 existential, reinvent-yourself, second-product crisis before it gets to go public. If they fail, that’s a huge issue.

All of them today—they’re all too old. All of these companies that scale are too old, aren’t they?

Are you talking about VCs? Are you picking up on that?

Oh, well, I thought you were talking about the portfolio companies. If it takes you 15 years to IPO, you’re so far architected before the AI age. No matter what AI agent you add on top of it, you’re having an existential crisis.

The quick, snide argument response would be SpaceX. But I would be intellectually honest enough to admit that would be a snide answer, right? For things like hardware, this is one of the reasons for the brilliance of those kinds of companies: technical problems probably get you a 20- or 30-year run.

You’re exactly right. For core, 1st-generation, plain-vanilla SaaS, it’s highly likely that 10 or 15 years in, if you haven’t exited, you have some degree of technical obsolescence. It’s not fatal, but there’s often a reinvention act required.

That circles back to the founder comment. The ability to take that company and drive it to a new architecture, like Zuckerberg did with mobile, or add a 2nd product, is what will separate the companies that peter out at $100 million, going from 20% to 15% to 10%, from the companies that have a year or 2 bumping along at 20%, get another product out the door, reaccelerate to 40%, and make it.

I have some of both in my portfolio, honestly. I have 1 in particular I’m thinking of, Ladder Credit. I’m so impressed with the CEO. We hit 20% year over year, a year and a half ago. We did some acquisitions, really cranked up engineering, and we didn’t cut engineering in the downturn—we doubled it. Now it’s back up to 40%+.

But it’s going to be existentially tough, and it gets back to you guys: That’s going to take winner CEOs, wherever they come from—founder or hired.

By the way, I think that’s true in B2B SaaS. I don’t think that’s necessarily true in other categories. If I look at my bread and butter, which has been marketplaces with B2B and consumer-facing businesses, the AI disruption is actually benefiting startup incumbents because they have the data moats.

It doesn’t benefit eBay because they’re slow and big, but it benefits an incumbent startup that already has liquidity, is the most efficient to operate, is at scale, and is now adding an AI layer. They have all the data to make better decisions, improve the funnels, and so on.

And so I don't think in these cases they're at risk of disruption, actually. They're just improving.

I totally agree, and that's proving once again that a diversified portfolio has that advantage. No, you're exactly right. Sorry, are eBay not advantaged because of their touchpoints to end consumers, the sheer distribution, and the remaining brand that they have?

I would just argue that they have bad internal policies, slow decision-making, and poor teams compared to startups.

No, I don't think that's the issue. I think the issue is actually simpler: they're horizontal and multicategory. Even though they have all the information and all the data, their tech stack isn't built such that they're best-in-class in every single vertical. The collectibles marketplace, the Pokémon marketplace, is going to do better than eBay, and that's true of every single category you can think of.

We're in a handbag marketplace called Rebag, and they have this AI where you take a photo and Puma tells you the model, whether it's fake or not, the quality, the price—everything's done. Even though eBay has the data, their tech stack isn't flexible enough for them to do best-in-class transactions in every vertical. So it may just be a vertical-versus-horizontal play where the verticals do better. But eBay will buy a lot of these, so it's more about the tech stack, I think. And the new team is amazing, for what it's worth. They're going back to the basics. They're going back to collectibles and used goods, and not trying to be an Amazon clone.

That's a super interesting and nuanced point. By the way, for me, it's equivalent to what you're hearing in enterprise software, which is that with AI, the deep verticals will do better than the broadly horizontal platforms, because what you don't need is just a horizontal transaction-management platform. You need to fully solve the problem. And it's incredibly hard to solve the problem in insurance, solve the problem in retail, and solve the problem for manufacturing. Yeah, that's interesting to see.

But here's the interesting point: I think that's true at the application level, but at the fundamental LLM level, I think the horizontal—GPT—may just win most categories, the same way Google won search, reasonably, by and large, except maybe Kayak for travel.

I suspect OpenAI and ChatGPT win most of the LLM-type categories. I used to use Midjourney, but DALL-E is so good as part of my subscription that I just don't use Midjourney anymore, and that's true for many things now. Does it end up being true in every category, like Cursor or Lovable? I'm not so sure. These may be verticals that still work, but at the application layer, I think the hypervertical, where you solve the problem end to end, wins over the horizontal.

I think all of us are idiots, by the way. I spoke to a friend of mine who is doing a quarter-of-a-billion-dollar SPV into OpenAI at $300 billion, and you're looking at that going, “Christ, there is a nonzero chance you're going to 3–4x that SPV on a quarter of a billion with a 20% carry.” It's not a bad deal.

I'd do it.

It's not a bad deal, especially because it's an SPV. To Rory's prior point, you don't have to talk about it if it doesn't work; there's no downside to the perfectly constructed SPV.

A quarter of a billion is quite hard to hide.

I do want to also mention that in your LP report, your core LPs just get the main funds, and only the SPV guys get a separate distribution that I do over on Carta. I got some of the email addresses wrong, and I don't know how to break it to you, Jason.

When you get a little bigger, you'll hire a GC. This will be the moment in the podcast where your GC has a heart attack, but it's okay for now. Keep it clean. Keep it tight, Jason. Why do the LPs that aren't in the SPV need to know the data and performance of the SPV? They don't, do they?

Rory, just get your inhaler. It's okay. Breathe. The GC's behind you. Just breathe.

I'm the most transparent person you'll see. I see a lot of stuff swept under the rug, a lot of investments faked. So, to your point, I see it.

Some people wear their heart on their sleeve. Jason wears his cynicism on his sleeve. That's why I like it.

Oh, dear. I totally agree with that. But we mentioned the reinvention of incumbents there. ServiceNow is popping 24%, growing almost 20% at $12 billion in ARR. I just want to hear: what do we make of that? Bill McDermott coming out with another master stroke—how do we evaluate this?

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. Mark Benioff is great, but he said they've had 500,000 transactions on Agentforce. We've had over 100,000 on SaaStr AI. I don't think 500,000, if you think it through, sounds great at first blush, but it's early. He acknowledges that; it's not a criticism. He acknowledges it's early, right?

So I think all the talk about ServiceNow and all these agentic automations—I still think it's early. On the other hand, we're all wondering, listen, do these guys all win the most? You can put really, really good AI on top of almost any system of record. You can make Zendesk better. So ServiceNow is up 24%, Palantir, even though it's kooky, is up, and SAP is up 14%. SAP was founded in the 1800s, I think, Rory, and it's up 14%, with 14% growth at $32 billion in revenue. That's the meta-question: will they really benefit from AI?

What I think—but the data doesn't totally support it—is that AI helps enterprises on balance and hurts SMB players on balance. The SMB players just don't have as deep a data set. They have a lot of data, but it's not as deep, and you can disrupt them faster. The sales cycles are quicker. I don't know; we'll see this in 12 or 24 months, but we might see the enterprise overall get stronger with AI and the SMB leaders get weaker and weaker because they're disrupted faster.

Rory, yeah.

No, I went and looked at the actual numbers on ServiceNow, and, yeah, it clearly beat expectations, but plus or minus, it's been a 20% grower, a little over 20% grower, for 5 or 6 years. It's just a really well-run, market-dominant company. So I don't have an insight on the actual minor question of the jump based on Q1 versus estimates. I don't know what they were thinking or what they were worried about, and why it popped 24% on what was pretty much the prior logical estimate for revenue growth, right?

But zooming out to the Jason point, I think the bigger question is that there are 2 big questions. One is, what happens to these 2 or 3 ultralarge SaaS companies? Does AI help or hurt? My mental model has always been that, at any point in time, there are actually 3 different players.

There's the pre-AI behemoth, like ServiceNow. There's the AI teenager, which is typically a company that had been building something in AI from about 2018 on. And then there is the post-LLM, YC next-generation company. In all these spaces, that's roughly true. You can name ServiceNow, you can name the mid-tier players, and you can name a bunch of new ones.

What's interesting about ServiceNow is that they made a shrewd move. They bought one of the teenagers. They bought Moveworks just now, and they said, “Hey, we had an AI story before. We bought a small company clearly getting some traction, but clearly not enough, and we decided, let's take $3 billion—what's that, 1% of your market cap?—and buy Moveworks and get really relevant in AI.” So I thought it was a shrewd move.

I think the market is saying, “I don't think there's anything more profound in it than saying this is a company that looks like it's going to be a winner in the post-AI world, that still has scale, that still has profits, and is probably worth something.”

The one thing, Rory, I'd be curious what you thought about in the middle is the SMB enterprise, Box. You were an early investor in Box, which is at scale, right? And Aaron Levie's all over AI. I've been in the document-management space. There are fewer spaces that you could disrupt more with good AI than documents, because all our goals since the early days of documents were: how do we take these unstructured documents? Sure, we can OCR them and extract a little, but we couldn't do much with these documents, right?

And this is why Aaron's in love with AI, right? The question is, will it be enough for Box? I don't have an answer; I'm just watching as a student, right? But I think it's in the middle. We don't know: will this reaccelerate Box because Box is a more valuable app, or not? But there's no question we have a CEO that's all over it, an S-tier CEO that's all over how to make a 2005 company with AI better, right? I'm watching as a case study.

My comment would be, first, not only do I like Aaron personally a whole ton, but more importantly, he's one of the CEOs I most respect. Going back to the comment earlier on gritty and hard and sticking with it, that's a team that's been there now probably for 20-plus years.

Doing the same job, never blinking when it got tough, never blinking when the activist showed up. So there's no one I want to win more, right? If Moveworks is a teenager, Box is clearly a young adult, right? And if what it takes to add AI at that stage is great focus from the CEO and the team, and just driving change, I think Aaron will deliver it, right?

So I'm a big fan. I'm still a stockholder. Glad to be a stockholder. Another day, I could riff long and hard about the negative parts of being public. I learned a lot from Aaron, and I've changed my thinking on how best to ensure founder CEOs can be successful in public markets. He's done an amazing job.

I'm sorry, I'm naive, guys. You're right: Aaron's all over AI. And you're right—you're right, Jason—the document management space is the most perfect space for it. Why is that not reflected in the excitement around their market cap? Their market cap has always been, bluntly, pretty depressing as a multiple. Sorry, Rory; you can just recuse yourself.

Well, I think Rory would know more. I just think it's a question of what AI will do. It may not lead to breakout growth for some of these players, right? It's like, has ServiceNow. Bill says it has for ServiceNow. I'm a little skeptical. I think it's early, right?

If it was as simple as having an incredible AI on top of all the data you need, Box should win. Box should reaccelerate to 20% or 30%. I'm talking about a big public company like a VC. It should reaccelerate. It has all the AI and it has the data.

It has trillions of documents, right, that you can't even find. Now I can talk to my documents, right? If we're shooting from the hip as investors, it should reaccelerate. But if it doesn't, then I'm trying to learn how AI will change it, right?

Because in 12 months, Box is going to be an order of magnitude better an application than it was 24 months ago. In 12 months, it will be an order of magnitude better, not a little bit better. And will that be reflected in growth? That's the meta-question, right? Does that actually come out in value extraction?

Sorry to interrupt you, Rory, but can Box be a better product while actually having margin degradation because they're paying more without charging more for it?

I think in the end, if you deliver value, you'll get value. Contrary to F. Scott Fitzgerald, I do believe there are second acts in American life, and I genuinely do believe that AI could provide a strong boost to the Box value proposition, which needed it.

You give me grief on the stock price, but it's a compelling achievement to have done what they've done. The reason the stock price is always hard is we're competing against Microsoft and Google, who give it away for free. The fact that they've built this profitable, widely cash-flow-positive business competing against the 2 largest companies on the planet, who give the damn thing away for free—just hats off to them. Smarty-pants, right?

But now the question is, can they reaccelerate? I think the interesting thing is that there are examples in the past, like Adobe way back in the late '90s. One of my partners used to work there. She said they were stuck at $1 billion in revenue for 3 or 4 years, and then they got the unlock and they reaccelerated.

I can't tell you what's going to happen. I'm not on the board, but just as Bill McDermott is looking to grab on to AI, I think Aaron is wisely grabbing on to AI. I'd prefer to be playing that hand than the guy doing $1 billion, $1.5 billion in revenue saying, "Hey, it won't impact my business," because he'll be gone in X months.

Rory, you said if you create value, you'll be able to extract value. I'm worried because you see people like Windsurf and Cursor, who are creating an insane amount of value now, doing like 1 billion lines of code a day, charging now. Windsurf's price has been slashed—I don't know what the prices are, but they were like $30 before; I think now they're $15 or $20. Are we moving into a world where there is this dislocation between value creation and value extraction?

My guess is probably not. First of all, given the background noise, I don't think we need to worry about Windsurf's ability to quote-unquote extract value. They appear to have found a higher source of value to extract on the capital-markets side. So I think they'll be doing fine if they get $3 billion.

But on pricing, I thought it was a clever move. I think that you're going to see this. Yes, they lowered their price, but they have tiered pricing. It's the conjoined question you were asking about value pricing, which is very hard to do for a product like this. Having tiers of pricing where you get lots of people using the base product and then escalating steps of value as you deliver more value is probably the simplified version of quote-unquote value pricing, in much the same way as OpenAI has $0, $200, and $2,000.

They're going to keep giving stuff away in the lower tiers, get you hooked, and upsell. So I don't think it's a charitable act or an act of madness. I think it's probably a pretty shrewd pricing strategy.

I think what they're doing is vaguely similar to what HubSpot has done, which is the low end—they're going more and more low-end. HubSpot 2 years ago didn't even have this Essentials edition, which is like 45% of the new customers, and they're going more enterprise.

If you look at Windsurf, to get going, it's simpler and cheaper than it was, right? But the average enterprise customer pays like $60 or $80 per seat, and they have 200, 300 people in their enterprise go-to-market motion, right?

So they've got a barbell where everyone can get on this platform. They have incredible marketing from it, right? I mean, in 3 months, everyone says this is better than Cursor. We can all have our own opinions. Incredible marketing benefits, even from HubSpot, from this long tail.

Then they've got 200, 300, 400 sellers selling 6- and 7-figure deals at $60 to $100 a month per seat. That's a quietly better model than it looks, right? It probably can scale and absorb some significant costs from OpenAI and Anthropic. At that level, it probably can.

I worry that these things are going to be more competitive than people think, right? Why isn't GitHub competing with Cursor? Why go with Copilot versus Cursor? Windsurf is number one on Microsoft's got-to-kill list. Number one.

Yeah, so it's all over. It is existential for GitHub to destroy them.

I worry—and again, it's the reason I've been avoiding these AI deals—that too many companies are going after them. It's kind of like 2021, where in every category you were going after, there were like 8 well-funded, great teams. The very fact that there were that many actually killed the economics of the category until eventually a winner emerges.

The problem is, if you invest at a very high valuation in a company in a category where there were 8 people going after it and overspending on customer acquisition or offering too low prices, it ultimately didn't lead, I think, to great outcomes for investors. I worry the same thing is going to happen here.

While I do think eventually a winner or 2 emerges and they'll have the proper pricing power, and I do think in the long run you're able to extract value when you create value, there may be a lot of investor value destruction on the way up because people are competing on customer acquisition and price.

If this ends up winner-takes-most, you're willing to do whatever it takes to win. As a result, you're willing to give up a lot of value on the way there, and it's going to take a lot of capital. That's what worries me about these models at scale, and that's why I've been staying on the sidelines, especially considering the valuations they've been raising at.

I'd rather pay up when 1 of them seems to be the dominant winner, and I suspect that then price and traction will be more aligned.

I think I've said this before, but one of my friends led a round in one of the model companies at $4 billion, and now it's at $60 billion. Their multiple is 3.1x, and it's because they're shedding 9% a year in employee stock comp. They've raised billions and billions and billions. It's not really a venture-fundable asset in that respect. I don't think it's the best.

That's a bad sign. Rory, don't hit me. Come on.

No, I hear you. It might be the best venture return, but I just think these broad trends aren't showing up.

Trying to just walk away from the trend entirely is too hard. I think they're still up 3x. I think they have upside from there. So I think in retrospect, they're probably still glad they did it. They might be nervous about the burn.

I think we're probably saying some version of the same thing. The best of all worlds would be a wonderful tech trend and low capital availability, which means only 2 companies get funded. They slug it out and they both make money. That's welcome to 2010, or even 1994, because I was in the business. It was awesome.

I'd still prefer a really strong tech trend and 5 or 6 competitors to no strong tech trend, because the great thing—I mean, going back, I do love where we are from a tech perspective right now. This is some of the most amazing technology we've seen in 20 or 30 years. We get so used to it.

I guess you sent me your questions, Harry.

I just loaded them into ChatGPT, and my God, I’m an expert on everything on the podcast 10 minutes later. It’s just a wonderful world here, right? There’s a huge amount of value happening, right? But I do agree it’s incredibly tricky figuring out how to play with just the capital. The capital is definitely massively eroding the returns, but it’s hard to imagine, when you find yourself as an investor, trying to find a way to play the trends.

We’re confronted with this every day. It’s so hard. Do you go a little earlier and try to catch it just before? The bad news is you don’t know who the winner is, and there are 8. Do you pay up for the winner at $500 million or $600 million when there’s only $1 million? Is that enough traction? It’s damn hard.

Last sentence is this: I’m not saying it’s the only game in town—perhaps the biggest game in town—and pushing it off the table entirely is a bit much.

Rory, if I was on your team, I would be saying to you, “Play the trends, dude. We’re pre-seed, seed, and A. Our game is backing generational-defining founders. We don’t play trends. We just try and find the best founders in this business.” How would you respond to me if that was what I said to you?

At pre-seed and seed, that’s probably true. And by the way, I like your tweet, just to turn it right back on you. All you have is 3 things. You said—I’ll give you the 3 things you have per your tweet and contrast them with where we are slightly different. You said there are only 3 things: “I’ve got awesome freaking founders, a roughly directionally correct market, and economics that make sense.” You’re exactly right. Those are the 3 things. But you did add the second one in there, right? You do need to have some semblance of a directionally correct market.

We’re probably paying a round and a half by the time you get to an in-revenue A, which is where we play: early revenue with product-market fit. You have to have product-market fit. That’s why we use the word, right? So you do. And the thing is, if you pay up for a company that has product-market fit and then you lose it and have to reacquire it, by definition, you’ve overpaid.

By the time we invest, I want to at least say, “I believe that this is the right solution. It has some element of product-market fit. We’re not going to tear it up and start again on something else.” That happens. And as we discussed last week, it happens more in AI than anything else. But I can’t afford the luxury of just saying, “These are meat-eating founders, and they’re going to figure it out. Who the fuck cares? Excuse me. Who the hell cares what they do?” Right? I want to at least know they’ve locked into something that can hunt, right? So that’s—and then the economics, like, you have to make sense.

But I don’t think you can find number 2 with number 3 today really at all, because I see these deals every day in SF, Rory, and they’re $400K in ARR. That’s not product-market fit.

Okay, you caught me. That’s the big problem, dude. Okay, you nailed it. Exactly. That is absolutely the issue we’re wrestling with. By the time you have our first criteria of product-market fit and a good founder, the third criterion of value is—

No, that is why venture capital is hard. Absolutely. No, you’re exactly right.

Is the solution to try and do what you do and go pre-seed? I don’t know, right? We’re wrestling with that. I think you have to. I think you also have to, given the fact that pre-seed funds are now $400 million, like mine. I can do the seed and the A. And so, I mean, good luck trying to take my best pre-seed, because I’m going to cling on to it as hard as I can, being blunt.

And I think that’s why you’re seeing Greenoaks lead the seed for Windsurf, because there’s a realization that there’s no freaking way you can get in unless you are there.

But even there, that one—I mean, this is a good question. When you know Windsurf, both Windsurf and Cursor, Anysphere, were radically different companies when they were seed-funded. They were not even the same company. Okay, they were nothing.

And then, when—I don’t think I have the chronology—when Greenoaks doubled down on Windsurf, it was Codeium, which the company essentially abandoned 3 months ago. Every engineer was repurposed to build a better version of Cursor called Windsurf. So this is like betting on an S-tier founder, which Varun is, but those bets don’t work out a lot. I don’t think those bets work out most of the time for S-tier founders.

The classic B2B investor is at $40K MRR, to your point, and is attached to a trend: the world is changing; it’s AI, it’s WebRTC, it’s mobile. They’ve attached to an early trend that even you couldn’t see, like in the old days, right? There is early product-market fit at $400K ARR, right? It’s just that we used to be able to invest in those companies in the teens, not in the hundreds.

I’m sorry, in SF, is there really early product-market fit? You’re a YC company, you’ve got all your YC mates around you, you’ve left a firm or you’ve left Square or you’ve left whatever, and you say, “Hey, come on, sign up for a $20K contract.” You get 20 $20K contracts. That’s not early product-market fit. That’s having good friends with somebody.

Agreed. I think 10 folks that weren’t in your batch might be, though. Totally.

And more importantly, Harry, it turns out it’s hard to make money, right?

Tough shit.

Yes. We’re paid to figure out which product-market fit is shit and which product-market fit is not.

I remember back when the round that we now do, which is the A, used to be—I remember the venture wisdom when the A used to be the seed was, yeah, the problem with Series B is, if you get it wrong, you end up effectively paying Series B prices for Series A risk. And it’s exactly correct. Now at the A, right, you’re paying Series A prices for seed risk. But the whole point of having to be good at this job is being able to figure out which is which. There’s an element of the job that is picking, and it turns out that’s what they’re paying the carry and the salary for, right? And you’ve got to get it.

And if you don’t, you are going to lose money because, in a more forgiving capital environment, your margin for error would be much higher. And that’s the really hard thing about today. If you get even slightly—you don’t have enough room in the price to bury a lot of errors. So you’ve got to get your picking much better and your win rate much better. So, yeah, it’s harder to make money when there are 20 VC competitors than when there are 3. What are you going to do?

I love it. I basically get a schooling every week from Rory. Last week I was a hypocrite, so this week is a definite improvement on that.

I thought “hypocrite” was wrong. I should have just said, “You’re incorrect.”

No, no, Rory. I have a thoroughly inflated ego, and so it doesn’t really harm me. You also mentioned something in 1994. I was born in 1996, so I wouldn’t actually have remembered that. But thank—

Maybe if you read anything that wasn’t on social media, you might.

My generation doesn’t read. We know that. Books are dead.

Was it a tweet?

If it’s not a tweet, I’m—

It was a real—

Guys, I want to just run through a couple of fundraising elements that I have to hear your thoughts on, and then we’ll wrap. Manus raised $75 million for a $500 million valuation led by Benchmark. It’s a Chinese company. I love the Benchmark guys, and they’re friends, so this is no shade. But should we be funding Chinese AI companies?

The first thing I thought when I saw it was Rory’s point before: we’re all taking more risk. So there’s a political element here, which I’ll brief, and other folks can talk about. But when I saw it, Rory just rang in my ear. Would Benchmark—would anyone ordinarily, in today’s world, want to do a China-based AI company? No, but it’s disrupted AI, at least for now.

So you’re taking more risk: you won’t get liquidity, you’re taking more risk that the government will take away your shares, you’re taking more risk that you can’t repatriate any earnings. I don’t even know all the risks, but so many folks have walked away from China, right, that they walked in. I just thought it was taking more risk to get the massive outcome, right?

The second thing I thought when I saw this wasn’t really Benchmark. I just think, in general, nobody cares. Nobody cares if you’re selling weapons. No one cares. People love defense tech that’s about killing people. Now, we could argue either side of it, but I haven’t talked to a VC that thinks there’s anything wrong with that. I’m sure there are. Everyone’s like, “I’m Mr. American Dynamism now. I’m all American D.” And maybe that’s okay.

But I just think it was a couple of months ago that we were talking about how AI might kill us all and that we needed safety and control. And I haven’t heard a peep out of that since Anthropic was formed. No one cares, right? So this risk thing, Rory, rang in my ear on risk.

Yeah, and so much to unpack in what you said and then what Jason said. Silence on some parts does not indicate consent. So let’s now go back to it and say, on the decision—I think you led with the “should.” I want to avoid the “should they, shouldn’t they,” you know, playing geopolitical guru, because I’m not.

I mean, I think on an individual deal level, quite a lot of risk, but they’re probably massively getting paid for the risk. And it’s an idiosyncratic risk, so probably from a pure portfolio-management perspective of adding 1 of 20 deals that has this very weird risk, where you’re probably getting a lower price but have some exogenous political risk.

You could say, from a pure finance perspective, it might be a good idea. I wouldn't do it because there are 2 other criteria. The second criterion is: are you taking individual deal risk, or are you taking firm risk, where the blowback from doing the deal slops over—not just from the individual 1 out of 20 deals into some impact on the firm? I can't assess it.

To be clear, I'm not yet making a moral distinction. I'm just saying, with so many people and so much congressional pressure around that, I wouldn't have had the courage to maybe bet the firm—or, at the very least, bet that I'm going to spend some portion of 2026 in front of Congress explaining this. We saw very intelligent investors—Sequoia, people like that—get out of billions of dollars of value because they just wouldn't want to be there. Having got out of something like that, I wouldn't want to go back. So I think institutionally, as a firm, I probably wouldn't have done it, and I haven't.

The last one is some vague moral issue. I'm trying to articulate the moral stuff, and I'm deliberately punting on that, which is not to say I agree. I'm—how do I put this? Rory, your wife just said you couldn't say anything in that regard. I get a list of banned topics, and that's one of them.

But I think there are very different risks from doing a US-based defense contractor like Anduril versus getting involved geopolitically with China, right? I'm not commenting on the specifics of the company. I probably would be happy to skip that risk. Let's just put it that way. I don't have a developed opinion on the whole OpenAI, closed AI, open AI, open-source AI debate. I don't know enough about geopolitics in China to opine on it. That product is available elsewhere from VCs, so I don't need to fill that market gap. But I just go, “Hmm, that would be a tough one for me.”

Look, I used to invest a lot in China and Russia back in the 2000s and early 2010s, and I was an early investor in Alibaba, right, and in Ant Financial, et cetera. The thing is, to me, there was a path possible where both of these countries would actually be US allies. Deng Xiaoping really saw a path for the 2 countries, and Deng Xiaoping is probably one of the greatest statesmen, frankly, ever. He got a billion people out of poverty, and the path he was on was profoundly different from the one Xi Jinping is on.

Xi Jinping has these nationalistic, great-power issues. Once Jack Ma disappeared, I pulled out of China completely. My remaining holding is in Ant Financial, which should have been a massive home run, and Xi Jinping just personally decided, “You know what? I don't like what Jack said to the regulators. I'm shutting down the IPO.”

I did the same thing in Russia. Russia was an amazing market for us. Then, in 2014, Putin decided to invade Crimea, and when that happened, several of our unicorns were funded by Tiger and Baring Vostok, et cetera. All the capital pulled out. The only people to fund them were local, well-connected oligarchs, and I was like, “Okay, I'm out.”

Would I take that geopolitical risk today? No, absolutely not. Do I think actually backing people that are contrary to our interests is a good idea? Absolutely not, from a moral perspective. Now, do I think that at some point this may change and they may become more aligned again, and we can get away from this great-power-war, great-game-type world that we're back in currently? Yes, I hope that's true.

I'm actually hoping that, in the long run, as China becomes wealthier, the masses will not want taxation without representation and will turn into a democracy. But the problem with dictatorships is that dictators can stay in power for a very long time, even if they don't do right by their people. Look at the Castros or what's going on in Venezuela. So for now, I would completely avoid these geographies.

Frankly, I even moved away from Turkey, which remains a democracy and a US ally. Erdoğan is, to me, going against all the principles of Atatürk and the positive revolution that happened there. So I stick to my personal moral principles.

And by the way, speaking of defense tech—and I know we need to wrap this up—I'm investing a lot, actually, in Ukrainian defense startups because I think my vision is that Ukraine could become the manufacturing hub for defense. They're not Anduril—and, look, I'm an investor in Anduril. The problem is Anduril's cost is extraordinary.

The way you measure this is cost per kill, and they're not battle-tested. You want to minimize cost per kill, basically. These startups in Ukraine are using super-low costs. Yes, I know that sounds horrible. I want to see a few investor decks with CPK—cost per kill. I want to see it declining over time, and I want to make sure it crosses over by Series C, that your cost per kill declines.

Look, if you're backing defense tech, this is, I think, ROI. People want you to be efficient, and if you're a country with fewer resources, you need to be more efficient. What Ukraine is doing is building an extraordinary stack that, if we are ever in a great-power war with China or Russia, we're going to need access to it because our costs are too high right now. We don't have the manufacturing capacity. We would lose a war with China right now, and I think the only way out of that is backing things where you build scalable, cheap, mass manufacturing.

The reason we won World War II is that we outmanufactured the Axis, and that was the US. Today, we don't manufacture. CAC, CLTV, and CPK are the metrics I really run the fund based on, to be clear. Sometimes a high CPK can be disguised in a low CLTV, and that's the problem with a lower-margin American Dynamism investment: your CLTV can seem high, but your CPK is high as well. You've got to get the cross.

What is the magic number here for the ratio of CLTV to CPK? 5:1? 5:1? 5:1? Is that how it works?

Yeah. Yeah. Look, maybe David Sacks can help us with the ratio, like a burn ratio. Look, it sounds awful, but I think that this is existential. It's existential for Ukraine. I think it's existential for the West. We need to be in a position to be strong enough to defend ourselves; otherwise, we're going to be bullied, and otherwise, we're going to lose.

If we are perceived to be weak, I think our perceived weakness is more likely to lead to a war and an invasion of Taiwan, or whatever, than if we are perceived to be strong. It's distasteful, and I would much rather we all live in harmony, to be clear. I would rather we didn't have the leaders we have on both sides, but I think it's existential and essential, and we need to do this.

Can I just add 1 question? I know we're over, but briefly, since I haven't done any defense tech: do all these new seed investors and folks who are excited about it have any idea what they're doing, or are they just chasing trends? Do all these folks in Dogpatch investing in hot startups know what the hell they're talking about when they pop down to El Segundo for the day, or are they just flushing their money down the drain?

I think, no, they're doing what Rory said people should be doing, which is investing in megatrends. Is defense tech a megatrend? Absolutely. They're trying to latch on. By the way, there are very good funds in this, like Shield Capital in AI and defense. They're amazing. They know exactly what they're doing.

Do most people latching on to this act like lemmings? Look, I'm an investor in Anduril, but I think most people are like, “This is the emerging winner. We need to pile the truck here and invest.” How thoughtful are they? Have they really looked at the cost per kill, et cetera? I think the answer is no, but probably they still do well because, to be clear, they're probably just as thoughtful as the dude who piled $250 million into the SPV in OpenAI.

Don't ever conflate overthinking. A momentum investor may actually be impacted negatively by overthinking.

And one last comment on that—I mean, listening to all this. I remember 15 years ago investors asking us why we didn't do China investing. We didn't then, and we have never done it. Yet my perspective as an immigrant coming here is that the US is 25% of the world's GDP and 50% of the world's software and enterprise technology market.

If I can't make money on 50% with the rule of law, adding another 10% with no rules whatsoever isn't going to help me. I'm so glad I haven't had to do that to make a buck. Good luck to the Benchmark boys. It feels like a hard line to hold.

Look, every founder—especially since I'm European, right? I'm an immigrant as well—all my French founders are like, “Where should I build startups today? Does it matter?” No, come to the US. You have 300 million rich people who are very eager to buy your product. You're playing the game of life on easy mode—or very easy.

Yes, it's harder to get visas, but whatever. You can figure it out. There is no doubt. And by the way, what I tell my US founders when they're like, “Hey, should I go launch in Europe?” I'm like, “Don't go to Europe.” If you're at $100 million in revenue, it's easier to go from $100 million to $200 million in the US than from $0 to $100 million anywhere else. That's true at $1 billion. It's probably true forever.

Classic glib statement from an American—and an American entrepreneur, I add lovingly—for 3 reasons: lower salaries in Europe, higher retention. Fantastic. You'd like to have both.

Okay, easy access to cash—there's a lot of money in Europe, actually. I completely agree. You can sell actively into the US from Europe; Pigment has shown that, and you can scale to a really meaningful revenue size from Europe. You have to get on a plane more often, but it's absolutely possible. You can leverage cheaper engineering teams and hire great sales teams in the US. Very possible.

When I started investing in European startups at Accel—Pipedrive, Algolia, Talkdesk—I've always thought it was not a great insight, but I'm shocked by how much cheaper engineering talent is in Europe. In Paris, the best engineers are half the price, and people stay past their cliff.

Yeah. Everyone, even at OpenAI, leaves at their cliff. So why that arbitrage doesn't work even better is the odd question.

No, it's less understood that it exists, which is frankly true. I'll tell you just one thing, Harry, on this. When I've asked a lot of the European founders that I still work with about this, they're all relentless. They're like, “They're just not driven. Our European folks are just not driven enough.” I don't care about the cost; they're just not driven like San Francisco. Everyone says this to me—the ones I've invested in.

Gosh, Nicolas from Algolia, when I saw him at YC Demo Day, was saying, “Everyone in every French startup has got to come now.” He's like, “I didn't think this 3 years ago.” Maybe he's talking about the YC thing as a general partner. But everyone I've worked with says, “We don't care about cost or retention. It's just the pace. We cannot get our team in Nice or Barcelona to work at the pace of the US, and we don't care. That's worth much more than anything.”

Do you want to know? Project Europe disagrees. I'm not saying I have the data, but I'm going to lose a load of friends in 1 sentence. None of those are generational-defining founders. Go to Revolut's headquarters. Revolut is awesome.

No, no, you're right, and I agree. But the founder sets the cadence, and if you are one of the ultra-outliers, they'll be everywhere outside of Antarctica, right? You will have the Revoluts. But when you have to hire hundreds of people, that's where it gets hard. I just think then you're stuck with the average.

No matter what anybody says, there aren't 500 S-tier engineers who want to work anywhere but Cursor. They just don't exist, right? They're going to work at your boring B2B company. You're lucky to have 4 10x S-tier engineers at your concrete B2B company with an AI copilot. If you get 4, you're lucky. If you have 1 person who would work at OpenAI and will join your company, it's a serious issue. You're lucky if you have 1, but maybe if you're in San Francisco, you could get 2.

Rory looks frustrated. Well, are you okay, Rory?

I don't know if I agree with you, Jason, on that gross generalization of yours. But I actually don't think you have to, because the real truth is that, in enterprise software—as distinct from consumer, where Reggie is playing—it doesn't matter where the R&D is. It should be wherever you can get good R&D.

The spend is 50% in the US, 20% maximum in Europe, and 30% in the rest of the world, and the US is the early adopter. So the thing that is true is that, for enterprise technology companies, your R&D can be anywhere. Your go-to-market will have to be in the US. You can make that statement wonderfully without typecasting the competence of the entire 300 million people in Europe. As a European, I don't want to do that, because I do want to be able to go home sometime, right?

I think we have loads of investments where they have European engineering staff, and they're awesome and great. But in the end, the reason we mentally think about the American market is because, you know, Willie Sutton—that's where the money is.

Yeah. But I just don't think you can win today if you're comfortable leaving work at 5.

Now I'm going to defend the Europeans. You're pissing me off. I think there's a visible difference between the Europe of the people who get it and the Europe of the people who don't. Let's be clear: out of the 300 million people, not all of them, or even most of them, get it, right? But when you run into the people who do, you're like, “Yeah, you're with the program.”

The generalization that you're making is correct, Jason, but that's looking at the whole working population. There are groups, teams, and critical-mass areas where people do get it and they're cranking. I mean, look, Dublin is a great place for American tech companies, and fundamentally it's because people are with the program and cranking.

I think pre-AI, I agreed with you. I've just changed my mind in the AI world. The value of a 10x engineer is 100x now. It's 100x. It's 100x. Your companies are going to go under if they're not dominating AI in their market, in B2B. They're all going to die. They're all going to die if you're not—

Ah, Harry can't hide. Let me tell you why Harry's hiding here. Let me give you the bad news for Bruce. What happens in this program every time is that we crank things up, and then by the end, Jason escalates. That's okay. But the problem is that the social marketing team from Harry's team picks up the most inflammatory quote that Jason made and puts it out on the internet with your face and my face.

Tomorrow morning we're going to see something that says, “No Europeans were to blame,” and it's going to be your picture and my picture. We'll never go home again.

No, no. I think there are plenty of Revoluts. I just don't think going home at 4:30 to have red wine and baguettes is going to work. I think you're going to lose today. You're just going to lose. I can tell you from all the French founders I know: they all think it's like—not them themselves, but their teams think it's that way.

I literally talked this week to someone who's going over for an SVP of engineering role that's incredibly respected in Europe, doing the cycle on all the portfolio companies in B2B. He's like, “Well, I just got off for a month in Europe on vacation, and I want to spend some time really thinking about AI.” He said, “I really want to spend some time thinking about AI.”

I took the chat and put it into the SaaS AI and said, “Should we hire this guy?” The AI said, “Whatever you do, pass on this guy.” These candidates get passed around to all the VCs because they're hot candidates. This was a hot candidate who had taken a month off, had the baguettes, and was going to dillydally into AI. You're going to get destroyed by the kids in San Francisco. You're going to get destroyed right now. If you're a 10x engineer with AI, you become a 100x engineer.

The question I have is, in the long run, could AI actually have the opposite impact, where regular engineers become—maybe they're not 100x, but they become 70x, and that's good enough? I don't know, maybe. But a regular engineer today has already gone from 1x to 2x. There's no debate.

Okay, there's no debate. But the 10x become 100x? No, that's the question. The problem is, if you have a team that knows AI, your whole team has already been 2x'd in the last 5 months. Your whole team is at least 50% more productive, right? Even Salesforce commits 20% of its code through AI. So if you're good, you're at 50%.

Literally, it's 50% productivity across Windsurf. No matter what anybody says, there are no 90s, okay? It's 50%. But everyone has these tools. As Harry said, it's $15 a month or $100 a month. Everyone's twice as productive. The question is the long-term arms race.

Yeah, but in the long, long run, when AI becomes so much better, do you think the gap will shrink between the very best engineers and the average engineer? If that happens, it changes the game. If it doesn't, then it's not. It's a question, by the way; I'm still learning.

I'm going to make the bet that, for all of history, 10x engineers have become better and better. That's what we're seeing in startups today. That's why they can grow so quickly. That's why Harry's companies are small. It's not just that they're small teams; it's that they're much better than they used to be. So I think we're going to see bigger teams, and we're going to see 10x engineers become even better.

I think half of these sales teams will be gone in 2 years. Half of these sales and customer-success teams will be gone in 2 years because they're mediocre. They'll be gone. They're all going to be laid off. We're not going to need mediocre 2-call SMB reps. We're not going to need customer-support people who don't even show up to the QBR. They're all going to be gone with AI, and the engineers are going to be even better.

But the arms race between Cursor and Windsurf is so huge, and that arms race is going to lead to bigger and bigger engineering teams that are better and better. I think both—I know Windsurf is 100% in the office.

I think Cursor is too. They're going to be these aggressive, in-the-office, 6.5-day-a-week teams that don't get baguettes and red wine at 4:30. I still love Europe, don't get me wrong, and I'm a fan of Project Europe. But I think we've got to find the Revoluts, because baguette culture, I think, is worrisome. But it's crazy. The rate of change is crazy, and I do think all these B2B companies are just going to die if they can't change fast. They're going to die.

I cannot thank you enough for doing this. This has been so much fun. Honestly, it's like the highlight of my week now. Real and dipling[?]. Real, and what about real and dipling[?] this week?

Do you know what? We're going to pause before we lose more friends. You've pissed off a continent already, Jason, and so you're cool. But guys, thank you so much. This has been amazing. Thank you. Talk to you soon.

Nice talking, Reggie. Thanks for the time.

Likewise. Bye.