20VC · 2025-10-30 · 84 min

20VC: a16z Raises $10BN in New Funds | Mercor Raises $350M at a $10BN Valuation | OpenAI Restructuring: Who Wins and Who Loses | Why IRR is a BS Metric and Three Ways to Win in VC Today

Harry Stebbings

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TL;DR

OpenAI’s restructuring turns a capital-constrained hybrid into an investable PBC and moves an IPO “one enormous step closer.” Microsoft’s agreement and approvals from the Delaware and California attorneys general remove the corporate obstacle to raising another $100–200 billion. With a possible $2 trillion retail-magnet IPO now structurally feasible, the remaining risk shifts from governance plumbing to whether AI economics support roughly 40 times GAAP revenue.
Microsoft, OpenAI’s charitable foundation, employees, and future investors all emerged as winners, while Sam Altman still owns no shares. Microsoft turned roughly $13 billion into a stated 10X while retaining some extended IP rights, revenue share, and prospective Azure business; the foundation ended up with about $135 billion of value. Jason’s striking contrast: Elon Musk was arguing for a trillion-dollar pay package while Altman retains enormous influence with “no shares in the combined entity.”
Andreessen Horowitz’s $10 billion raise makes scale itself a competitive weapon, even if its individual sleeves are less intimidating than the headline. The $6 billion growth fund and three specialist funds let a16z pay above intrinsic value for early “options,” finance talent and events, and maintain a relentless media presence. Rory’s image captured the strategy: “Andreessen Horowitz is the Red Army of the venture industry,” because “quantity has a quality all its own.”
Mercor’s $350 million round at $10 billion is fundamentally a leveraged bet on three to five more years of AI CapEx hypergrowth. Its reported rise to $500 million of revenue in 17 months reflects foundation-model companies’ urgent need for specialist human training, data-quality measurement, and implementation. The catch is pass-through-heavy margins and extraordinary customer concentration: two buyers reportedly account for more than 50% of revenue.
Ramp’s move from $23 billion to a reported $30 billion exposes a new asset class: “public stocks hiding in private.” Jason called the step-up too small to matter after dilution, but Rory argued that a billion-dollar-revenue company should deliver public-market-like returns regardless of its legal wrapper. Ultra-late investors may happily turn $1 billion into $2 billion even when an early-stage fund still needs 3X outcomes.
Carta’s 547-company Series B dataset says venture remains a picking business unless a fund can afford to buy follow-on options at scale. Roughly two-thirds of 2018 Series B deals returned less than 2X, while about 10% exceeded 10X and Figma reached 100X. Rory separated three models—picking, spraying, and optioning—and argued that large multi-stage platforms can relax selection discipline through options, while YC is the clearest structurally advantaged mass-production case.
Synthesia’s rejected $3 billion Adobe offer split the panel on the real sell decision: expected value is only one variable; founder ambition, duration, and IPO fitness matter too. Jason would have advised selling unless the team truly wanted to build and run a $10–20 billion public company; Rory said reported growth from $100 million to $150 million ARR in under six months would make the answer easy: “There’s no way they should sell.” Their shared test was whether the founder is genuinely “an IPO guy,” not whether the VCs want another turn.
Amazon’s difficult fortnight illustrates how abruptly AI can challenge an incumbent’s lead. The host cited layoffs affecting 10% of white-collar staff, cloud share falling from 50% in 2018 to 38%, and a forecast of only 7% AI-cloud share; Jason wondered whether Bezos exited just before the strategic regime changed. Rory’s prescription was narrower: retail distribution remains formidable, but AWS must become AI-relevant without accepting Oracle-like economics he fears are subpar.

Digest · the substance, structured for research

1. OpenAI escaped its corporate straitjacket

Rory’s framing: OpenAI completed agreements with Microsoft and the attorneys general of Delaware and California, enabling the long-delayed restructuring and reopening access to capital. Elon Musk may still litigate, but “possession is nine-tenths of the law”; unwinding a completed conversion after regulatory approval becomes much harder.
The resulting structure places a heavily capitalized charitable foundation above an investable public-benefit corporation. That PBC is a genuine for-profit entity required to consider more than shareholder maximization—not the old structure whose disclosure effectively said, “You should regard this as a donation. It can all go to zero.”
An IPO is neither promised nor required, but Rory called it “one enormous step closer.” OpenAI can now approach public markets as a recognizable American corporation rather than asking investors to tolerate an idiosyncratic governance trap.

2. The restructuring paid each constituency according to its leverage

Jason highlighted the rough ownership map: Microsoft at 27%, employees and the nonprofit each in the twenty-something-percent range—and Sam Altman still holding no shares. After the revolt that restored Altman as CEO, Jason found it unprecedented that the leader could remain economically empty-handed yet potentially gain moral and political power from that fact.
Microsoft put in roughly $13 billion and, by Rory’s account, earned about 10X while preserving some extended IP rights, revenue share, and meaningful prospective Azure business. It pushed hard without breaking the company; Rory awarded its corporate-development team and lawyers a “gold star” and noted the stock’s positive reaction.
The charitable foundation ended up with approximately $135 billion, making the original public-benefit ambition economically real even if its future impact remains TBD. Employees gained liquidity, SoftBank could put in its roughly $22 billion and own about 10%, and other investors could finally exhale.
Rory gave Brett Taylor his second “best board chairman” award in five years: first for enforcing Twitter’s $44 billion sale to Elon Musk, now for unravelling OpenAI’s structure. The practical losers were Musk and nonprofit purists; Rory’s verdict was that nobody received much more than the risk and work justified.

3. A retail blockbuster could finance OpenAI’s next capital wall

Jason’s financing thesis: a public valuation potentially approaching $2 trillion could unlock perhaps four times more equity capital than private markets, including another $200 billion if necessary. That makes suppliers’ huge forward commitments less fantastical because OpenAI can plausibly finance the purchases.
Rory remained skeptical that Oracle would collect the final dollar of its cloud contract, but the failure mode is no longer a nonsensical corporate structure. If OpenAI needs another $100 billion, he said, it becomes “just banking and math,” subject to the underlying returns on AI investment.
Both expected extraordinary retail appetite. Investors may ignore profitability caveats and roughly $250 billion of third-party cloud commitments in favor of “Let me get some of that OpenAI”; Jason could not imagine a more popular retail IPO.
SoftBank was reportedly closing a direct investment near a $300 billion valuation while buying employee shares at $500 billion. Rory joked that wiring at the lower price and marking to the secondary the next day creates “40% IRR in an hour.” At $500 billion and roughly $12 billion of GAAP revenue, he described the company as trading at about 40 times GAAP revenue; assuming roughly $20 billion of revenue and a 25-times run-rate multiple, he guessed $1 trillion would normally take two years—unless euphoria accelerates it.

4. Andreessen’s $10 billion makes scale a strategy, not just a fund size

The raise divides into $6 billion for growth, $1.5 billion for AI applications, $1.5 billion for AI infrastructure, and $1 billion for defense. Jason initially found $10 billion unprecedented, then surprisingly modest when decomposed: even $1.5 billion does not stretch far across rounds for ElevenLabs-, Replit-, or YC-scale companies.
Rory saw two durable advantages. A mega-fund can treat a seed check as an option on the B and therefore pay above intrinsic value; it also creates a “wall of news” through constant portfolio activity and media reach. Rory also invoked Marc Andreessen’s stated view that investing is not a media business, while crediting a16z’s media strategy with tilting the table.
Harry added what AUM buys: management fees for exceptional staff, larger carry pools, impressive offices, and events that create founder serendipity. Rory’s memorable summary—“Andreessen Horowitz is the Red Army of the venture industry”—came from the maxim that “quantity has a quality all its own.”
The structure also aids retention by giving senior investors specialist “fiefdoms.” LPs may have to commit $2 elsewhere for every $1 they want in a coveted early-stage sleeve—what Rory called bundling and rent extraction. The unresolved question is whether late-stage returns eventually disappoint LPs enough to revive smaller funds; until then, “having $10 billion is better than not having $10 billion.”

5. Mercor monetizes the human labor hidden inside model progress

Mercor reportedly raised $350 million at a $10 billion valuation, led by Felicis only eight months after its $2 billion round. Harry said it had reached $500 million of revenue—“I believe” faster than anyone else—and estimated that it took roughly 17 months.
Rory rejected the claim that this is merely GMV: Mercor supplies specialist work, gets paid, and books GAAP revenue. Foundation-model companies need mathematicians, physicists, doctors, and other experts to pose questions, evaluate answers, and provide feedback that can “pound the model into submission.”
The labor market has moved from “labeling cats” to probing the outer edges of human knowledge. Mercor’s achievement was assembling high-end talent as the models became able to handle simpler tasks, while its customers went from spending zero on this category five years earlier to spending billions.
Harry described three expanding layers: talent acquisition, delivery and quality measurement of the resulting data, then implementation inside customers’ model-development processes. As complexity rises, pricing rises too—but two customers reportedly generate more than 50% of each major provider’s revenue.

6. Mercor’s $10 billion price assumes the AI CapEx train keeps running

The bull case is an urgent customer with abundant funding and too little time: “Money I have in spades, time I don’t got.” The bear case is pass-through-heavy gross margins, stressful eight-figure renewals, and buyers eventually repricing the work. Jason also noted that OpenAI is building its own chips; Rory focused on the risk that the model companies eventually use their leverage against vendors.
Rory would not speculate on the exact payout ratio, but said the gross-margin profile is not amazing because a substantial percentage goes to the doctors and mathematicians doing the work. He would rather own a business with 800 million customers than one with two customers capable of renegotiating a $200 million contract.
At a required 3X, a $10 billion entry needs a $30 billion outcome. Assuming a five-times revenue terminal multiple implies $6 billion of training-data revenue—“a lot of training data,” and enough to make an investor pause.
The alternative underwriting method is momentum: if revenue grows 5X and the multiple holds, value can rise 5X within a year. The prior $2 billion round near $100 million of revenue now looks cheap beside $10 billion and $500 million. Rory called the entire trade “one big-ass bet on AI CapEx hypergrowth.” Jason Calacanis then invoked Chuck Prince’s 2007 Citigroup line about staying on the dance floor while the band plays.

7. Ramp is a public-market stock wearing a private wrapper

Ramp was reportedly discussing another round at $30 billion. Jason said this company genuinely consumes capital: advancing customer spending might require about $5 of capital for every dollar of added revenue, so a $1 billion revenue base could support roughly $5 billion of assets and need a substantial equity cushion beneath its debt.
Jason dismissed the move from $23 billion to $30 billion as barely an up round. In his example, a diluted 2% seed position might move only from roughly $400 million to $480 million; with annual dilution potentially around 10% in some AI companies, the headline valuation can obscure a flat per-share result.
Rory’s pushback: Ramp is already “public stock’s hiding in private.” A billion-dollar-revenue, near-profitable company should resemble a high-growth mid-cap stock, where 30–40% annual growth is excellent and financing valuations move incrementally. Stripe’s change from $91 billion to $110 billion was another example.
The pronoun mattered: early-stage investors may underwrite to 3X, but ultra-late funds investing at $30 billion probably do not. Someone can be “very happy indeed” turning $1 billion into $2 billion—and earn more dollars than a small fund generating a higher multiple.

8. Carta’s data rewards picking—and capital-backed optioning

Carta examined all 547 Series B investments from 2018. About 35% returned below 1X, roughly two-thirds returned under 2X, 18% exceeded 5X, about 10% exceeded 10X, and Figma delivered the lone 100X.
Rory found the distribution reassuring because it approximated his fund model: 30% below 1X, 50% between 1X and 5X, and 20% above 5X. Filling those buckets correctly produces approximately 3.7X gross and 3X net—not through diversification alone, but through disciplined selection.
The panel separated three strategies: picking, spraying, and optioning. Harry cited a separate graph showing that a16z had made 72 seed investments versus Sequoia’s 27; its growth capital lets those checks function as options, because it can concentrate enormous follow-on dollars into whichever companies emerge.
Even a 50-company seed portfolio remains selective against an estimated 1,600-company universe. Rory calculated that one hypothetical 300X winner contributes only about 0.2X if capital is spread equally across all 1,600. YC is the exceptional “mass production seed business” because its structured economics give it a distinctive ability to spray and retain option value.

9. Venture’s losses remain personal, operational, and expensive

Harry described receiving acquisition stock valued at what he considered an absurd price as his bad outcome. Rory offered a worse one: sit on the board, fail to close a sale, then wire another $300,000–400,000 for shutdown and severance before immediately writing it off.
Jason joked that SAFEs provide “no rights, no visibility, no financial statements,” letting him ghost failures. His serious point was narrower: a post-money cap simplifies dilution and option-pool questions, while the instrument’s limited governance commitment can spare an investor a decade on the board of a struggling company.
Rory said he never becomes numb to failed investments: “I get all sad.” The exchange punctured the tendency to remember only 10X and 20X winners when Carta’s data shows how much of the business consists of disappointing outcomes.

10. Synthesia’s sell decision depends on growth and founder temperament

Synthesia reportedly rejected Adobe’s $3 billion offer and was preparing to raise above that level at around $150 million ARR. Jason would have advised selling unless the founders were certain they wanted to build a $10–20 billion public company, even while conceding that rejection might be correct.
Rory made the financial condition explicit: if ARR truly rose from $100 million to $150 million in under six months, “There’s no way they should sell.” Even at roughly doubling growth, he liked the category and its runway as a new human interface to computing.
Jason saw divergent incentives. A founder owning 10% may live essentially the same life after a $3 billion or $10 billion outcome; a VC owning 15% can turn a roughly 1X fund return into 2–3X. Harry raised DPI pressure, but Jason said even conservative LPs with a hot manager usually prefer “another card” over a trivial 20% fund distribution.
Rory’s board-room test begins with undisclosed risk: “If there’s something about the business that’s really worrying you and you haven’t told us, now would be a good time to share.” Jason added the human question—“Are you really an IPO guy?”—because beyond $3 billion, the realistic paths narrow to compounding privately, going public, or changing CEOs.

11. Paying up for the category leader beats funding its imitation

Harry’s lesson was blunt: if the company you want is the category leader, pay its higher price rather than searching for “the next” one. He challenged Rory on why the same logic did not demand owning Synthesia itself.
Rory distinguished his investment in Tavus: real-time avatar interaction rather than Synthesia’s asynchronous, pre-generated avatar product. It expresses the same broad interface trend without being a “Synthesia wannabe” competing head-to-head from behind.
Rory’s firm learned the distinction painfully in 2013: it chose a normally priced company B over a late, expensive round in market leader A. B returned 2X; A would have returned 15X. “You’re not in the business of doing modest number twos.”

12. Antitrust delay can turn a premium acquisition into a bad trade

Jason used iRobot as the warning case: Amazon offered roughly $1.7 billion, antitrust intervention killed the deal, iRobot borrowed about $200 million to bridge the gap, and bankruptcy became a possibility. Rory blamed the FTC and Lina Khan for what he called an outdated and foolish assessment of vacuum-cleaner competition.
Jason’s acquisition lesson was that strategic buyers sometimes pay a multiple unavailable in public markets, so founders should take the offer seriously. Harry’s pushback: Synthesia could spend 18 months waiting for approval, reach $400 million of revenue, then discover that $3 billion no longer looks attractive.
Rory agreed duration erodes the headline. A nominal 30-times-revenue offer can become 10 times by closing; similarly, an apparent 2.5X in six months may actually be 2.5X over two years. Prolonged review puts “sand in the gears” and pushes companies toward independence or talent-only acqui-hires.
Harry used that duration to argue for early secondary sales and called IRR king. Rory disagreed with the single-metric framing: optimize “the maximization of multiple subject to a constraint on a minimum IRR.” A 25% IRR over four years beats 30% for one year, but holding until 25% slips toward 17–19% violates the constraint.

13. Amazon’s retail engine is intact, but AWS missed the AI reset

Harry opened with a severe scorecard: layoffs affecting 10% of white-collar employees, cloud share falling from 50% in 2018 to 38%, Raymond James projecting 7% AI-cloud share, and an outage causing billions in damage. Jason contrasted Bezos’s departure with Sergey Brin’s return to Google.
Jason argued Bezos left when Andrew Jassy took over on July 5, 2021, when products appeared frozen and the old regime felt permanent, then failed to “punch back in” as AI changed the market. Rory countered that Bezos may rationally be maximizing psychic joy rather than money—but Jason insisted Bezos would lay off half the company “in a fortnight” if necessary.
Rory separated the businesses: retail remains dominant through distribution, speed, robotics, and cost control; AWS is simply not relevant enough to new AI compute. Google had its own model, Microsoft “rented” OpenAI’s, and Amazon mainly had Anthropic. It must regain relevance without accepting the subpar economics Rory fears Oracle has taken on.

14. Relative value still turns on growth, access, and mission

Asked to choose Brex at $13 billion or Ramp at $30 billion, Rory refused without Ramp’s growth rate. Brex was cited at roughly $700 million of revenue and 50% growth versus Ramp around $1 billion; the core venture question is the equilibrium: how much additional multiple should an investor pay for each increment of growth?
Harry nominated a16z as the best-performing mega-platform of the prior 12 months, reversing his earlier skepticism after working with multiple partners. Rory agreed its operational delivery and returns had been excellent; Jason’s test was founder preference, and a16z increasingly appears among the top two choices across many stages and founder types.
Rory preferred Anduril at roughly $50 billion for its mission and its achievement in becoming a defense prime, while questioning roughly 50-times-revenue economics against OpenAI or Anthropic near 20 times with millions of customers. Jason acknowledged the party-bragging value of Anduril but declined: weapons were not his interest, and he no longer attends enough of those San Francisco parties for that psychic benefit to matter.

Jason Lemkin

I just can't think of a retail IPO that would be more popular than OpenAI. To me, going from 23 billion to 30 billion, I don't even consider it an up round. It's not enough.

Rory O'Driscoll

If they really have gone from 100 to 150 in less than 6 months, then I can make this conversation really quick. There's no way they should sell. Andreessen Horowitz is the Red Army of the venture industry. What you're basically saying is, “Rory, you can win a deal, not because I've grafted for 30 years and returned, frankly, billions of dollars to my investors, but because I'm on a fucking pod.” If that sentence is true—

Harry Stebbings

No.

Rory O'Driscoll

If that sentence isn't true, then 100% Marc Andreessen was right all along.

Jason Lemkin

I think Bezos would lay off half his company in a fortnight if it was the right thing. I don't think he'd even care.

So we were talking about where we were going to start, Rory, before this, and you were like, “I think we should start with OpenAI, given the news today.” Learning from the feedback that we get, I would love to start with you just explaining a little bit about the news that's just come out about OpenAI and their structure, and we can start there.

Rory O'Driscoll

Sure. The big news today is OpenAI cut their deal. They cut their deal with Microsoft, and they cut their deal with the attorneys general—the plural of attorney general—of Delaware and California, which means they have been able to implement their restructuring, which means they can raise their capital, which means they are out of the messy, complex trap they had put themselves in all those years ago in terms of their structure, and they've gotten it done. That's the big-picture news. There's lots of information one level down about who won, who lost, and who got what economics, but that's where we're at.

It's still got some opposition. Elon can still litigate and say, “I don't think you should do that because I gave this money to a charity.” But possession is nine-tenths of the law, and once the attorneys general have allowed it and they've actually converted, it's a lot harder to unwind. So, as of now—as of this morning, as I understand it—there is the charity, the charitable foundation, which is now one of the most well-capitalized charitable foundations on the planet.

Underneath that, there is the company itself, OpenAI, which is a PBC. I can never remember the initials. Basically, it's a for-profit company, but it also has to take into account more than just shareholder maximization. That's the entity that's created, and that's the entity into which you can invest. There are other companies like that. I think Patagonia, for example, has the same status.

This is not a crazy thing now. This is not some weird thing. The old OpenAI used to have this disclosure: “You should regard this as a donation. It can all go to zero.” This is a real, honest-to-goodness American corporation—a different kind of American corporation, but they can go public with this. They've gotten out of the straitjacket, and it's big news. It means, you know, what IPO is one enormous step closer. I'm not saying they have to or that they will, but it's big news today.

Jason Lemkin

I'll just throw one thing that jumped out at me on the deal. The overall structure—Microsoft owning 27%, the employees owning 20-something percent, and the nonprofit owning 20-something percent—those are all roughly what we all expected, right? There are some nuances on how AGI worked that are a little interesting. But the craziest thing in this deal, because it's unprecedented, I think, in our lifetimes, is that OpenAI said Sam Altman will still have no shares. No shares in the combined entity.

At the same time, we've got Elon Musk arguing he deserves a trillion-dollar pay package so the robots don't kill us, which I think he deserves, okay? I think his VCs will say he deserves it, okay? To all those in the world who say he should have a trillion-dollar pay package, the scale has to be relevant to the outputs, right? I don't believe it will ensure the robots don't kill us. It's a little crazy.

But on the other hand, Elon wants a trillion, and everyone was saying, “Show Sam the money,” when he was fired as CEO over a very long weekend, right? The Night of Knives or whatever. He was fired by this crazy nonprofit. Everyone had to revolt to bring him back. Fast-forward to today, that same nonprofit's still in charge. There's been turnover, but it's still sort of in charge, and he has no shares.

We could hypothesize why. He's pretty transparent. I actually think it gives him, in some ways, more power as well as less power. You can't assail the man for capitalism when his other billion-dollar entities are the ones that let him finish off the McLaren collection. But we've never seen someone own nothing, have we? It's crazy.

Harry Stebbings

Who, if we just drill down on winners and losers from this structuring change, are the winners and losers here?

Rory O'Driscoll

I think the lesson here is a lesson that every attorney knows, which is, you often hear this expression when litigators ask, “What's the case worth?” In other words, they look at the filings on both sides, and experienced litigators look and go, “Okay, we got these 3 points.”

They got those 5 points. In the end, we’re going to win on the 3, they’re going to win on the 5, and this is the way it’s going to come out. Then there’s a whole lot of human drama because humans are like that—we yell, we scream, and we have juries. Typically, things settle out for what they’re worth. This settled out for what the case was worth.

Let me tell you what I mean by that. When you look at the thing, it was not only no surprise, but no surprise for a long time. Microsoft had a fair amount of leverage. They used it, and they got a great deal. They put in $13 billion, and they got a 10x on their money as of today.

They got a lot of AI leverage. They got some going-forward AI property rights. They got a significant going-forward contract for the Azure business if they want it, which we can come back to. Overall, they didn’t push it to the point of breaking, but they got pretty much what they were going for. They still have some revenue share, which surprised me, so they got a great deal.

Microsoft corporate development and lawyers deserve a gold star from their shareholders in a way that, frankly, Microsoft R&D does not. The proof of this is that this morning, Microsoft stock is up nicely. They’re like, “Thank you for the $100 billion. We’re up.”

There are 3 big winners. The second big winner is the charitable foundation. There are some people, even today, griping and saying, “We did this all for charity. It feels wrong that there are any capitalists involved.” I get that, especially if I’d given the seed money.

But stepping back, somehow in the midst of this, we’ve ended up funding a wonderful $135 billion charitable foundation. That’s a significant contribution to whatever good they hopefully will do with that money, and they’ve already made some announcements about AI for medicine. There’s $135 billion out there that’s not going into someone’s pockets to buy yachts, boats, and football teams. It’s actually going to try and solve world problems.

Whether they can or not, TBD. But yay, because I would have laughed in 2016. The people who started OpenAI, saying, “We want to do good for the world,” have, at a big-picture level, succeeded. They built something worth, what, $130 billion—a foundation that they can be proud of. It’s a win for them.

Obviously, the employees own a third, and now it can get liquid. Yay them. Then the remaining investors can kind of exhale and get a sigh of relief. SoftBank can put in its $22 billion. The investors as a group—I think SoftBank will own about 10%, and everyone else will own low single digits—and everyone won. Everyone got roughly what the leverage would make them get.

The final winner, I just have to say—and I know this is a lot—is Brett Taylor, who wins the best board chairman of the year award again, for the second time in the last 5 years. He totally won as board chairman of Twitter, where he jammed that down Elon’s throat for $44 billion despite his opposition. He won here today because he unraveled the mess and set it all up for a win.

Harry Stebbings

So there are no losers?

Rory O'Driscoll

Well, the losers would be Elon. He feels he didn’t want any of this to happen, so he’s miffed. The people who think, “Oh my God, it should all have stayed not-for-profit,” feel they’re losing. There are a lot of those Twitterverse comments today.

But pragmatically speaking, Microsoft put $13–$14 billion in here, and they’ve made a 10x, which is a good return, but we’ll talk about returns. It’s not like it’s rapacious relative to the risk they took. No one else was writing OpenAI a billion-dollar check in 2019. Microsoft did, and they got their return.

Jason Lemkin

And the IP for an extended period.

Rory O'Driscoll

And the IP. Absolutely.

Jason Lemkin

And the IP.

Yeah.

Rory O'Driscoll

I don’t think anyone got much more than they deserved for the risks they took and the work they did.

Jason Lemkin

So I can tell my LPs that the little 6% stake deal I’m doing today is okay because, look at OpenAI, I don’t need to get into double digits. Point to this one. Don’t beat me up on the double digits.

Rory O'Driscoll

Totally. Exactly. And you’re right, Jason. It just shows that rules of thumb are made to be broken. Ninety percent of the time, your ownership target is a really meaningful metric, and it should run your business. 10%, 1% of the time, who the hell cares? One percent of the biggest company on the planet is $5 billion.

Jason Lemkin

The one micro-thought I just had was about all the circular financing: NVIDIA giving them money, AMD giving them 10% of the company, and Oracle raising an unprecedented amount of debt. I don’t know how much equity OpenAI needs, but it seems to me that if they’re coming up on being the first trillion-dollar startup and more, they could IPO at $2 trillion, which is crazy by any historic standard.

With a CEO with no stock, maybe they can raise another $200 billion, right? At least in theory. That’s a lot of capital to access, but my point is that this potentially unlocks 4 times more equity for them if the public markets are different from the private markets because of the valuation they could IPO at. They may need an extra $200 billion to go the distance.

Rory O'Driscoll

I think that’s an excellent point, Jason, and you’re exactly right. It means there’s one more set of winners here: all those people whose stock popped because they have a bullshit promise from OpenAI to buy a whole bunch of their stuff in the future with money OpenAI didn’t have. Now, at least, they can say they can go get that money.

As you know, I’m skeptical that Oracle will collect the last dollar of that cloud contract, but at least you can now say, hand on heart, that the customer, OpenAI, now has a sensible corporate structure. They obviously have an amazing business, and if they need to raise another $100 billion, it’s not crazy anymore. It’s just banking and math.

You’re exactly right. This thing may fail for some reason. There may be business issues around the return on the thing, but we’re out of the stupid corporate structure getting in the way of everything.

David Friedberg

I just can’t think of a retail IPO that would be more popular than OpenAI, right? It would bring everyone out of the woodwork to put a little bit of their life savings in. Even if the valuation makes no sense, this would have to be the most popular retail IPO of all time, right?

Rory O'Driscoll

I think so. You’re exactly right, and now it’s doable. I mean—

David Friedberg

Yeah.

Bill Gurley

People aren’t going to be reading the prospectus and saying, “Maybe we won’t make profits.” They’re not going to be reading the thing about $250 billion of cloud commitments to third parties. They’re just going to be saying, “Let me get some of that OpenAI.”

To your point, it would be interesting to check on the secondary price-valuation pop today for OpenAI trades. The weird thing right now is that SoftBank is closing 2 separate deals. They’re closing their roughly $300 billion pre-direct investment, and they’re also doing a share buyback from some existing employees at a $500 billion valuation.

You literally have the same security trading at 2 different prices, and I think that’s true for other investors too. They’ve locked in the earlier price. When the other investors—I think Thrive is in this too—committed to OpenAI a while back, they said, “Hey, we’ll give you money at a $300 billion valuation, but you’ve got to get your conversion done first.”

Now that the conversion is done, they’re going to put the money in, but they’ve already had a markup before the money has gone in because SoftBank is marking itself up by doing business at $500 billion on a secondary. Literally, you’re going to wire money at $200 billion or $300 billion, whatever the number is, and then the next day you can say, hand on heart, that the current valuation of this is $500 billion. There you go: you’re at a 40% IRR in an hour.

Harry Stebbings

Do you think they’ll be a trillion-dollar company in 2026?

Rory O'Driscoll

On the current trajectory. All I can answer is on the current trajectory, and without the euphoria Jason mentioned, it’s probably 2 years. You do get some attenuation of growth at scale, and at the current level, they’re trading at—at $500 billion and $12 billion, let’s call them boring GAAP revenues rather than ARR—it’s kind of 40 times GAAP. If it’s $20 billion and 25 times ARR run rate, my guess is it would take 2 years in the normal course.

But you might see that euphoria moment. It’s not crazy. It’s not like it’s never going to happen. It’s within the trajectory. It’s within the strike zone if anything like the current growth rate continues. If it slows—as a reminder, when you’re trading at 40 times revenues, and we saw this in 2021, if your growth rate slows, it’s nasty and you fall sharply. But right now they’re growing, so they can get it.

Harry Stebbings

I would love a $2 trillion IPO. That sounds great.

Rory O'Driscoll

It’ll be fun to watch the bankers beg for that. They might pretty much do it for half nothing just to be on the biggest IPO of all time. Technically, Saudi Aramco had a market cap of a couple of trillion dollars, but nobody really cares. Let’s get real: it’s an oil company in Saudi Arabia.

This would be one for the ages, and I think every banker on the planet will be making decks as we speak and calling on Mr. Waldman and Mr. Taylor.

Harry Stebbings

Dude, you’d do it for free for the credit.

Bill Gurley

He probably would.

Harry Stebbings

Okay, we’re going to talk about Andreessen’s new funds. Andreessen dominates so much of the venture microphone today: $10 billion split across $6 billion in growth, $1.5 billion in AI apps, $1.5 billion in AI infrastructure, and $1 billion in defense.

My word, what a big raise. I would love to understand: is this just a new normal of General Catalyst, Lightspeed, and the mega-platforms raising like this? Is this different? How did you analyze this news?

Jason Lemkin

Honestly, I thought they were small. What I mean is, I didn't think it was small until I saw the breakdown of the funds. At first, when we talked about this before, I was like, “$10 billion—that's unprecedented,” right? But when I look at that and the new Sequoia fund, the $200 million Sequoia seed fund, that's not that big compared to 20VC. What, 20VC's $150 million out of $400 million or something, right?

Harry Stebbings

$125 million, yeah.

Jason Lemkin

Yeah. And we're always more A and B, but it's not—$200 million doesn't really get you out of bed at scale. Then $1.5 billion for AI apps, when you're investing in ElevenLabs and friends and Replit, doesn't seem to get you very far. The seed funds and the AI fund for Sequoia and Andreessen were smaller than I would have expected in today's insane world, where even $50 million at a YC Demo Day could be a low valuation, right?

Bill Gurley

I wasn't expecting that. Look, is it the new normal? Yes, it is the business model that Andreessen and a couple of other firms have brilliantly pursued. This is the world we live in today and, as investors, will live in for the next 4 or 5 years, right?

Somewhere down the line, you'll either have it work across a cycle, and then this will be the norm forever. You could envision a world where this is a little like where venture becomes more like investment banking, where there's Goldman Sachs, JPMorgan, and the rest of us are boutique players, right? Or the other thing that could happen is the returns from the bigger funds are slightly disappointing, and there's a little bit of a tilt back to more mid- and small-cap venture.

But this is the dominant modality today. This is what top-dog venture investing looks like: this kind of scale, this kind of dollars at work. There are 4 or 5 other firms doing this.

Jason Lemkin

Is there any excuse that I can't compete with Sequoia? I mean, Scale can outbid them. I think you can compete with a $200 million seed fund or a $1.5 billion A/B fund. I think you can compete—

Rory O'Driscoll

I agree. The sentence, “I can't compete at seed with Andreessen because of check size,” doesn't make sense, except in one very derivative way, because I agree. At the end of the day, if someone's raising $10 million, and you have $10 million, the other guy has $10 million. End of.

There's one of two arguments against what you're saying, though, right? One checkbook comes with $10 million out of a $400 million fund, and one checkbook comes with $10 million out of a $10 billion colossus, right? Let's just say. There are 2 ways in which the colossus has an advantage.

The first is they can literally decide they're not pricing this round; they're buying an option on the next round. If Harry's trying to make his money on seed, and they're simply trying to set themselves up to make the money on the B, they can, by definition, pay a higher price. Any option always trades higher than the intrinsic value of the asset in question by virtue of the time value. So they can pay a quote-unquote “stupid price,” right? They have a different model.

The second way they can win, and I'm really internalizing this now, is the wall of news, right? At the end of the day, when you have a $10 billion fund, you always have shit going on. You don't talk about your bad stuff. Provided you're modestly competent—and these guys are far beyond modestly competent; they're extraordinarily competent—you always have some good news in the portfolio. You always have exciting things. You're probably going to be in some winners.

Jason Lemkin

I don't buy the wall of news anymore.

Bill Gurley

What?

Jason Lemkin

I'll tell you why I don't buy a wall of news. I've learned this first from Dr. Harry Stebbings, and now I've learned it from others, okay? Look, Harry's in some great, great investments that he quietly but relentlessly reminds us of: the Perplexities and the Mercors. However, he says it with his British accent. How do you say Mercor in British?

Mercor. He elongates the vowel or something like that, right? And he tells us all the great stories. What I'm saying is, you can get coverage. You don't have to write $10 million checks to be the with-participation fund guy. SaaStr could do 50 deals if you wanted, with participation from Rory from Scale, who we love from the pod.

The option thing is a bigger deal. I just wonder, with a $200 million seed fund at Sequoia, how many options can you afford before your whole fund is options? That's the question.

Harry Stebbings

The one thing I will say is the with-participation thing does not work for publications, and this is very in the weeds and granular. With with-participation, playing in rounds with smaller checks does not work unless you have an existing brand. For a random tier-two, tier-three firm, if you were to do with-participation—no, the TechCrunches, the big brands—

Jason Lemkin

You mean you want to be at the end of the fifth paragraph? They'll cut you off?

Harry Stebbings

No, they honestly don't. They really don't listen. And so, yes, we do get that.

Jason Lemkin

But Rory has a following now after this pod. He's got a pretty big following.

Rory O'Driscoll

Rory now would be—

Jason Lemkin

Yeah.

Rory O'Driscoll

Even if I did—which I would—

Jason Lemkin

I'm not kidding.

Rory O'Driscoll

Well, it makes me cringe, but even if I did, actually, you'd be proving my point, which is it's not because—I mean, what you're basically saying is, “Rory, you can win a deal,” not because I've grafted for 30 years and returned, frankly, billions of dollars to my investors, but because I'm on a fucking pod.

If that sentence is true—if that sentence isn't true, then 100% Marc Andreessen was right all along, and he said, “I don't think, in the end, investing is a media business.” But I do believe that—and I'm going to give them enormous credit. I admire people who pull off a strategy, articulate a strategy, and pull it off.

They tilted the table with their media strategy, and here I am on this podcast, in my little tiny, humble way, trying to say, “Okay, this is the new game.” So I do disagree with you, Jason. I think the wall of sound is a combination of the $10 billion, the media presence they generate, and all the things.

I think, at the margin, the bigger funds are harder to beat, and you just have to say that. It's not by any means impossible, but what I'm saying is Andreessen—I think this $10 billion raise, and I think, by the way, the structure of it also makes sense: the 3 different individual funds and then the growth fund.

It makes sense, I think, both for structural investing reasons and probably also for human-capital-management reasons. You can give your chief lieutenants each a little fiefdom where they can feel in charge, which is a good way to keep them. I think the strategy works, and, as I said, provided the long-term returns are there, in terms of tilting the field of play in their favor, I think it's been successful.

Harry Stebbings

I would argue, actually, that there are massive advantages to them. I get you, Jason. We've got $275 million for a Series A fund versus their $1.5 billion. That is a lot more money for management fees to pay great people. That is a lot more carry. That is a lot nicer offices, which founders do get wowed by. Like it or not, they get wowed by it.

That is a lot more events to host where you can have serendipity. There are a lot more things, I think, that scale and AUM buy that do increase returns.

Rory O'Driscoll

One of my favorite expressions is from the Russian Red Army, which is, “Quantity has a quality all its own.” In other words, when you want to take Berlin, at some point what you do is you just get 2 million people willing to die, and you march them forward, right?

Andreessen Horowitz is the Red Army of the venture industry now. They've got the $10 billion, and they're going to march it forward.

Jason Lemkin

But it's not—of course it's $10 billion. It's $10 billion of 30% carry and $10 billion of 2% fees and $10 billion of all this. But when you break apart the funds, I really don't think Sequoia having $200 million is that different from what Harry has, and I don't think $1.5 billion for their AI apps fund—I think it's only twice the scale.

So I just don't think, like air cover, it's an excuse. You have to work twice as hard as they do? That sounds right. You should have to work about twice as hard, but it's not really $10 million and $1 billion, right? When you break the funds up, right?

Rory O'Driscoll

I agree with that. You do have to work twice as hard. As a comment, the definition of a good strategy is having a strategy that doesn't require you to work that hard, right? Therefore, by definition, having $10 billion is a good strategy.

I think the interesting thing—and we said this before—but my bigger concern is this: the only people for whom this might be a net negative are the LP investors, and we don't know that yet. Maybe it'll be a wildly successful strategy, in which case it will run the table.

Or maybe it'll be modestly successful, in which case, in 5 or 7 years, the LPs will start going, “Hey, you know that late-stage fund? It gives me a good return, but it's 12%, 13%, and maybe I can get that in the markets now that there are more IPOs. Maybe we should just throttle back our allocation. We love the early-stage stuff.” Some version of that.

But until something like that happens, for every other player in the market, having $10 billion is better than not having $10 billion.

Jason Lemkin

So that's what the game is.

Harry Stebbings

I do also think, for everyone listening, they don't often understand the stapling that is required to be in these funds. If you're an LP and you want to be in the early-stage fund, very often with top-tier brands, you will have to put in 2 times that into another fund to get that $1 in the other, and you don't get your pick of which fund. Very often, you have to be across all of them.

Jason, you said about this company, Mercor, I think it was. I think it might be a 20VC company, to be fair. Yes, but they announced yesterday they've raised $350 million at a $10 billion valuation, led by the person who led their last round at $2 billion only 8 months ago, which is Felicis.

Now, this company has gone to $500 million in revenue faster than anyone else, I believe, in history. I think it was 17 months. Again, this is not bias. I hate freaking bias shows. I sometimes listen to them. A lot of people say it's not real revenue, it's GMV. I wanted to hear how you guys felt about this round, the speed of revenue acceleration, if it's real revenue. I want your thoughts.

Rory O'Driscoll

Yes. And when you see that, you realize that, intuitively, leaders of venture firms understand the concept of bundling at their core, right? Bundling and rent extraction is fully understood.

Rory O'Driscoll

I mean, it is, quote-unquote, “real revenue.” They ship things, they get paid. GAAP requires you to book it as revenue.

Maybe step back and give people some context. What they do is provide humans with specialist knowledge, and their customers are the large foundation-model companies. They bring this human talent to bear to help the foundation-model companies train the models by providing human feedback. People will have heard RLHF: reinforcement learning from human feedback. These are the humans who do that.

So, if I'm OpenAI and I want to “teach my latest model how to do advanced math,” what I need is a whole bunch of doctorates and PhDs who understand math and are available to pose questions to the model, judge the model's answers, and give feedback on which answer is correct and which answer is not. By giving this human feedback, I think of it as pounding the model into submission, where it eventually says, “Okay, I've learned this shit,” by adjusting the weights.

That's what's going on here, right? We think of this all as happening in NVIDIA GPU chips. There's an astonishing amount of human training required to make these models work. That's the market these guys are playing into, right? Scale AI, which was partially acquired by Meta, is in the same broad market.

These guys—Mercor—have done an amazing job because 5 years ago, as Jason said, I love the expression, 5 years ago we were labeling cats, right? You had people, often overseas, charged with labeling cats and not getting a lot of money. I think Mercor realized that the market today is not labeling cats. It's answering complex physics questions, math questions, and biology questions, because the models know how to label cats now. What they need to do is reach the outer edges of human knowledge.

So it's a very different set of humans that you need, and Mercor did an amazing job of assembling all of these high-end folks and making that product available to the model companies. That's what they do. In that context, the growth rate isn't surprising, because these model companies have grown faster than any company in human history.

They're spending $300–400 billion on compute. They're probably spending $3–4 billion on RLHF, and they were spending zero 5 years ago. It's an explosive-growth market. It didn't happen in a vacuum. This happened because our customers want our stuff.

Harry Stebbings

I actually obviously spent quite a lot of time in the market, which will surprise you, Rory, to hear that I've been thinking about markets more deeply. It all started with talent acquisition. If you got the talent and could provide it, fantastic, we'll pay you. That's pillar 1.

Pillar 2 is get the talent, number 1. Now we want data acquisition: you provide it to us, not we extract it. You provide it to us, and then you measure the quality of it too. That's the second pillar. Now we're adding the third pillar, which is the implementation layer. We expect you to not only do those first 2, but to implement it efficiently and make sure our models get off the ground more effectively.

With that, you also see increased pricing and the willingness to spend much more from the model providers. The other thing I will say is you have concentration of buyers unlike any other industry. 2 buyers account for 50% or more of every one of these labeling providers' revenue. So there is real revenue concentration there. They're high-quality customers, but you do have that dynamic as well.

Rory O'Driscoll

Agreed. And that was well put because it makes it an interesting question from an investing perspective. On the one hand, there's nothing better than a customer who's well-funded—we just agreed they're well-funded—who's got an urgent and compelling need to get a bunch of stuff done that you can help them with and wants you to grow with them.

What you're saying is exactly right. OpenAI and all these people, 5 years ago, had simple requests. The more the complexity goes up, the more you meet that complexity as a vendor, and Mercor has done that in spades, the more revenue they're going to give you. So they're going to be shoveling money at you because you're solving their problems.

They've got a lot of shit to be solving. They don't need to be thinking about this. “Mr. Mercor, if you can make this go away and get me 500 doctors and this data and this answer and integrate it into our system, I will pay you money, because money I have in spades. Time I don't got.”

Jason Lemkin

For sure, but I've got to imagine you guys, and especially Harry, would know better than me. It may not be stress-free. I have a portfolio company that was doing a vaguely similar attach to a large AI base model, where the contract was growing to 8 figures. That renewal was stressful AF.

Once you get to 8 figures, I know these guys have more money and time than engineers, but there's a point where you turn around and you say, “Maybe we should do a little…” OpenAI's building its own chips. I'm not saying this happened at Mercor or Scale. I'm just saying Harry's point about having to radically go up the value chain is both more revenue and more stress, because I don't think anyone's just shoveling money at Datadog and Mercor without even thinking about the margins.

Rory O'Driscoll

Jason, I totally agree, and that's what makes the venture fun and challenging. You look at the checklist and you have 1 enormous positive: a great big, honking market growing like a weed. You're exploding.

Then you've got 2 negatives. The first is your margin profile is not amazing, because gross revenue is $500 million, but you give 70% of it to the doctors and mathematicians who are doing all the work—whatever it is, some percentage. I'm not going to speculate.

The second fact you have against you is massive customer concentration. At some point, they're going to say, “Hmm, giving you $200 million, which means you're making 30% on that, $60 million. Hell, maybe do it for 40.”

You'd prefer to be OpenAI and have 800 million customers than to be Mercor and have 2. When you look at those positives and negatives, what you say to yourself is, “This is fundamentally a bet that the AI CapEx train will keep running for 2, 3, or 4 more years.”

Jason Lemkin

Is that enough? Is 2 to 3 years enough to justify $10 billion?

Rory O'Driscoll

Well, whatever. At least. You're right, Jason—at least 3 to 5 years. In other words, that it's a permanent new thing at growth, because OpenAI is not going to focus on getting efficient until it's dealt with hypergrowth.

As long as it's not getting efficient, you probably can lean in. If it slows down, then the positive, which is the growth rate, goes away, and then all the negatives come back to bite you. So if you were to say to a public or a hedge-fund guy, “Find me a bet that had the maximum exposure to hyper-AI CapEx growth,” this would be right up there with NVIDIA as a, “Yeah, I like this risk, man.”

Harry Stebbings

If you're doing this at $10 billion, what are you underwriting it to? What does that math look like?

Rory O'Driscoll

As we're going to discuss later, you should be underwriting anything to a 3X, so you've got to be at $30 billion to make it worth your while. I'm just doing the math in my head. Even at 5X revenue, my God, that's $6 billion. You're underwriting a lot of training data. That's the sobering thing.

Jason Lemkin

In the short term, if they're at $500 million, at a $10 billion valuation, growing at an unprecedented rate, we're all ignoring gross margins in 2025. It's only 20 times revenue. It doesn't seem—

This is where we're actually seeing multiple compression, right? Which we talked about with Cliff and others. He doesn't like the multiple compression at Canva, right? At 20X ARR, was your last deal lower than that, Harry and Rory? Higher or lower than 20X ARR, the last deal you did?

Rory O'Driscoll

It was higher. And I'll admit, Jason, you're exactly right. You said something else that was really insightful. There's 2 modes of thinking about an investment, and I think it's really insightful, Jason. There's 1 mode that says, “Pencil me out the next 5 years.”

Jason Calacanis

It was higher. And I'll admit, Jason, you're exactly right. Actually, you said something else that was really insightful: there are 2 modes of thinking about an investment. I think it's really insightful, Jason.

There's one mode that says, “Pencil me out over the next 5 years. How do I think about the end state? What market do I have, and therefore, what return are you underwriting?” I think if you assume 5 times revenue and you want to be at 3X, you're underwriting $30 billion, which means $6 billion in trailing revenue, which makes a man pause.

On the other hand, you can say, “It's growing 5X, and if the multiple just stays constant and it grows 5X for another year, I'll be 5X up.” In fact, that's just what happened on the last round. It was at $2 billion, at $100 million, and now it's at $10 billion, at $500 million.

So the near-term revenue traction is saying to everyone, as long as this keeps happening, you can grow it really quite quickly. You look back now and, because we're talking about whether it's worth $10 billion, you give them credit. You now look at the $2 billion that somebody paid 6 or 7 months ago, and you're like, “Oh my God, that seems cheap,” because you're at $500 million already.

When high growth happens, it's tempting, and it often pays to lean into that growth. Very quickly, just like I think the Anthropic round at $67 billion earlier this year now looks dirt cheap. If the hypergrowth comes at the size of growth we're dealing with now, which is not, to your point, Jason, triple, triple, double, double—it's, I can't, I don't know what the word is, but quintuple, quintuple, decuple, decuple. You know? I don't know, right?

If you grow 5 or 7X, you can grow into almost anything. So this whole thing, top to bottom, is one big-ass bet on AI CapEx hypergrowth. As long as it keeps happening, I don't want to quote Chuck Prince, but we all know the quote.

Harry Stebbings

No, we don't.

Jason Calacanis

Oh, you're young then, Harry. Chuck Prince famously said in 2007 at Citigroup, in some version of, “As long as the band keeps playing, you gotta stay on the floor and keep dancing.”

It turns out he should have stepped down and not danced anymore, obviously, given the way 2008 happened. In other words, it's the quote of when things are working: everyone just tends to lean in.

Harry Stebbings

Well, when things are working, everyone just tends to lean in, baby. Ramp is a fundraising machine. They raise every few months. Reports are that they're raising a new round at a $30 billion valuation, reportedly.

What are they doing with all the money? Do they need it? Is this a game of customer acquisition and brand? Do we just do rounds now to continuously stay relevant, to Jason's point?

Jason Calacanis

We talked about this a few weeks ago on the last raise, and I have nothing to say. I feel like I just made these comments. It does appear to be a combination of insane demand for the stock, an ability to use that to create this aura of inevitability, and, to some extent, as I remind you, this is, more than most companies, one where constant growth requires lots of capital because you're in a capital-advancing business.

So, for every dollar you add of revenue, you probably have $5 of capital, because you've got to finance purchases, because you're effectively recreating Amex. It may well be—I haven't seen the numbers—that there's a larger demand for capital here than the average deal.

I'm sure they can leverage some of that, but if you're going to $1 billion, you probably have a $5 billion balance sheet. I remember doing the math at one point in time, so if someone's lending you $4 billion at that point, they're probably going to want a $1 billion equity cushion.

To me, going from $23 billion to $30 billion, I don't even consider it an up round. It's not enough. Let's say I was a seed investor. I've probably had a ton of dilution, okay? So let's imagine I'm down to 2%, which would be great. I have a $400 million position at the last round, right?

Now it's worth $480 million after dilution from this next round. I mean, it's a lot, but it's not doubling my position like a classic round is. These little rounds—$22 billion, $25 billion, $30 billion—and then maybe not at Ramp, but with a lot of AI companies, there's a lot of dilution or a lot of other factors, right?

You could see 10% annual dilution in these companies or more. You might go from $22 billion to $30 billion and have the same price per share. It's possible, right? I just don't really care about these micro-step-ups that look great. You're like, “$30 billion.” Well, if the last round was at $10 billion, impressive, right? If the last round was at $3 billion, like Mercor, very impressive. Here I'm like, “Meh.”

Rory O'Driscoll

That's cute, but I'm pushing back. Another spin on what you're saying is that, with the exception of the new AI companies, that probably is the kind of IRR you should expect to get in a mature growth private company.

One of my insights over the last—I mean, sometimes I just realize the obvious—is that there's really early- and late-stage venture, and then there's venture for companies that already could comfortably be public. I think we need a different word for that. It's not even late stage. It's private as public.

Ramp could just as easily be a mid-cap stock at this point in time, public, right? You don't expect mid-cap stocks to gap up 3X in a year. You expect the overall market to go up by 11%. The best companies grow at 30% or 40% year on year.

So I look at this and go, there's no reason to assume that the return to the stock should be different just because it's held in a different corporate structure. The company is the company, independent of whether it's public or private.

The reason I mention this at such pedantic length is that I think, as you think about these late, super-late growth-fund things, the return they will realistically get, absent the AI lift, is some version of what the small-cap, high-growth public-market return is.

So for those guys, because you're going in, Jason, with what is correctly a venture rule of thumb, even on a late-stage company—a company doing $50 million and going to $100 million—it should be that 2–3X step-up from financing event to financing event.

When you're doing $1 billion, you're near profitable, you should be public, you're going to see these much smaller percentage step-ups because you really are a different asset class. Your public stock's hiding in private, which is why Stripe's most recent change was from $91 billion to $110 billion. It's the same kind of thing.

Jason Lemkin

But you just said we were still underwriting. Harry asked you what we're underwriting to. You said at least 3X. So if I'm underwriting to 3X and I did the last Ramp round at $23 billion, it's not really getting me to my 3X, is it?

Rory O'Driscoll

No, but Jason, you are, dare I say, confused about your pronouns. You said, “We're underwriting.” You're underwriting to 3X; I'm trying to underwrite to 3X.

If you're running money doing companies at $30 billion pre, you're probably not underwriting to an overall 3X on your fund. Now, you might get the most iconic company of its generation. OpenAI will give you a 10X. But I don't think you are underwriting to a 3X when you're doing ultra-late-stage, billion-dollar-revenue runway at $30 billion valuations.

And you're definitely not underwriting to a 30% IRR. So this is what you get. Again, going back to it, there's no reason to assume that just because the companies are still private versus public, you should get more return than you would have gotten if they were public.

Jason Lemkin

I'm with you. My only meta point is—and Harry's made this in the early days—like the massive dilution at Anthropic and others, right?

Rory O'Driscoll

Totally.

Jason Lemkin

I'm just less excited. I've found that things that move the needle for my little portfolio—some of these headline rounds don't always do it. It's not always that simple, right?

It could be that years have gone by. There could be massive increases to the round and massive dilution. You might have forgotten that the last round was pretty high too, back in 2021. You might even be flat or down. It looks great, but they're not always as sexy for the IRR or the markup as you might expect. That's all.

Rory O'Driscoll

I totally agree. That's because you're busy trying to turn $10 million into $100 million or $200 million, but there's someone else out there who is very happy to turn $1 billion into $2 billion. Very happy indeed, and is going to make more money than you, just to make it even sadder, dude, right? Way more money.

Jason Lemkin

Way more money. And keeping your IRR above 40% is not easy. Later in the life of the fund, it gets really hard, right?

Rory O'Driscoll

Agreed. For those guys, it's a different game. The aha is that the 2 biggest changes of the last 3 to 5 years have been the advent of what's happening in AI and the transformation of the late-stage and IPO marketplace to this ultra-ultra-late stage, where companies are way beyond the IPO threshold and still private. Those are the 2 biggest changes in the game.

Harry Stebbings

I completely agree. On the second, I go back to Jason's point on the modest size of the Andreessen funds, because when you take the $6 billion growth fund minus fees, you're at $4.8 billion. You've got 22 $100 million checks. It's not that much. It actually feels very reasonable in terms of size.

Jason Lemkin

To their credit, in that chart that went around, they did do a good job of recycling.

Rory O'Driscoll

Well, I mean, Jason—

Jason Lemkin

They did an excellent job of recycling.

Rory O'Driscoll

And recycling is good.

Jason Lemkin

So we can assume they get the full $6 billion out, but fair point. It's not a lot of checks.

Harry Stebbings

David George is very, very good. I'm always impressed by him. I want to move to spray and pray. There are different models of venture. You can be concentrated, or you can be spray and pray.

Spray and pray, for those who don't know, is obviously having a broadly diversified portfolio, investing in lots of different companies rather than a few companies with more money. There's always a question of: does spray and pray work? There was some data released by Carta. What did the data say, and how do we think about spray and pray today?

Rory O'Driscoll

I disagree. I read the data. I also read, Jason, your blog—the blog post on SaaStr. I think your characterization of spray and pray is wrong, to be very direct.

Let's start with the comment. The Carta data was awesome and very pleasing. Stepping off it, what it told people, for listeners, is they looked at all 547 2018 Series B investments, and then they did a histogram of where they come out: less than 1X, 1X to 2X, 18% of them greater than 5X, about 10% of them greater than 10X, and 1 deal, Figma, returned 100X. That's a pretty sizable chunk of information. What's it telling you?

I find it really interesting because, in fact, we typically do As and Bs, and I was very happy, actually, by the way. It was exactly what the distribution for our fund model, we think, has to be, which is 30%—they were actually 35%; we would have said 30%—less than 1X. We do wider buckets: 1X to 5X, 50%; they broke that into 2 buckets; and greater than 5X, 20%. So the distributions on 547 deals match pretty much what we're saying, right?

The interesting thing is, if you hit those 3 buckets correctly, the blended return, I know it from our fund model, is 3.7X growth, 3X net to the LP, right? So if you look at that business, if you look at all those things and you get enough slots in each of the buckets—the good buckets, the 5X bucket and the 10X bucket—you end up with a 3X net to the LP.

The first piece of good news is, if you do it right, the return was available to you. The interesting thing is, to your point, is the right strategy spray and pray? That's why I was jumping back on it. I don't think that's what it said. I think it says you've got to pick very carefully, because obviously if you do a lot of deals, I mean, looking at the same data, Jason picked on the negative, which is two-thirds of all deals are less than a 2X, which means they just don't help. Correct, Jason? That was the point you made in the blog.

And what it says is picking is so important.

Jason Lemkin

Yes.

Rory O'Driscoll

But did it say that?

Jason Lemkin

I—

Rory O'Driscoll

No, your blog didn't say that, but I'm saying I think the data says that.

Jason Lemkin

But here's the thing. First of all, you're right. To me, the data was shocking as someone who is a concentrated investor, because this is scary risk for me, but it did blend out to 3X net. Plenty good, right?

So you're right. But at Series B, everyone thinks they're a great picker, don't they? This isn't pre-seed. Everyone's a great picker at Series B, right? Does everyone have the same logarithmic distribution across these deals?

Rory O'Driscoll

No, they probably don't. I'd say 3 things. Everyone thinks they're a great picker. Not everyone is a great picker. But the third sentence is, you have to be a great picker to win.

Faced with this opportunity set of 547 Series Bs in 1 year, right? That's a very clear data point, right? If you're not a good picker, you will end up with more. Remember, Jason said a different set of buckets, but his buckets are scarier. He said two-thirds of all these deals are less than a 2X, and that's on average. If you skew to 75% or 80% in that less-than-2X bucket, your math doesn't work. And it's not that hard to be that bad, because on average it's 66%, is my point.

It requires a fair amount of discipline in picking to pull this off. I don't think the spray and pray strategy would work here. It might work at seed. I'm not as familiar with seed. But here, the cost of spraying just gets too high.

The only way it does work—and I can see Harry doing his “I don't agree” face—is if you think there are actually 3 approaches. There's picking, there's spraying, and then the third one, which someone big like Andreessen can do, is optioning. You can spray if you're just doing options. But if you spray and that's the only way you make your money, the probability of being wrong is just too high.

Harry Stebbings

So that's exactly what I was going to say, which is actually in reference to an amazing graph that was released a month or so ago about seed bets by multistage firms, and Andreessen did 72 seed bets compared with Sequoia, number 2 at 27. And exactly to your point there, Rory, you said you can't win without being a great picker. I'm not saying Andreessen are not great pickers. I'm not saying anything against them, but you can if you have 72 option bets.

Rory O'Driscoll

Agreed. There are 3 strategies: spraying, picking, and optioning. And the beauty about optioning is, when you can option, you can afford to spray more. Optioning allows you to spray more, right? You're exactly right.

No, I think it's super clear at every stage, and again, it goes back to the structure. Once upon a time, you thought seed was all about option value and anything beyond that wasn't. Because we're dealing with gargantuan sums of money, it is now plausible that, for some people, As and Bs are partially options.

And really, if you're going to deploy $200 million in the growth round, you don't want to be totally slipshod at the A and the B, but you can think of it as more option value, right? And that's absolutely a superpower that a wall of money gives you.

I can't afford to do that, because most of my money goes in on my initial round. At most, 50% to 60% comes in follow-ons. I can't afford to be wrong on two-thirds of my money to be right on one-third. That's not going to make me a dollar.

Harry Stebbings

Do the ever-expanding outcome scenarios we're seeing today not favor a spray strategy? Before $30 billion was an insane valuation for a company. Now we're kind of like, “Meh” with Ramp, “Meh” at $10 billion with Mercor, and we're not blown away by it. The outcome sizes are getting so much bigger.

Does that not favor a spray strategy? Because all that you need to do, if you're early, is just get into the winners. Who cares—not who cares, but $500,000 or $2 million, it doesn't matter. Spray the $500,000s, because the only thing that matters is that Mercor and Ramp, and everyone else, are in yours.

Rory O'Driscoll

No, because what you're doing is taking a plausible theory and extrapolating it to the point where it no longer holds true. You can spray as much as your bankroll will allow you.

Well, step back. You could be talking about 2 things, Harry, and you have to break them apart. Are you saying simply spray because I'm not going to make my money on follow-ons—but it's the seed argument: I have to be in the very best deal, and I have to cover wide versus concentrated to do that?

Harry Stebbings

Mm-hmm.

Rory O'Driscoll

Right? And that's 1 thread. And then the separate thread would be, how much easier is the spray constraint if I also have option value at the back end? And that's easier. There's no doubt.

Let's agree to the following: the more option value you have at the back end, because you have a $10 billion fund, the easier it is to spray, because you can amortize the cost of the losses over the 1 winner. Provided you get to stick $500 million in the winner, the rest is noise.

Harry Stebbings

But if you're a seed fund and you're David Tisch today—who, and he won't mind me calling him out, explicitly does, respectfully, spray and pray—he does 50-plus companies in a portfolio with low ownership. But, my word, he is in some of the biggest companies, including Ramp, consistently.

Rory O'Driscoll

Again, going back to the Carta data, what I like about Carta is it's actual data, not words. There were 547 Series Bs in 2018. I'm going to guess that implies 800 As. That probably implies 1,600 seeds.

So even what you are pejoratively calling “spray and pray” is doing 50 deals out of 1,600. There's still a huge element of picking involved in that.

The only people on the planet with a structural business where they can de-emphasize picking because they can write option checks at scale are at Y Combinator, because they have a structured advantage in terms of their economics. They are the only people who've built a mass-production seed business.

But for everyone else, if you're trying to pick even 50 and there are 1,600 places, and we know that at the B, only 500 of them get to the B, there are 1,100 places to put that money that doesn't work out.

It'll always be true that if you pick the single largest outlier in any vintage—like if 1 of those deals was Figma, where the B made 100, then probably the A made about 200, and the C probably 400 or 500—of that order of magnitude. The numbers are available.

Even if it's 300X, if you did an index and did every deal, you made a 300X, and you did all 1,600 deals equally, it's only a 0.2 return. Do you understand me? In other words, if you put a dollar into everything, your Figma check doesn't, quote-unquote, “return the fund” if you did the whole industry.

Now, maybe an OpenAI would. Maybe there is 1 deal so big that it would literally return the vintage, such that if you just bought the entire vintage, you're good. That probably happens once every decade or 2.

Most of the time, even at the seed stage, you can't just say it's spray, is my point. There's an element of picking up and down the stack.

Harry Stebbings

I get that.

Rory O'Driscoll

I mean, it’s funny. I was remarking on the Jason headline: only 1 in 3 deals double investors’ money, per Carta data. It’s so sobering. It makes you remember how much of this business is disappointment. You remember your deals, your 10x’s, your 15x’s, and your 20x’s, and you just forget.

Harry Stebbings

Do you become numb to it, Rory?

Rory O'Driscoll

I don’t. I get all sad. I’m a bit lame.

Harry Stebbings

I had a shit outcome this morning, and now I’m really upset by it.

Rory O'Driscoll

Yeah, you get vested.

Harry Stebbings

I had the worst, which is when a company gets bought by another company and you get stock at some insanely high price.

Rory O'Driscoll

Ah.

Harry Stebbings

I mean, it’s just the worst.

Rory O'Driscoll

That’s not the worst. No, the worst is you’re on the board, you try to sell the company, it doesn’t close, you’re on the hook for shutdown costs, and you have to wire $300,000 or $400,000 just to pay severance costs, which you should do as a board member and are probably legally obliged to do. Then you write that money off straight away because you waited too long. That’s the worst.

Harry Stebbings

Wow. I thought my day was bad. That’s perspective for you, kids.

Jason Lemkin

That’s why I just do everything on a SAFE. I have no rights, no visibility, and no financial statements.

Harry Stebbings

Nothing.

Jason Lemkin

No understanding of anything. But if it goes south, I can just ghost them.

Harry Stebbings

Are you serious, though, Jason?

Jason Lemkin

What? No.

Harry Stebbings

About just doing everything on a SAFE?

Jason Lemkin

No. But the SAFE does have some comforts. I do like the post-money cap as a seed investor. I don’t have to worry about the pool or other things, and I like the fact that it’s a minimum commitment.

I don’t always love being the only guy on the cap table, the only director. The SAFE is like, “Listen, I’m only sort of committing, guys. Good luck to you. If it goes great, I’ll invest some more. If it doesn’t, I’ll write cheery responses to your monthly updates. But you didn’t ask me to get married and commit, so I’m not committed.”

You think I’m joking, but the stuff Rory talks about is awful, right? This end-of-life stuff, or a decade of a struggling company where you’re on the board. I’ll take the SAFE over that because the commitment is low. If you’re going to raise on a SAFE, you can’t expect too much.

Harry Stebbings

Speaking of commitment and marriage, I’m really intrigued to hear your thoughts on this one, Jason, because you’ve said, “I encourage founders to sell. I encourage founders to sell when the offer comes in.”

Jason Lemkin

So there are no regrets. So there are no regrets.

Harry Stebbings

Synthesia, one of the hottest, fastest-growing AI companies, is now at $150 million in ARR. They reportedly turned down a $3 billion offer from Adobe to be acquired, and they’re going to be raising a new round at well north of $3 billion following this. Jason, if you were on the board, would you have told them to sell for $3 billion?

Jason Lemkin

Yeah, I would have told them to sell. Yes. I’m not saying it’s the right decision, but he’s been at it for a while. Synthesia is one of these stories, like Replit and Vercel, that blew up with AI. But it’s a journey, right? There’s competition, and it’s been a while.

I would tell him to take it unless you’re 100% sure you’re going to build a $20 billion public company, or a $10 billion public company. If you are, do it. But I like to stress-test it. I’m not saying that’s the right thing to do, but I want to be the guy that gives that advice.

Harry Stebbings

$10 billion or $20 billion? Because those are 2 different outcomes.

Jason Lemkin

Even $10 billion isn’t really worth it for a founder. It is worth it for the VCs. Accel gets another play, right? Here’s the issue: $3 billion to $10 billion is a huge difference for Accel.

Let’s say they own 15%. Out of what, a $450 million fund? Who knows? Let’s make it up, right? Instead of a 1x fund returner, it could be a 2x or 3x. You make that bet as a VC all day long, right?

For the founder, let’s say he owns 10%. What the hell’s the difference? There’s no difference. We’ve had billionaires on our podcast. You’ve had billionaires, Harry. I don’t think Jeff Lawson would be living a better life with half the money or twice the money. It’s the same dude.

There’s a weird disconnect between $3 billion and $10 billion here for VCs versus founders, because 1x your fund and 3x your fund is a lot more carry.

Harry Stebbings

With Accel and Index, you’re absolutely right. They’ll absolutely take the risk for another turn because they have the luxury of doing so. They don’t need to return cash to LPs in the same way that maybe other managers do. If you’re not a tier-one GP, though, you’ll want to provide DPI to your investors.

Jason Lemkin

I don’t believe that.

Harry Stebbings

That’s just—

Jason Lemkin

I don’t believe that. I don’t see it. I’ve asked my LPs. I’ve asked a few others. If you’re a strong manager, if you have a track record, and their goal is not a 3x seed fund, but they really want 5x or more out of you, they get that the game is you have to keep playing another card.

I’ve asked my LPs, and I guess it’s a small set: “Do you want more money back?” I even asked my most conservative LP, a small university endowment that has stress. I asked, “Would you want your money back?”

I mean, with the gain, they’re like, “No. We’re just telling you we’re really worried about it. We really want DPI, but we want you to play another card.”

So I think if you tell them, “I seeded into Synthesia and we’ve got a chance to 3x it,” they’re going to tell you to go for it. They’re going to say, “We’re going to trust the fund manager’s discretion here.”

I just don’t know that there’s this massive DPI pressure if you have a hot hand. I think there’s DPI pressure if you have a mediocre hand, in which case, so what? Because it’s not enough DPI.

What the hell is the point of returning 0.2x of your fund? Hooray, I got an exit today. I returned 21% of my fund. That isn’t the full job, friends.

Rory O'Driscoll

So the first question really should be what Jason said: “Victor, I admire Synthesia enormously as a company. We tried to contact them, but they didn’t get back to me. They got the deal done. I’m so disappointed. We have another investment in the space. I love the space. I admire Synthesia a ton.”

The first question is, how do you feel about the business? They said they were at $100 million in ARR when they took the Adobe money in April. If they really have gone from $100 million to $150 million in less than 6 months, then I can make this conversation really quick: there’s no way they should sell, because that thing is exploding.

Jason Lemkin

It’s a good point, and it probably is. I don’t think that’s phony baloney. That sounds right to me.

Rory O'Driscoll

Even if they got doubling growth, it just feels like a good category. There’s a reason we made another investment in the space. We like the category. I think there’s runway there for that kind of human interface to compute.

Rory O'Driscoll

I always tell the CEO, “Now would be a really good time for you to look into your own heart and see how you feel. If there’s something about the business that’s really worrying you and you haven’t told us, now would be a good time to share.” Sometimes stuff comes out, right?

Jason Lemkin

The other reason I tell CEOs this is, first, I would tell Victor to sell at $3 billion, and it’s okay if he says no. I would do it because I wanted to be the guy who had that conversation with him, even if it wasn’t in my direct interest as a gambler.

There’s another thing that’s under-discussed. I’ve had this conversation twice with founders in the last 12 to 18 months in similar situations: are you really an IPO guy?

There was one where I loved everything about the company. I loved the founders. I loved everything. There was nothing negative, and I told them to take the offer even though I didn’t want them to as an investor.

I told them to take the offer because they said, “Are you sure?” I said, “You’re such a great set of founders, but I don’t know if I see you living the public-company CEO life. I just don’t see it. The way you have to do it, the constraints, the stress—I just don’t think that’s what you want to do.”

So I think you should take the deal, because I don’t know if, at Synthesia or Synthesia Prime, you’re going to get another offer like this before the IPO. That’s the thing. You have to assume it’s IPO or bust. Then you’re going to bring in an outside CEO, or you’re going to— it’s just a mess.

That’s the question I have: can you really run a public company? Do you really want to run a public company for real?

Rory O'Driscoll

That’s an excellent question, Rory. Genuine. You’re right. At $3 billion, there aren’t going to be a ton of people coming in to bid, offering $5 billion. You either have to become cash-flow positive, settle down, and become the Collison brothers, compounding privately forever to universal befuddlement, or you have to go public.

The fact, by the way, that being public is perceived by so many CEOs as a pain in the butt is, in my view, the thing about being public that has to change. What you’re doing is allowing this thing to get in the way of people’s entrepreneurial ambitions.

I think you’re right that it’s a pain, and I think it’s a shame that it’s a pain. I hope it changes.

Jason Lemkin

I mean, I was at this Dreamforce Benioff dinner.

Jason Lemkin

It was great, and I saw maybe 10 public-company B2B CEOs we know, all of whom have been on Harry’s show, and Rory’s invested in some of them. It was great, and it was fun. I got some hugs. Believe it or not, I’m a hugger. I don’t give the hugs, but I like to get them.

But, man, the stress on those guys—you could just smell it out of their pores. The weight of being a public company—it’s so heavy today. We could see it when we’d had Jeff Lawson on, and Cliff didn’t have any of it at Canva. He didn’t have any of the weight. It’s crushing.

Harry Stebbings

I have Mike Cannon-Brookes on the show from Atlassian.

Jason Lemkin

Yeah, some crushing weight there, too. I saw it. I saw some crushing weight in that one, right? You saw it, right?

Harry Stebbings

The weight of being the unreasonable man. Yeah, his co-founder calls him the unreasonable man, the guy who wills things into existence, and you could see the weight of that on his face.

Jason Lemkin

And when I look at Ramp, Mercor, and Stripe, these are epic companies, right? But I don’t see that weight yet. I’m not saying it’s not there—it’s the hardest job in the world. Don’t get me wrong, right? But I don’t see the deep crow’s feet and Aaron Levie going gray at 28 or whatever. I just don’t see that level of anvil-level Wile E. Coyote weight on their heads yet.

Harry Stebbings

That will go to something about Anduril and capital efficiency. Rory, I just have to ask you: you said there, “Hey, we tried to get in contact with Synthesia. They didn’t get in touch.” I’ve learned over time that if you want to be in Synthesia, the best thing is just to pay the higher price for Synthesia, not to try to be in the next one.

You said you’ve got another play in the space. Why not just be in Synthesia? And do you not think this market takes the shape most markets do, in terms of composition, where the winner accrues the most value?

Rory O'Driscoll

I do. I think it’s a broad wave. We have a very different product. It’s real-time interactivity versus an asynchronous avatar, so there’s a big difference in terms of the interactions. The company is called Tavus. Basically, instead of pre-recording an avatar saying something or having it read something, you actually have real-time interactivity with the avatar.

At a high level, it’s the same conceptual trend, but I agree. We looked at a Synthesia wannabe at the time—I’m not going to mention the name—and we decided Synthesia is number 1. You’re not in the business of doing modest number 2s. Agreed. So you’re playing the broad trend in a related but different market.

I agree. You never want to do the “Number 1 wouldn’t have me,” or “Couldn’t get into them,” or “They had just raised a round.” You either pay up for the later round. I made that mistake in 2013. I won’t mention the 2 companies, but we had missed the rounds that were the typical-scale round for company A. We actually had a chance, with a lot of networking, to do a very late-stage round in company A, or we could do a more normal-scale round in company B in exactly the same market.

They were the 2 most head-to-head companies I’ve ever done. We did B. We got a 2X. We didn’t do A. We left a 15X on the table. Literally every time we discuss this at the offsite, one of my partners—I love them dearly—the canonical example has become that decision. I’m like, “Am I going to hear about this till I die, people?” Right? I know I got that one wrong, but they’re right. They’re right to mention it.

Exactly. You never want to do the way-behind, exact-same-category number 2 if they’re way behind. It’s just too hard. I remember the week I got that learning. I can tell you exactly where I was when I took those 2 phone calls.

Harry Stebbings

Okay. We can do Anduril capital efficiency. We can do Amazon layoffs. We can do Amazon cloud wars or Oracle debt. You choose.

Jason Lemkin

I feel bad for Roomba, but you choose.

Harry Stebbings

You want to do Roomba?

Jason Lemkin

Kind of, because this whole talk is about how everything’s up and to the right. Poor iRobot gets an offer from Amazon to buy it for $1.7 billion, blocked by antitrust. They raised $200 million of debt to finance the gap, and now it’s all spent, and they’re probably going to go bankrupt.

This is why maybe, maybe, maybe you take the Synthesia offer. Owning maybe a half dozen Roombas over the years, it’s a tough, tough end to a founder journey, isn’t it?

Harry Stebbings

Do you sue the government in that case?

Rory O'Driscoll

No. I think in the UK it’s called Crown immunity. It’s hard. In the UK, you have Crown immunity, where literally governments are protected from incredibly dumb acts because they’re the government. I think over here we have more rights, but still. I’m winging it here now.

I can’t remember: did they actually—if the DOJ blocks something on antitrust grounds, you can take them to court, and those DOJ decisions have been overturned. I can’t remember in this case: did they take it to court, or did they just decide to fold? If you decided to fold, then you probably can’t sue because you had a statutory remedy and you chose not to take it.

Again, zooming out for people, the story here is that iRobot had a deal to be sold to Amazon, and the FTC, led by Lina Khan, chose to block that deal because of, I think, as Benedict Evans said in his piece, an incipient monopoly in the house vacuum-cleaner marketplace. Very tongue-in-cheek, right? It was an absurd decision at the time, and it only got more absurd since because, unfortunately, the poor company, which was a consumer hardware business with all the gross-margin profile that requires, struggled on a standalone basis and right now faces the risk of going bust.

It’s a horrible and unfair outcome for which the government, Lina Khan, and the FTC are entirely responsible, based on an outdated, stupid, and foolish paper and a foolish belief about how things work.

Jason Lemkin

There’s the whole “how antitrust killed the company.” It’s at the edge of the no-politics rule, right, but not past it. It’s also a reminder that when you go into an M&A offer like Synthesia’s, sometimes the acquirer will pay a multiple that only sort of makes sense—a revenue multiple that makes sense for them but that you couldn’t get.

When you get one of these deals, it’s tragic that it died, but you’ve got to take it.

Harry Stebbings

I don’t know. If you’re Synthesia, you’re looking at Dylan Field and Figma going, “God, do I want to put myself in that potential 18-month waiting period, by which time I’ll be $400 million in revenue, being acquired for $3 billion?” No.

Rory O'Driscoll

Exactly. How you said it, you think you’re getting this great multiple: “Oh, they’re paying me 30 times revenue,” but the damn thing’s going to close in 18 months, by which time you might be down to 10 times, and it’s just not going to feel like that much. I don’t think Wiz has closed yet. I could be wrong.

Harry Stebbings

But that’s the crazy one that hasn’t closed. It’s crazy, right?

Rory O'Driscoll

I know. If you think about it, everyone’s like, “Yeah, you got a 2.5X in 6 months.” No, you didn’t. You got a 2.5X in 2 years, right? And this prolonged antitrust process really is kind of sand in the gears to a lot of these M&A decisions, and at the margin probably pushes people to push on—either A, push on, or B, in the case of the crazy deals, when the acquirer only wants the people, then they do the Silicon Valley acqui-hire routine.

But when you’re buying the vacuum-cleaner company, you want the freaking vacuums.

Harry Stebbings

That duration period, though, is also why I think it’s our responsibility as early-stage managers to be much more proactive in secondary markets, because we get cash back way sooner. The age-old thing of a 4X fund over 17 years is the same as a 2.5X fund over 10, and duration matters and time matters, and IRR is king.

Rory O'Driscoll

It’s not the only thing, because look, in this very show, Jason was going, “Oh, it’s only a 30% IRR ramp from the $22 billion to $30 billion.” From an IRR perspective, that looks amazing. So I don’t think IRR matters.

I actually think, for the record, that the correct formulation of the optimization function is the maximization of multiple subject to a constraint on a minimum IRR, just to be a total geek here. Basically, you should know what your target IRR is, and let’s just say it’s 25%. Let’s just say, right? You want to maximize the multiple, provided you don’t dip below 25%, right? That’s actually what you’re trying to do.

For example, a 30% IRR in 1 year isn’t as good as a 25% IRR for 4 years. But if you hold on too long and that 25 starts dipping to 19, 18, 17, then you’ve gone to a different place. That is the rule.

Because in the end, you want the maximum amount of capital to invest, because you are held accountable at the investor level on an IRR basis. At some point, they’re looking at you, they’re looking at the public markets, and they’re saying, “Risk-adjusted, I need me my 20%.” So it is the constraint because it’s what prevents money from coming down the spigot to you, but you’re actually trying to maximize your multiple.

Harry Stebbings

So the shit is hitting the fan at Amazon before we do agree or disagree. 10% largest layoffs in history, 10% of white-collar, that is, Falling behind in the cloud wars, from 50% of cloud revenues in 2018 to 38% today. Raymond James sees Amazon’s AI cloud share falling to 7%. Then we had the outage, billions of dollars in damage. This was a bad fortnight.

Jason Lemkin

You know what? Maybe it’s not fair, but what I was thinking is, contrast this with Sergey Brin coming back to Google and everything else happening. Maybe it was a tough time for your founder to leave and go to Miami.

Maybe it seemed like a very stable time to do a transition, right? Jeff Bezos had been CEO for a long time, but maybe stepping down just before AI hit was suboptimal for Amazon.

Rory O’Driscoll

Yes, or maybe it was brilliant for Jeff, because maybe—

Jason Lemkin

He's off the hook?

Rory O’Driscoll

Because you're implying that, had he stayed, all these bad things wouldn't have happened. It's plausible, just given his world-top-two-or-three entrepreneurial achievement of the last 3 decades. But it's worth pointing out what the 2 big problems they have are.

The first problem is in their retail business. They overinvested for COVID, and now they're trying to replace people with robotics because the technology's there, and that's just something that had to be done. That's more of the same.

In cloud, it's less that their core AWS business has folded up. It's that all the new compute, which is 10 and 20 times larger in terms of demand for these customers, is AI-related compute, and you've neither built something compelling standalone nor partnered—except, to be fair, a little bit with Anthropic. You didn't make a meaningful partnership, and you haven't found a way to get some of that compute.

Jason Lemkin

But he had 4 years. Andrew Jassy took over on July 5, 2021. Bezos checked out right at the peak of the last era, when products were frozen in time for a decade, when AWS was the same product for a year. So were most of the companies we invested in, all 3 of us. In 2021, they were the same products as 2015.

It was a great time to go to Miami because nothing was changing in the world. Stock prices were going up and revenue was going up, but the products were the same. So why wouldn't you retire? There wasn't going to be any change.

Rory O’Driscoll

Punched out at the top. He gets an A++ for market timing.

Jason Lemkin

No, I think he gets an F.

Rory O’Driscoll

Oh, God.

David Cummings

If he sold his company, he gets an A+.

Rory O’Driscoll

That's true.

Jason Lemkin

Yeah. My last deal, Salesloft, in December 2021—$2.5 billion. That was the last deal of the era. Kyle and team get an A+ for timing. This is not the same.

Rory O’Driscoll

I want to congratulate Kyle. Exactly. This is not—

David Cummings

This is not the same. This is punching out in 2021 and not punching back in like Sergey.

Rory O’Driscoll

Cynical comment here, but you're right. When you've got a couple of hundred billion dollars, my guess is you're not maximizing money; you're maximizing psychic pain and joy. My guess is his psychic joy in the last 3 or 4 years doing what he's been doing has been significantly higher than the psychic pain that would've been involved in realizing, A, you've never done a big acquisition in your life and you've got to do a huge corporate deal in AI to matter, and B, all those people you hired in '21, trying to do the right thing for COVID and expand, you've got to lay them off.

Jason Lemkin

I think Bezos would lay off half his company in a fortnight if it was the right thing. I don't think he'd even care.

Rory O’Driscoll

Well, he'll have that chance.

Jason Lemkin

Chegg had to bring poor Dan Rosensweig out of retirement to rerun Chegg. After laying off 80% of the company, they had to bring him back. They've got to bring Bezos back.

Rory O’Driscoll

And, to be fair, one thing we shouldn't do here—and you saw a lot of it with Google, too—is that you don't want to overcompensate. If you look at the 2 problems, there's a bunch of bad news in 1 day, and it is bad. There's a lot going on, including the layoffs.

But again, going back to your position in retail, it's broadly good. I think you've become a little schlocky in terms of the shopping experience, but you have dominance because of your distribution, and you're doubling down on that. You're reinvesting in robotics. You're cutting costs. Amazon wins in their retail business because they can deliver shit faster than anyone else on the planet, pretty much anywhere, and you're doubling down on that. That's a win.

On the compute business, on the AWS business, your problem is that you're not relevant in the new world. So knuckle down and figure that out. To be fair, of the 3 hyperscalers in the pre-AI world, Google was able to be relevant because they had their own model. Microsoft went and rented a model from OpenAI, and now the contract's nearly up. They did it to make a lot of capital gain, but they didn't actually, in my view, really develop something compelling that they own from it. And you did nothing, so you lose.

You need to do something. They've got a set of problems on the AWS side. They have to get AI-relevant without, frankly, doing what Oracle, I fear, is doing, which is taking on a whole bunch of subpar economic transactions. They do have a good slug of Anthropic, not as much as Google, which I think owns 14%, but I don't—

Harry Stebbings

Google owns 14% of Anthropic?

Rory O’Driscoll

Google, yes. Google wins. Again, we should be promoting all these corporate development guys. They're doing great.

Harry Stebbings

Unbelievable. Guys, we're going to do agree or disagree, okay? I've got 3 statements. Rory, you love this. Hide your excitement, Rory. It's too much.

Rory O’Driscoll

It's so out of your ass. I hate it.

Harry Stebbings

Oh, I know the previous hour and a half wasn't.

Rory O’Driscoll

I do research, Harry. That's the difference between us.

Harry Stebbings

Dear. Very fair point. I can't disagree with this. Okay, first one: I would rather own Brex at $13 billion than Ramp at $30 billion. Ramp is at $1 billion in revenue. Brex is at $700 million. They're both around the breakeven-to-moving-profitable phase.

Rory O’Driscoll

And you've given me all the information except the only information I need, which is what's the growth rate?

David Cummings

Brex said 50%. They just said they're growing 50% now. I don't know what Ramp is. This is where my cognitive bias—I'm going to go for Brex because it's lower. I can't help myself. I cannot help myself. I don't have that much money to invest. If you gave me a great deal at $100 million, if you gave me Ramp at $100 million and Brex at $30 million or $40 million, I'm still going to do Brex, probably.

Rory O’Driscoll

I could assign a homework assignment that would make this an interesting discussion. We have all the data points we need: the relative size, the valuation, and the growth rate of Brex, at 50%. The correct question is: What growth rate should Ramp have such that you're indifferent between those 2 prices?

If Ramp is at $100 billion, you probably want Ramp. If Ramp is at $50 billion, you definitely want Brex. It's actually the fundamental question, I would argue, in all of venture: How much extra do you pay for how much extra growth?

If you could buy Brex at $700 million, growing 50% at $13 billion, at breakeven, and Ramp at $1 billion in revenue at $30 billion, there is an equilibrium growth rate that would make you indifferent between those 2 prices. It's actually a very fun exercise because it's the core problem you face over and over again in venture, which is how much extra do you pay for 70% growth over 60% or over 50%? You pay almost 2 to 2.5 times the revenue multiple. How much more growth would you want from that?

David Cummings

This is your job on the show, Rory. You've got to tell me.

Rory O’Driscoll

Yeah, I know. It's hard to think and talk at the same time. Keep going.

Harry Stebbings

You weren't relying on us for analysis, were you, Rory?

Rory O’Driscoll

It's Shark Hour. Yeah, I was. Keep going.

Harry Stebbings

Okay, Andreessen deserves the prize for best-performing mega-platform of the last 12 months. Discuss.

Rory O’Driscoll

They're going to get the prize no matter what I say. It doesn't matter. They're getting the $10 billion. That's prize enough for those guys. They'll be fine.

Harry Stebbings

I've been impressed by them. I've invested with them across the board, and I think one thing that people often say about Andreessen, with absolute respect to them, is that they have so many people, and that almost suggests that they can't all be good. They have so many people, so whatever.

I have worked across the board with the different partners. They are as good as the partners at smaller firms with 3 to 5 partners, and they have been fantastic. I'm a big bull on Andreessen now, where I was not before.

Rory O'Driscoll

I agree. They've been operationally excellent. What they brought to the venture business from 2007 and 2008 on is that they went into it solving the problem from the founder back, with operational excellence, and on that, they've delivered in spades. They figured out what the founder wants. They've aggregated and delivered to him. The return profile of that has been excellent. I've seen the numbers. They've been excellent.

That was the question, and they pulled it off. That's why I think it's smart the way they have—obviously, they've just lost, I can never pronounce the German name, Anjney, but very impressive. I've heard him speak. He's going to do his own thing.

Jason Calacanis

Anjney Midha.

Rory O'Driscoll

Yeah. Super-talented guy. I heard him speak. I'm very impressed. They have a constant churn, and I was thinking that even that's okay because they have a platform that transcends. They'll find other good people.

They have the little pockets to play with, so they can give you your little Web3 world. They can give you Chris' crypto world. Everybody can have their thing. It's just like investment banks, where you're the second co-head of North America. Everyone's got a great title, and Mark and Ben sit at the top, and life is good.

It's a well-functioning scale machine. The take 15 years ago was that venture couldn't scale, and it's TBD how far it can scale, but they've scaled it far more than anyone else would have thought 10 years ago.

Harry Stebbings

When we sit and look at Series A, we don't sit and get frightened by Index or Accel or the big European players. We sit and get frightened by Andreessen coming into Europe. They're the ones who beat you.

Harry Stebbings

Okay. Good to know.

Jason Calacanis

You want to be in the top two choices for a founder at your stage. That's when you win in venture. It'd be nice if you're in every stage and every deal, right? I think Andreessen has elements of that today—a top-two choice in so many stages from so many types of founders. YC has that in a sliver, as do others.

If you're not, it's just a different game than when you're a top-two choice. It's just a different game. That's what you want. So I agree with you. There are only two people who can be in the top two, right?

Harry Stebbings

Final one. Of all the late-stage companies that could be public but are private, I would rather be a shareholder today in Anduril, the hottest at 50. Agree or disagree? And if you disagree, which would you rather own?

Rory O'Driscoll

I'd prefer to be in Anduril because I actually think the mission is great. Let's start with that. I give them huge credit for stepping up to defense in 2017, when a lot of people wouldn't. What they're doing is good for defense, good for the country, and hopefully going to make them a lot of money.

I don't know if 50 times revenue for a defense contractor is as good a bet as 20 times revenue for an Anthropic or an OpenAI, where you've got millions of customers, whereas in Anduril's case, you're dealing with the dysfunction of the government as the major customer.

But just from a genuine standpoint, I think the people who did that early should be incredibly proud of what they've done. They've moved the needle in a very, very hard market, and they've pulled it off. Maybe it's not worth 50 right now, but they've bullied their way into being a prime, and they win. So that's cool.

Jason Calacanis

No. One, I'm not interested in the company personally. Just personally, at this point in life, I want to do things I'm interested in, to a fault. I'm not interested in building weapons and stuff like that. It's just not my vibe.

Two, I don't go to enough parties in San Francisco because if I did—and this sounds facetious, but you know when I'm joking, I'm never fully joking—the word I want to use is that there's no better brag at a party than Anduril, that you did it, right? It's the ultimate Founders Fund brag. It's just the ultimate brag.

One of the psychic benefits of investing is bragging, right? At many levels. There are different types of bragging. There's bragging because I have a sense of worth in my life that I don't have. I'm bragging because I wrote a tiny check, but I'm validated in my soulless job. There are so many levels of validation.

I just don't go to enough of those parties since 2020. But if I did, I'd want to have that one on my chips to talk about at parties. I don't care, and I'm not into bombs and weapons, so I'm out on this one.

Harry Stebbings

The amount of self-knowledge embodied in those last 2 minutes from Jason is just stunning. I mean, the therapy's clearly working, dude. You know, well done.

Jason Calacanis

It's just called being happier.

Harry Stebbings

It's got nothing to do with that. I think it's actually called getting older and wiser. I love it.

Jason Calacanis

Maybe.

Rory O'Driscoll

Listen, guys, on that incredibly hearty note, thank you. This has been fantastic, and I've loved it.

Jason Calacanis

All right. Rock and roll. Thank you, Harry. Thank you, Rory.

Harry Stebbings

Thank you.