20VC：AI 世界里的 Burn Multiple 是不是胡扯｜Sam Altman 需要价值 1 万亿美元的能源｜Klarna、Figma、Stubhub 全线下跌：公开市场正在转向吗？｜Fivetran 与 dbt：整合浪潮即将开始？

This is 20VC with me, Harry Stebbings, and it is my favorite show of the week. Jason Lemkin and Rory O’Driscoll are back to shoot the shit on the biggest news in tech. Today, we have Sam Altman needing a trillion dollars to fund energy requirements that are the same as Japan. We have the largest LBO ever in EA. We have Figma down. We have Klarna down. We have StubHub down. It, it does get more optimistic, don't worry. And it is a fantastic show, as always. I want your feedback. Let me know what I can do to make these shows better for you, harry@20vc.com.

Rory O’Driscoll

There are only 2 ways of pricing a deal. You price a deal on hope, or you price a deal on the multiples. A $15 million-revenue company that's perfectly good and has reasonable growth is actually of zero value to a VC because we're in the upside-option game.

Jason Lemkin

And I hear too many folks leaning in. They're like, “Oh, you're triple-triple, double-double or better, you're golden. Don't worry, kids.” And I think that's terrible, terrible advice in 2025. Terrible advice.

Rory O’Driscoll

Whatever the prize is for being the best company in AI, OpenAI's going to get that prize. Have a great day.

Guys, I'm so excited for this. I always love this, and it's evening time here. It almost feels atmospheric. I've got my questions ready. We're good to go.

Jason, I want to start with one that you just suggested, which was fantastic. ICONIQ did a report, and there was a really interesting takeaway for you. Can you explain what that takeaway was and how we should think about it?

Jason Lemkin

Yeah, they did a 73-page State of Software report. We don't all have the patience for over 80 charts. But the one that kind of hung with me, along with the triple-triple, double-double discussions we've had here—the one that you had from Hemant at General Catalyst, right? What's the point of venture in 2025?—and Rory's other point that 70% of the money's going into fewer than 20 deals.

But this analysis that ICONIQ did was interesting. AI-native companies—the ones we're all so excited about growing so quickly—under $100 million in ARR have terrible free-cash-flow margins: -126%. It's much worse. Non-AI companies are -56%. They're still burning, right? Classic checks.

But because they're growing so quickly, actually, the burn multiple's much lower. They're actually capital-efficient because they're growing so goddamn quickly that even if they're burning a lot along the way—even if they've got afterburners on—they're getting to Mach 10, or whatever it was in Maverick, so quickly that the capital efficiency is better. This is where VC should be putting all their money, right?

Can I interject and just ask for an explanation for those that don't understand why the burn multiple's better if they're spending more? Can we explain it for those that don't understand?

Jason Lemkin

It's basically how many dollars of ARR you get out of each dollar that you're spending. How much revenue are you creating for each dollar of venture capital you're lighting on fire?

It's a weird metric because you could be seemingly efficient and run out of money if you don't have enough money in the bank account. It doesn't mean you're profitable. David Sacks sort of coined it, and I think when everything was the same in SaaS and B2B in 2021, it made a lot of sense. All the companies were the same. They all kind of grew the same.

As you have companies with lower gross margins, at first that kind of broke it. Then VCs stopped wanting to fund everything in 2022. That broke it, and then AI breaks it because we've never seen growth like this. But the margins are lower. A lot of them have token costs. Some don't. We talked about folks like Higgsfield that are somehow almost cash-flow positive at $50 million, or Lovable and Replit that are burning a few dollars of venture capital.

But even if you throw—how much did Lovable raise in the last round, Harry?

$200 million.

Jason Lemkin

Okay, but the point is, oh my God, let's imagine you throw $200 million into Lovable and they're burning $6 million a month. That would shock most VCs, right? But if they're going to add $300 million of ARR, actually, the burn multiple is quite low. It's quite efficient from a company ARR-building perspective.

That's the thought. And then you should put even more of your money into these companies, right? The theory is you get the most leverage out of your venture dollar in these types of companies because you're getting the most ARR per dollar invested.

Rory O’Driscoll

I think there's the old expression about models that's also probably true about ratios and rules of thumb: all models are wrong, but some models are useful. In the same way, all ratios are wrong, but some ratios are, at times, useful.

And I think the burn multiple is a very useful ratio, but Jason said it really well: there's a whole bunch of implied assumptions that go into that, not all of which are true. So if you use it blindly, you're going to blow up, and it's worth disaggregating that. That was a brilliant insight when David coined it, and it really is helpful to compare companies at different stages and get a sense of capital efficiency. But there are about 3 or 4 different assumptions in it that, if you forget them and just focus on the burn multiple, you're going to blow up.

So first of all, let's say what it is. Burn multiple basically says it's a ratio between the amount of ARR you add and the amount of money you spend to add it. So if you spend $2 in total burn for every $1 of ARR, your burn multiple's 2.

And if you think about it—a big, crude comment here—if you're being valued at 10 times ARR, you just spent $2, you added $1 of ARR, and that's worth $10, so you're up. You put in $2 and you got $10 in market cap. So it is a very valid construct.

At that level, it totally works, and obviously this is one of those weird multiples where lower is better. So 1 is better than 2. And there's some idiosyncratic stuff, like when it crosses into positive, it goes into a negative number. It makes your head hurt. We track it a lot internally, so we've wrestled with all those things.

But at a high level, it's a super-good way of comparing companies with different growth rates and/or even just different absolute sizes. Super-good insight.

Embedded in it, though, is a whole bunch of assumptions. One is about—boring economists here—ceteris paribus, everything else being equal. The implied assumptions are that the ARR is real, but we know it's often not. And it's net ARR, so you're taking out churn. But if you're growing fast, you can hide churn because you're churning customers from 12 months ago, which was maybe $2 million, and this year you're at $10 million. So churn is understated, so you can hide that.

Is your ARR real? Is your churn real? It does pick up on gross margin, but again, the same thing: if you're growing hyper-fast and your margins are moving, you're not picking up on it.

And then the last is probably less so for these companies, but definitely true for the AI model companies: it doesn't take into account CapEx, which isn't true for the $100 million ARR companies but is definitely true at scale. And you can't ignore, even in a crazy world, $10 billion of CapEx in a company.

So all those things are why, when you're comparing, it's not like with like. That's one big-picture comment: there's a whole bunch of implied assumptions in there, which is why, even though we love those kinds of metrics—and the one, Jason, you mentioned, that we were chatting about before, that kind of magic number, which is a sales-and-marketing metric we actually coined back in 2004—they're all good metrics, but we've actually come back to saying there's a real advantage in seeing the GAAP revenue accounting also, to make sure all the money is, for lack of a better word, just showing up for real.

Jason Lemkin

Rory O’Driscoll

So there’s a lot of noise in that multiple, and I think when they were all SaaS recurring-revenue businesses, all seat-based, all with 90%–80% gross margins and no CapEx, all enterprise sales with low churn, it absolutely made sense. You could compare 2 companies. And that’s why by 2019 or 2020, it almost felt like, you know, fill in the form, give me the valuation. None of those conditions are true now. I think it’s totally up for grabs.

Does it, as a framework, carry no weight then, given the volatility of all the different inputs, which mean the output is less reliable? Respectfully, is it even a reliable framework to look back on?

Rory O’Driscoll

It’s a decent framework. We still use it. It’s absolutely a decent framework because there are things you can do to get the same idea. You can look at, for example, delta GAAP. In other words, you can see how the GAAP revenue changed. If you were doing 2 million at the start of the year in ARR and 10 million at the end of the year, the delta ARR is 8 million.

But another way to get to the same thing, to check for, quote, “honesty,” is to look at whether you’re recognizing 2 million of GAAP run rate in January and whether you’re recognizing 10 million of GAAP run rate in December. It kind of checks on that. So there are things you can do to deal with that, but there’s a lot more noise in the system.

You have to worry about churn. There are other issues even beyond that we can come to, but even just on churn, are you picking up all the metrics? Is it forward-looking enough, especially on these trials? There’s an implied assumption. Remember, going back to my simple model, I was spending 2 million, getting 1 million of ARR, being valued at 10 times and therefore creating 10 million of value. If that ARR evaporates a year later, then I didn’t create value.

So the implied assumptions around stickiness—all of those things are up for grabs. It is still useful, but we’re far beyond the stage at which we were in 2019, where you could just plug the numbers into the number cruncher and come up with a rough and pretty accurate estimate of the valuation of a company. We are not at that stage anymore. We are not in Kansas.

Jason Lemkin

There’s a meta question that I think about mostly when times are good and when companies aren’t running out of money, but venture in some ways is an ARR arbitrage, going to your point, right? When you’re north of 10× revenues, venture works. You put in this small amount of money, and the magic thing is we can talk about free cash flow and profits, but the reason it’s a tolerable business is we really get to trade on ARR even through the IPO to some extent, right?

Jason Lemkin

We get to trade on this ARR, and as long as it lasts, it’s a great deal, and as long as the multiple’s high enough. That’s where the leverage is, right? I get paid off this ARR. So if the burn multiple’s attractive, it just makes the whole thing run on afterburners or steroids, doesn’t it?

Rory O’Driscoll

High is bad, low is good, negative is better. But let’s not obsess over the ratio. The real comment I think you’re making is that when all you’re graded on is growth, it’s not easy because growth is really hard, but at least it’s a 1-dimensional scorecard, especially on ARR, right?

When you’re graded on growth plus profitability, which happens to us all at some point in time, it gets a lot harder. Because you’re right, there’s often, especially in enterprise software companies, an ability at the margin to push really hard on the sales and marketing pedal or the free-user pedal, and you get some revenue, but just not commensurate with the marginal spend. As long as you’re just being rewarded for growth, you can do that. But once you have to deliver profitable growth, it all gets harder.

That’s not the shoe that’s dropped yet, but it will. I just want to make one other point on that. It’s just so important. People talk about burn multiple, and they’re like, “Oh, my burn multiple is good.” But they sometimes just forget that there’s also absolute burn and then not having money.

Jason Lemkin

They do forget.

Rory O’Driscoll

Because the implied assumption, again, I remember thinking when David Sacks published it—it’s a very clever comment—is that if you have a good burn multiple, you should, in theory, be fundable. If you’re adding a lot of ARR and you’re spending a lot of money to add that ARR, then in theory you are fundable because you are venture-value accretive.

But that’s a theoretical construct, and cash in the bank is an actual material construct. Sometimes I see people tell me their burn multiple and not tell me their cash balance. I’m like, “So, yippee, you could have a great burn multiple and still be out of cash on Friday. I need to know more.”

So, to your point, Jason, you can’t let the ratios lose sight of just having money versus not having money. You see that behavior sometimes where you’re like, “I don’t care about your burn multiple. I care about the fact that you have less than 6 months of cash. What are we going to do about that?”

Guys, I have many companies with good burn multiples, and they are going out to fundraise now, and they are not getting love. They are not getting attention. They’re going, “Harry, I don’t get it. I’ve been brought up to understand burn multiples, to understand growth rates—what is going on?”

I’m just seeing a very stark, binary world of haves and have-nots. Are you seeing the same? And if you are, what would you advise this generation of founders who have good companies and good numbers and are feeling very confused by a rejected VC community?

Rory O’Driscoll

Wow. It almost sounds like therapy, doesn’t it? I’m confused. I’m rejected.

But on a serious note, it’s a super interesting subject because there’s an embedded set of assumptions in there, which is, at some high level, does no one give a shit about anything that was founded before 2022? That’s really what you’re saying: all these old things, how uninteresting are they?

But I think the high-level comment is that it’s not that simple. It’s not going to be that no one cares. Look at the recent IPOs. Many of them were non-AI-native by definition. The average IPO that just went public was plus or minus 10 years old. By definition, they’re pre-ChatGPT.

So they’ve built perfectly good businesses, capable of going public, maybe getting some lift from AI, but they’re a thing. I don’t think it’s all going to just, quote, “go away.” But I think what you are wrestling with is that we’re in an AI-first world in terms of mental models.

When VCs look at any deal, there are only 2 ways of pricing a deal. You price a deal on hope, or you price a deal on the multiples. When you price a deal on hope and growth, you can lean in on anything, and you can get prices that, quote-unquote, “make no sense” because the growth ultimately comes and it all pays off.

Once you start valuing things on “the fundamentals today,” then you can value a public company because at $400 million, it’s not nothing. But to what we were talking about before we got on, a $15 million revenue company that’s perfectly good and has reasonable growth is actually of zero value to a VC because we’re in the upside-option game.

It’s a perfectly good company. Someone should lend them some money. They should get profitable. But at super-subscale, the mental model of the VC is saying, “A lot of the time, you can’t get from here to a big IPO, and that’s the business I’m in, so therefore I don’t have any embedded option value. Therefore, I can only value on fundamentals.”

If you’re doing $400 million, I could multiply $400 million by 4 and tell you you’re worth $1.6 billion. You might not like it, but I’ll give you the money. But if you’re worth $4 million, you have no value because $4 million is never going to be an IPO, therefore I’m just not going to do it.

Yeah, there are a lot of companies that are going to have to build a much more capital-efficient model. Again, maybe it can make great outcomes, but it’s kind of the zeitgeist, the groupthink that’s not in your favor. I don’t know, Jason, does that kind of resonate?

Jason Lemkin

I think that’s right. I see something that’s worse, to Harry’s point. I think Harry’s point on X was, “Listen, I’ve got a couple of companies that are growing better than triple-triple, double-double, and they have an AI element, and they’re interesting, and they’re struggling to get funded because they’re not ultra-breakout.” That’s a slightly different point.

Not only is that true, I’m seeing something more problematic that’s at the edge of toxic, which is that boards and investor syndicates that I’m a part of aren’t aligned on this. They’re not seeing it.

I’m seeing many VCs that have been around for a while, especially ones that are doing just fine, right? Maybe they aren’t going to every AI hangout in San Francisco or everything. When they hear numbers like this, there’s no concern. I had a portfolio company kind of like this, and my advice to these guys is, “Just take it. If it’s decent, just take it,” because some of these VCs are still living in the past.

They’re still living in the past, and I think they give terrible, borderline-to-inadvertently-toxic advice. They’re still giving 2022, 2021 advice from the corner office, and I think it’s dangerous for founders.

Rory O’Driscoll

Can you clarify that? What are you saying? I’m genuinely asking, which, by the way, speaks to the complete lack of certainty about this issue. Are you saying the bad advice is to need money, to raise money, or not to? I mean, are you saying it’s a dumb thing?

Jason Lemkin

Here’s the bad advice. I mean, Rory, Harry, and my company—we’re at 15 million ARR. Our burn multiple’s good.

Rory O’Driscoll

Yeah.

Jason Lemkin

We're an AI-enhanced mug-making company, okay? It's good, but the TAM is not enormous. But the numbers are there, right? And I see VCs saying, “Don't worry, you'll get the round done. Take your time. Let's optimize around price. Let's see how it goes. There's no rush.”

And then I hear, “Hey, you know, Scale AI wants to put in money at 250 on that deal.” My advice today is: Rory's a pretty good guy, but even if he isn't, take that deal now. I hear too many folks leaning in there like, “Oh, you're triple-triple, double-double or better? You're golden. Don't worry, kids.” And I think that's terrible, terrible advice in 2025. Terrible advice.

Rory O’Driscoll

I agree. I think those are perfectly good numbers. They're, in fact, great numbers, right? And with an upside story, you could fund them. But I agree: a totally non-AI story, if you're doubling at somewhat and you're still so far below a $300 million or $400 million exit value, you're many years away from it. If you can get a deal done, you should take it. You shouldn't be optimizing.

What you're saying, which is good advice, is that if you're one of those companies, you should be getting your funding done and being damn glad to get it done.

Jason Lemkin

Yeah.

Rory O’Driscoll

And it may well be that 4 or 5 years from now, you'll have the last laugh, and you'll be sitting there going, “I told you, you idiots, this is great.” You can email all the guys who turned you down and laugh.

But right now, there was a lot less money for that deal. And it makes—I wouldn't say sense. It's, again, the comment that if you're at $200 million, I can tell a story. I'm going to repeat myself: of the 15 IPOs year to date, 10 of them have almost no AI story. So it's not like you can't make money outside AI. That's absolute bullshit.

But to start today at $10 million and believe in 7 or 8 years of compounding to get you to an IPO 8 years from now, that's a much harder undertaking in a world where everyone feels that AI is the story. So those companies—Jason, you're right—we have one in our portfolio I'm thinking of specifically. You should just get the deal done, raise at a reasonable price, continue to grow, but be capital efficient.

Don't get lost in just your burn multiple. Focus on your cash. If you're right about your business, you'll be right in the end, and I think a key part of being an entrepreneur is being willing to prove everyone right even when they all think you're wrong. But you should operate for the next couple of years as if cash is pretty damn tight and scarce.

Jason Lemkin

I don't think there are any non-AI deals anymore. There's cybersecurity, there's fintech, then there's B2B and B2C. I think that's all that there is in our world, okay? Even if you're not an AI company, you are.

The other thing that's said in the ICONIQ report that just came out, their September report, is that 94% of public software companies call themselves AI companies, and the majority mention their AI agents. Adobe has $5 billion of AI-influenced revenue.

Jason Lemkin

My point is, we're leaving the day where there are 2 types of companies. Now, we can debate what an AI-native company is, but I just don't think most VCs are going to pick up the email or the phone anymore—

Right.

Jason Lemkin

—they're just going to assume everything has an agent. It has to.

Elad Gil

One thing that has really shocked me is the mimetic—and this sounds obvious, given the sheep-like analogies applied to venture—but it's how concerned investors are about going against a kingmaker. Whether it's Harvey or Abridge or any of the king-made companies, we have a couple of companies that are the second or the third, and going against the kingmaker in the Valley is the most unpopular thing in the world.

You cannot get funding. That's obviously very binary, and of course you can. I'm being deliberately binary. But wow, investors are not willing to fund anything if it touches a kingmaker or is in close proximity.

In other words, founders listening: when you raise, raising to deter others from raising is a really working strategy right now.

It's definitely a strategy, and it does have an impact. The closer your customer base is to also being Valley companies, the more it might act as a deterrence, because your customers might also feel that you're the king.

But I wouldn't overstate it. I do see the effect. Maybe there are 2 separate things. Is there a belief in venture that this thinking exists? Yes, I do. I don't fully share it, but I acknowledge that you have to factor it into your decision-making and your risk analysis.

The question is: is it a binary no, or is it something you factor in and then look at the facts? We're the latter. We have done deals where the leader has been funded by one of the top firms, and we've also done deals where you're looking at funding by the top firms and, oh, by the way, they're doing really well. Maybe you're not going to get there. So it definitely is a factor.

Then the second question is, provided that second company can access capital, do the customers give a shit? The answer is that they do in some markets where it's very Valley-centric. If your first customers are also VC customers or VC-backed companies, then you get this feedback loop.

Look, the reality is someone's raised money from Sequoia. They have a big portfolio. They're known to be aggressive. You're like, “Hmm, do I want to compete against that?” If you're selling to oil and gas companies, they barely can tell the Sequoias from their KPs. You know what I mean? So it's TBD. I totally agree with the idea. It's important but not dispositive, I would say.

Jason Lemkin

So what's different now, going to Harry's point, right? VCs have always been less excited about investing in number 2 and number 3 outside of a 2021 bubble. I remember when Sequoia called it the Postmates effect. In 2021, there was so much money to be made that Sequoia decided they were okay investing in number 2 and number 3. Because if you could make billions off Postmates, you didn't have to be in number 1. They called it the Postmates effect.

But people also understand there are different number ones in segments. If you're really verticalized, there are different number ones, and Revolut and Chime are not the same company, right? We can come up with a million examples.

What is a little different in AI is that, in many cases, there's not an established brand, and there's so much change, so much new budget and so much confusion that so many buyers are under pressure and have a desire to make a purchase. They want to buy Harvey in legal, or they want to do something like Clay, which is powerful, but they may not even know what it does. But they know they're under the gun in GTM, and being number 1 is so powerful when people know they want to do something in legal. They've got to do an LLM for legal. They've got to do this AI research for their clients. And they ask, “Tell me who the hell to buy, Harry.”

That will calm down in a couple of years because the leaders will settle down, right? It's why Lovable and Bolt are in a death match, and it's very powerful. They're both at 9 figures in revenue. They won't kill each other, right?

Other folks want to be that brand that nervous buyers choose when they don't know who to buy. I was just talking with someone at Bolt that closed a massive deal against Lovable the other day. They'd heard of both of them, but no one at Lovable called them back. So Bolt became trusted, and they bought Bolt because they were kind of equal on discovery.

But who do I trust? Do I trust the one where the humans are in the deal and helping me, or do I trust the one where it's 90 days to get an appointment? When I was at Adobe, we waited 5 years to implement Salesforce. It's just not happening with AI, right?

Rory O’Driscoll

Two comments on that. One is, if we're actually going to be responsive to Harry's question, you have to separate being number 1—

Jason Lemkin

Yeah.

Rory O’Driscoll

—which I agree with you. In the end, when the money is made, the number 1 makes 67% of the market in a business market. The number 2 makes 20% or 30%. The number 3 makes 10%, and anything after that doesn't even matter.

In a consumer market, it's even more skewed. So I agree: in the end, when the total is written, you want to be number 1 in a segment, and you'd be better off in a subsegment and being number 1 than being number 4 in a bigger segment. I totally agree with that.

Jason Lemkin

Look, if nothing else, if you're not number 1, don't spend like you're number 1. Even if you're growing pretty quickly, like Harry said, if you're the clear number 2 or number 3 and 80% of VCs are going to drive by, if you burn $100,000 a month, you may actually have the best exit for founders, adjusted for dilution and time. But don't be burning $2 million a month.

Which actually triggered something else that I should have said, because I glossed over this, and I think Harry hinted at it. But just to call it out: if 2 companies have $20 million, one from a great VC and one from a less well-known VC, it helps at the margin.

But what I didn't say—and Harry mentioned this, and I want to go back to it—is the thing we're seeing now is that because that first company got $20 million from an awesome VC, 3 months later they get another $60 million from a bunch of people who want to follow the awesome VC. Now it's not a fair fight anymore, because now they got $80 million.

So we're definitely seeing some of that, where it's not so much the money itself that's creating the momentum; it's the fact that the money sucks in more money. In the end, SoftBank proved to everyone's complete satisfaction that money alone cannot make winners, right? It was very kind of them to run that economic experiment and prove the negative.

Jason Lemkin

So it's not, in the end, dispositive, but there's no doubt in my mind—and I think that's what you're referring to, Harry—you are seeing some cases where you go, “Wow, not only have they got a great founder, they've got Sequoia, they've got Kleiner, they've got whatever, but oh my God, there's another $80 million on top of that from other people.”

Now you've got to say, not just, “I do this, put this $20 million in this other company,” but, “Do I think this other company is nuanced enough and clever enough and has a differentiated enough strategy to beat the wall of money?” And if they haven't, then it does cause a pause.

So this is one of those examples, Harry, where—and I do this a bit during the course of the conversation—I end up going, “Hmm, I get that point. I should nuance what I'm saying a little bit.” It ain't as easy. The wall of money makes it a little unrealistic to be pure in saying it's just about the company in today's market.

Do you think we are near peak madness, guys? Or do you think we'll look back and laugh at ourselves for having this conversation, given the might and the size of the markets that we're entering?

Rory O’Driscoll

You mean it'll be so much—You mean it's like—Alan Greenspan talked about irrational exuberance, and everyone remembers that, but it's worth pointing out that the markets kept going for 3 more years and never went back to '96 levels. So is that what you're saying? Is it going to keep going, or do you think we'll be laughing because it's gone backwards?

I'm saying, are we just so fucking peak that we've got 25 millionaire companies being valued at 5 billion, 10 billion, Elias being valued at 30 billion, Mirrors being valued at 10 billion with nothing? Are we going to actually look back and go, “What morons. We're about to see the biggest transition in spend from software to human-labor budgets,” and realize how small-thinking we are?

Jason Lemkin

One of those 2 things has to be true, because that's actually the interesting insight. If that massive transfer of labor doesn't happen, then all these valuations are wrong by an order of magnitude. One of 2 things is going to happen in the next 5 or 7 years, right? Either, A, you are going to see pretty profound productivity changes. You're going to see companies like OpenAI literally being $200 billion to $300 billion in revenue super quickly.

Or option B, AI is still going to be wonderful, but you're going to have a readjustment period that's going to make your head hurt, and you're going to go, “What were we thinking?” Without speculating yet—though we can in a minute—on which of them it'll be, one of them is going to happen soon.

Elad Gil

We're just getting started on what we're going to do in AI in B2B. It is so early. Much like so many of these other waves, the direction is correct. We're early. I feel it. I live it. Two hours of vibe coding—I live it. We've replaced 11 people on our team with AI agents. I can see the future. I think pretty clearly we're just starting.

For venture and for investment, though, not only am I worried about—I mean, we've never had 20 billion-dollar pre-revenue seed rounds before, right? This has never happened, right?—but what I'm even more worried about is that now we're back to the era where, if you have a billion-dollar round, you can't even get in TechCrunch. You certainly can't get on 20VC. There's no way Harry's going to slot you just because you're the 14th company this week to raise at a billion dollars for your AI vertical SaaS company. You're not getting on 20VC.

Jason Lemkin

But when I met Harry, of course you'd get on the next week, right? I mean, if you raised $200 million, you'd get on one of the first 50 episodes. My point, and what I wonder is, are our loss ratios correct?

If, as VC firms—especially with larger funds, but actually I'm just as worried about C funds because they're paying such high prices for such low valuations—we're cool if 80% of our unicorns implode or blow up or, more importantly, just don't make money for venture. As long as we've got it all right, even if those are at 100 or 2X ARR and we modeled it properly, but I'm pretty sure we didn't model it right in 2020 and 2021 for those unicorns.

The B2B unicorns—we did not model them correctly in terms of our loss ratio and expectations. As long as we're cool with the party, it feels almost risk-free again, like it did in 2021. It feels risk-free.

David Sacks

Yeah. I actually think you need to distinguish a little. The valuation and loss ratios both matter, but maybe distinguish them just a little bit more, right? Because I think of the loss ratio as the times you just picked wrong, right? And remember, it's worth pointing out that it's the number of times you picked wrong versus the number of times you picked right.

There was a product that got product-market fit versus one that didn't, right? And if you get that wrong, there's nothing you can do to help. That would be true if all your positive deals were reasonably priced and if all your positive deals were highly priced.

Valuation is separate: you got the picking right, but you can also make a second mistake. You paid up so much that you didn't make a return on those deals, enough in itself or enough to cover your loss. So you've got to break it down. You can imagine people failing because their picking ratio was bad and they just put too much money in bad companies.

Or you can also imagine people failing where all their companies were great, but the prices were so bad that they only made a subpar return, even though they only had a 30% loss ratio, right?

Jason Lemkin

Sure. Sure.

David Sacks

So both things can happen. The sad thing about venture is you actually have to get both things right to make money, because, again, it turns out to be a hard thing to do to make money.

The question today—it's funny because Jason said the loss ratios—I think the question Harry was leading with was the valuations. Even if all these companies are amazing, will you make money in all these companies at a billion dollars? That's one question, and I think the jury's out, because there's an implied assumption there. If, on top of that, your loss ratio starts going up, then you have a tough fund because you have both things going on at the same time.

I also think, by the way, that Alex Wang's acquisition created this very dangerous precedent in venture investors' minds, where they're like, “Well, if Alex is worth $14 billion, Bret Taylor's worth $30 billion, and then xAI's worth $30 billion, and then Mistral's worth $10 billion or $15 billion or $20 billion or whatever it is.” And it creates this kind of tidal wave of justifications for why we should pay entry prices where they are, rather than accepting that Alexandr Wang—

Rory O’Driscoll

Got it.

…just an anomalous event that may be seen in isolation.

David Sacks

Irving Fisher, the big American economist at the time, famously said in summer 1929 that stocks had entered, quote, “A permanently higher plateau.” Well, it turns out he was wrong by 90%. Whenever I hear the word permanent, I'm like, “Hmm. No, no. Permanent. Have valuations permanently changed?” No.

Talking about permanency of value creation or sustainability—Figma is down 63% from its peak since IPO day, now at $53 a share. There are VCs who are still locked up. Maybe times haven't changed that much.

David Sacks

No surprises here. It turns out stocks that open 250% above their IPO pricing probably will go down from there.

Jason Lemkin

You can't be critical of anything about Figma, but it's still trading at—

David Sacks

Well—

Jason Lemkin

The bigger issue is, I think, actually, you could argue that the markets are too generous today, right? The top group of public B2B companies trades at 20 times ARR, only averaging a 30% growth rate. The bar is actually—we're lucky. On the one hand, we have this AI boom. On the other hand, perhaps you could argue that, because of its profitability or whatever, the markets are fairly generous today in ascribing relatively generous multiples to growth that seems fairly modest based on our historical standards. The bar is not that high on ARR growth to have a decent public multiple.

David Sacks

True.

Jason Lemkin

If Figma was trading at 8 times revenues, I'd be like, “Let's all quit. Let's just go golf and live off the fees like 2000.”

Let's not invest at all because the world's been destroyed. But Figma is still at 26 times revenues.

David Sacks

And beyond what Jason said, there's a meta-worry here, which is this: Whenever you're pricing a deal, you're always saying to yourself, “How much extra do you pay for how much extra growth?” If it's doubling, can you pay 20 times? If it's trebling, can you pay whatever? I'm just throwing out the numbers here.

You're doing that, and you mentally have a benchmark. The 10-year Treasury is the benchmark for the financial interest-rate world. In my mental model of SaaS for the last 20 years, the public-company median was the equivalent of the 10-year Treasury.

And the public-company median, as Jason said, up until about 2019, was 30% growth, roughly 6 or 7 times revenues—NTM revenues, right? And then you said that, okay, if that's worth 30%, then maybe 60% growth is worth twice that in multiple, and you could build your little valuation ladder in your head from there. And you're right, Jason.

Today, that 30% growth stock in the public markets is trading at 20 times or 15 times, twice the long-term average. And therefore you say one of two things is true: either it is different because it's more cash flow positive now, or there's some good reason, or even the core bedrock price is wrong, and when that goes down, everything drifts down with it.

Yeah, it's just like when the 10-year Treasury trades—everything that's linked to the 10-year Treasury goes up and down with it, right? If the bedrock—if top-tier SaaS growing at 30%—reverts to 7 or 8 times, which was where they happily were for a decade and a half, and everything else goes down accordingly, it's gonna be a tough day. Go team. That gnaws at me every once in a while.

We have seen Klarna as well be hit; it dips below its IPO price. StubHub was hit massively.

David Sacks

Hard.

Absolutely bombed. Do you think there's gonna be an impact here in terms of people being less willing to go public, with the more recent IPOs facing a harsher pricing environment?

David Sacks

Somewhere Bill Gurley is lighting a candle and saying, “I told you so,” right? In many respects, this is actually good. Actually, cancel that—not even Bill. From the bankers' perspective, their argument is always, “You gotta pay them on the upside, because sometimes they go wrong,” and this is what going wrong looks like.

If you bought some of these at the IPO, you're a hurting puppy, right? If you bought StubHub, I think you've been down a lot, pretty consistently. Klarna traded up and then is down. So what’s the rational buyer of IPO stocks gonna do? He's gonna say, “I actually want a little more give in the valuation to make sure I can get this done. I'm probably gonna want a wider spread.”

'Cause they all price off the public comps, and they say, “Look, I can already buy any one of 10 names at 10 times NTM revenues that are already public. If you're gonna make me buy some new shit that I haven't seen before, that hasn't traded before, I'm gonna pay you 8 times so I can make a pop.” And sometimes it goes wrong and they get a huge pop, but that's the thinking, right? You gotta give me a discount to buy the new thing, right?

Now they might say, “Hmm, I've been thinking. There's more risk here than I thought. 7,” right? And you're gonna see that. So I agree, you're gonna see some reflection in capital availability. I mean, it will impact pricing at the margin. I don't think it's the end of the world. I think the trend is open given the markets, but there's definitely gonna be a little more wariness and a little more focus on price from the buyers.

And then the question, to your point, is what happens on the seller side? Do people say, “I'm not gonna go out 'cause I'm not gonna get my price”?

Speaking of what happens on the seller side, EA is going private at $55 billion, the largest take-private of this kind. Jared Kushner is behind it. I'm just like, wow, that's impressive, Jared. Really, well done for being the broker behind this. How did you analyze that? It's a momentous deal.

David Sacks

It's the largest LBO in history. It's $18 billion of leverage, which feels like a lot for a venture-backed deal. But if this was an industrial manufacturing company, those dudes leverage those things at around 6 times EBITDA. So it's not a lot of leverage if you're a recurring-revenue, boring business, but it's a lot of leverage for a hits-driven games business. So it's interesting at that level.

So, yeah, it's the biggest deal ever. But I gotta say, Silver Lake is part of this, and they've been astonishingly smart in the decisions they've made, from Airbnb to—I think the real killer is the Dell EMC acquisition, where the Dell take-private was a work of genius and has made Michael Dell one of the richest men in the world. So I look at it and I go, “Pretty smart money at the helm. Quite a big-ass deal.”

And speaking of a size that blows you away, I mean, as we said, a large deal there. One of the things that blew me away this week is the sheer size of data center requirements and energy capacity that Sam Altman needs with OpenAI. He would need more energy supply than India's capacity today in 8 years. OpenAI is planning to 125x its energy capacity in 8 years.

Is this sustainable? Is this within his “I need hundreds of billions of dollars more to make what I plan to do”? How do you analyze this unwaveringly infinite, insatiable demand for energy?

David Friedberg

Well, first of all, you're right: the energy demand is an outgrowth of the compute demand, and the compute demand is an outgrowth of their ambition. As long as the revenue keeps growing like it is, and the capital keeps coming like it has, they're gonna be allowed to make that bet. And as we said last week, it's pretty clear that he and the other 5 or 6 people making that bet—and it is only 5 or 6 people—are all gonna make it until some unequivocal feedback comes back to say, “Dude, this ain't working, and you have to stop.” That hasn't happened today.

Will it stop on the road between a roughly $12 billion run rate now and a $200 billion run rate in 2030? I mean, my gut is somewhere along the line it will, but the way life works is if someone's rolled the dice and won 6 or 7 times in a row, he gets to keep rolling. And that's all you can say, really.

I've really internalized this whole debate. You can sit and stare back in wonder, and I actually find myself saying, “What actually do you do with this discussion?” In the end, it's fun to talk about. And each week, as we talk about it, you do what a good little forecaster does: you update your priors based on new information.

And that's what I'm doing literally every week, because we have some version of this discussion every week. And the weird thing is, every week there are some hints that say, “Oh my God, this thing can work forever.” It's typically—and this is my construct—it's typically in the technology. New things like—I’m sure Jason thought—Claude can now code busily for 30 hours with no human intervention. It's amazing shit on the technical side.

Jason Calacanis

I did 3 hours myself. Yeah.

David Friedberg

Nice.

Jason Calacanis

Keep going. It's a big change.

David Friedberg

So it's huge.

Jason Calacanis

It's a huge change.

David Friedberg

And so the technology keeps moving forward, right? So if you look at this through a science lens, my bigger take is that this is all doable and possible. I think if you look through a finance and economics lens, at some point in the next 2 or 3 years, the scale of the ambitions becomes too hard to fund. And you can find evidence of that. And then you pays your money and you takes your choice, and in the end you manifest that bet by deciding whether you wanna buy your puts or calls on NVIDIA.

Jason Calacanis

You ask about power for data centers.

David Friedberg

Oh.

Jason Calacanis

Here's just a weird thing I'm thinking about, for what it's worth. I'm not an expert, right? I believe that Sam's gonna solve this problem. But I believe, like a lot of things, it's hard for us to appreciate the scale of the problem. So just the little $100 billion that he's doing with NVIDIA, just the one they just announced, right, needs more power than all of New York City.

It will only be a couple years before the cities of the future don't even have humans in them. The next New York will all be GPUs and, like, 20 people managing an entire city—a New York City of data, of GPUs. It's not just that it's a data center. It's the output of AI. An entire New York will have 20 people in it.

We will be in this weird future where—how many major cities do we have in the US? 20 or something like that? Half of them now will be just AI cities full of GPUs. Just this 10 gigawatts is more than New York. That's the weird thing. I'm like, what are they even gonna look like? Our country will be dotted with these Stargates that are larger than New York City, with only hundreds of people working in them and the equivalent of billions of digital minds.

David Friedberg

Right.

Jason Calacanis

I think Sam will figure out fusion and the trivial things on the way to get there. But Jesus Christ, half our cities in the United States may all be these massive Stargates with no humans.

David Friedberg

I'm gonna zoom back out to the wider concept and the thing I said earlier about the technology says it's gonna be exponential. I think the economics will grab hold of it. I think what Jason said was a microcosm of what will happen. I think the growth rates will slow more quickly.

I think all the practical realities required to make that much power, to roll out that much data, to sell that much software, to get enterprise to adopt that quickly—I personally think that the rate of adoption forecast over the next 4 or 5 years that's implicit in all these data center assumptions will, in retrospect, prove to be too optimistic. So there. I've crept out on a limb and said it. We'll be revising those forecasts down over the next 5 years.

Well, I feel very stupid, honestly, because I look at $1 trillion required to fund data centers for OpenAI alone, and I'm just like, I don't know where that money comes from. I know we said, oh, there's 5 times the demand for Anthropic's round. That's cute. That's like $50 billion.

David Friedberg

Yeah.

This is $1 trillion for data centers alone, for OpenAI alone. Where is the money? Sovereigns don't have that.

David Friedberg

Well, actually, funny enough, they do. It’s not quite—

No, they’d have to put it all in.

David Friedberg

Yeah, agreed. I was just being precise.

Right.

David Friedberg

Maybe the better point, Harry, is that you’re dealing with numbers at that scale. A trillion dollars is a lot of money. The joke used to be Everett Dixon quote: “A billion here, a billion there, and pretty soon you’re talking real money.” Now that feels laughable, because the real truth is, in OpenAI land, a billion here, a billion there, and pretty soon you’re not talking about that much. We’re talking about a trillion. But with a trillion, you’re talking about real money.

Chamath Palihapitiya

The trillion. Again, I’ve said it many times: I have more and more respect for the way Sam communicates. Simple things said a little bit ahead of time, said more clearly than we realize, including the beginning of Stargate, which I didn’t understand, and why the hell Larry Ellison was there with Donald Trump. I didn’t get any of it. I think he is willing the trillion into existence.

I don’t think the answer’s clear. I don’t think he can get every sovereign wealth dollar, but whatever it is, I think is sufficient. Here’s my view as someone who lives in AI today: I have 12 agents vibe-coding 2 hours a day. If I had to stop, if I had to only use GPT-5 and Claude 4 or 5, and I couldn’t get any more GPUs, run any longer context, or do anything else, it’d be okay. It would be a bummer.

What I mean is, it wouldn’t have to stop, but let’s say it had to slow down because there wasn’t a trillion. So I think Sam is just willing as much of this into existence as possible because of the future. If we come up short, if it’s $400 billion or $600 billion, we don’t have to buy all the GPUs. The world would be okay if they had to last 6 years instead of 3 years, or whatever the depreciation schedule is. So I think he’s willing it into existence—

David Friedberg

I think—

Chamath Palihapitiya

—without it being a certainty, because we can stop at $700 billion.

David Friedberg

I think that’s actually right and quite insightful, and it allows us to make a really important distinction. You see this a lot with the very best entrepreneurs. The sheer act of willing something into existence like this is just amazing. The broad direction they took in 2016 has been entirely vindicated, and it’s entirely probable that the same broad direction is correct for the next 8 years.

And what that means is, as long as OpenAI stays ahead of that train and on top of that train, they’re going to be the winner. Whatever the prize is for being the best company in AI, OpenAI’s going to get that prize. And that’s his job, and he’s doing it better than any other CEO of this decade. It is also equally true, as any CFO who’s had an ambitious CEO knows: just because the CEO says we’re going to treble next year doesn’t mean we should buy real estate and hire people as if we’re going to treble. Maybe we should plan for a double and be ready to hire more if it starts to happen.

The problem is not big visions from the most visionary CEO of our decade. The interesting thing is, if you start valuing NVIDIA as if all that’s going to happen and more, if you start valuing Oracle as if all that debt’s going to be paid off and more, well, maybe we’ll look back and say we saw this visionary person leading us to the promised land with big metaphors like “trillion,” and we foolishly thought it wasn’t a metaphor. We thought it was a PO, and we literally borrowed money against the PO.

I think 5 years from now, that’s where you could be. We said, “Oh, I get it. OpenAI is still the best company on the planet for AI. Its growth rate has slowed to a shockingly small 50% or 60%. It’s fricking amazing. It’s still on $30 billion, growing at 50%. It’s astonishing. But maybe they don’t need a trillion dollars of CapEx this week.” The ripple effects of that will be where the fun starts.

To me, that’s at least as likely a scenario as achieving the full kind of thing. That gets to the metaphor of the CEO and the CFO. We’ve all been on those boards where you have the wildly aggressive CEO and you don’t want to trammel them. You don’t want to say, “Don’t be aggressive,” because their aggression is what made you all this money. But you do want to say, “Please get an experienced CFO who quietly will make sure that we don’t run out of cash, that we don’t actually spend that until we see the revenue coming in.” And that’s obviously what the economy as a whole perhaps should be doing here.

Maybe we shouldn’t be borrowing every dime on the assumption it’s all going to happen. Every time I do this, I say to myself, “How much should I have in the S&P this year?” But it’s been up.

Chamath Palihapitiya

No cash.

I’m thinking less and less right now. I’m looking at it thinking, “It can’t be this good. This has to be a peak.” This has to be a peak, baby.

Brad Gerstner

Yeah.

No, no. We said that about Sam: you earn the right to do the next thing, and he continuously does.

Brad Gerstner

Yes.

And then you also said something about revisiting your priors. I always thought that Zuck earned the right to do the next thing. He earned the right to do the next thing.

Brad Gerstner

Yeah.

And I have to say, my faith in Meta’s AI strategy has just dwindled and dwindled and dwindled. I hold that in stark contrast to them being my largest public position, being very open.

Brad Gerstner

I sympathize. Yeah.

Never bet against Zuck, but I’m looking at Alex Wang, the treatment of Yann LeCun, and how they structure teams, and I’m going, “This is not well run. OpenAI and Anthropic are coming for you. Microsoft and Satya are fucking great. Sundar’s got Google.” Am I wrong to have such unwavering allegiance?

Brad Gerstner

Well, it doesn’t sound like you do. You’re voicing disloyalty here.

Jason Calacanis

Yes. Well, one thing’s clear: he is not the communicator that Sam Altman is. Getting up there with the thick glasses—and I’m going to buy them—and saying things that, if I don’t understand where the hell he’s going and Harry doesn’t understand, not saying he’s not getting there, but good God, if we don’t understand, he’s not one of the great communicators at the moment, Mark Zuckerberg.

He might be a great connector with technology because this Facebook engine is unkillable. But, man, he’s a crappy communicator. I’m not saying his AI strategy isn’t S-tier, but I don’t think any of us understand it—not for the life of us do we understand where the hell it’s going.

I think you can say it isn’t S-tier. It’s a desperate attempt to throw money at a problem, bring in dream talent, and try to throw it together in a way that hasn’t worked, very clearly, very quickly.

Jason Calacanis

Yeah, but he was clear just this week: he’d rather burn the $20 billion in operating income and fail than become irrelevant. That was Altman-level clarity, but maybe not in the way I wanted to hear it. But it makes total sense. He’ll burn every—

Yeah.

Jason Calacanis

—dollar of that $20 billion in operating income to be in play rather than not be at the game, right?

Brad Gerstner

Agreed. I think there’s a lot to unpack in that. You’re right: that statement is the most important. The man who owns, with untrammeled power, the $200 billion-revenue, whatever it is, $70 billion-free-cash-flow business, is totally willing to spend the money. So the bet’s going to happen, because that’s his evaluation of the risk-return.

And then, to the point you’d echoed back to me, when you’re successful, you earn the right to roll again. You earn the right to roll again. I said that, and I stand by that statement, but there are 2 different statements. You earn the right to roll again, which doesn’t mean you were right.

If there was a Kalshi bet—maybe I should check that—that some version of this AI strategy will not produce meaningful revenue despite a $20 billion burn and will look more like Meta VR and less like Instagram and WhatsApp, 2 of the most brilliant acquisitions of the last 2 decades, I’d take that bet. And I’d also be glad to back the leader who got 2—

Agreed. You do, but it doesn’t mean that you rate the quality of their decisions in the way that you used to.

Brad Gerstner

Remember, you get 2 right, you get 2 wrong. The 2 right more than swamp the 2 wrong. If he was just building a venture portfolio, he’d have a 50% hit rate, and he’d have a wild DPI. I don’t get it for this deal, but there you go.

Agreed. You do, but it doesn’t mean that you rate the quality of their decisions in the way that you used to.

Brad Gerstner

Well, you’re right. It’s a harder bet, and that’s why people are obviously vitally important, especially CEOs with untrammeled power. To some extent, the wider comment is that the bet for the last 15 years was riding this brilliant invention that you had in 2003 and just optimizing it. That’s hard, but it’s a lot easier than having to invent a whole new thing a second time.

With the exception of Mr. Jobs, very few people have ever built a whole new thing differently. Because Jason’s right, the zoom-out comment here on risk in AI is not that AI’s going to help us target ads better. That’s in the noise. The big-picture comment is, if you spend 2 hours a day on ChatGPT, that’s 2 hours a day that you are not spending on Facebook, and we live and die on our attention.

So we’re just going to make shit until somehow we get people to come back and play with us. We’re going to have characters whisper sweet nothings in their ear.

Whatever it takes.

1. AI Commerce Takes Shape

How significant do you think it is that ChatGPT now enables a buy-in-ChatGPT feature, totally opening up commerce so users can buy following recommendations and suggestions?

Brad Gerstner

It's clearly a trend they're all exploring. There are 2 different kinds of agentic commerce protocols on this, 1 from Google and 1 from ChatGPT, on how to do this. All companies that are involved in e-commerce are looking at this.

There's clearly going to have to be some monetization of all these free users because, as we just discussed, this stuff is $1 trillion worth of expenses, and $1 trillion isn't going to cover itself. There are only 2 or 3 things you can do with free users: you can sell them shit, or you can sell advertising to them.

They're going to press this button. This is obviously going to happen. I'm sure the other shoe to drop at some point is advertising. It all makes sense because it's 1 of only 2 ways to monetize the free users, so it's going to happen.

Jason Calacanis

I just think it's an experiment.

Brad Gerstner

Yeah, exactly.

Jason Calacanis

I think we'll see a lot of these, and it'll be confusing to us because they'll all get a lot of PR. They'll drag out the Collison brothers or Tobi, and they'll all do joint PR.

But whether, for OpenAI, this is a top-5 initiative or whether this is just another integration at the end of the day, I'm just not sure. I'm just not sure. Is this the future of e-commerce on ChatGPT? We'll see.

There are a lot of arguments that it isn't. There are a lot of arguments that that's not how people buy the hottest shoes or the hottest watch today. There's a lot of data from Instagram and Pinterest talking about how people purchase.

You've got to do $2 billion of revenue to move the needle at OpenAI for next year, right? Will this math add up? Maybe, but if it's not material, it's just an experiment or a feature, right?

Brad Gerstner

I think what you said, Jason, actually reminded me—and you're exactly right—that they tried versions of this on Facebook and Instagram as well. What they discovered is, for whatever reason, people are really comfortable with advertising on these platforms and just less comfortable with purchasing on these platforms.

I don't know if the metaphor applies one-to-one, but it's hard not to imagine that, if you were to pick the thing that would be easier to do, it would be some version of advertising. But we'll see.

I like your comment: we're growing so fast, we're burning so much, that if you're not actually stemming the tide at the billion-dollar level, you may not even matter here.

Jason Calacanis

You've got to think in billions to have a new product, right? You've got a CEO of apps. I think that's a tough job.

It took a little while for Google Cloud and Google Apps to figure out their footing because the numbers were so big, right? Google internally almost made fun of Google Cloud for years because, in the old Diane Greene days, it wasn't even a rounding error, right? It was a distraction.

Now, obviously, it's a force of nature, right? It's a tough job because, if I'm the CEO of apps, I've got to come up with a couple of multibillion-dollar revenue streams that get there in 2 to 3 years. That's nontrivial.

Brad Gerstner

And then, just for context, to say it because I can't stop myself, there are 1,000 billions in a trillion. If you're going to spend $1 trillion in CapEx, you're implying that you have 1,000 billion-dollar— It brings it into scale.

You're exactly right. In my view, it exposes the absurdity of $1 trillion of CapEx. It's going to be really hard to cover that nut.

I do want to discuss 1 very important one, which is Fivetran in talks to buy dbt. Both were super-hot companies. dbt was really super-hot. Fivetran reported $400 million of ARR last time. dbt said before that it was $100 million.

Taking them together, given growth rates, that would be over $500 million if they were to combine. How did you guys analyze Fivetran buying dbt and this combination coming together?

Brad Gerstner

Smart, and I'll tell you why: the products seem to be adjacent, so they make a better-together story. There are always puts and takes 1 level down—how well the customers overlap and that kind of stuff—but at a zoom-out level, this is the kind of thing that simply has to happen over and over again in everyone's venture portfolio.

Because we have 600, 700 unicorns, and we've processed 5, with 15 out the IPO gate year to date, so 20 for the year, that implies we've got 30 years of this stuff to get through. Every time two companies combine, we have the unicorn list.

It takes 2 mid-sized companies—I mean, $400 million was nearly there. This is part of the job venture capital is going to have to do to whip its portfolios into shape to be IPO-able, right? It'll be noisy, it'll be a hassle, and I'm sure there will be all the drama of private-to-private transactions.

Do the dbt investors do okay in this transaction? How do you expect this to play out?

Jason Calacanis

I thought when I saw it—because I tried to do 1 of these myself recently, but I'm not Andreessen Horowitz—the fact that Andreessen is the lead, or close to it, in both deals makes it much simpler on many levels.

Not only does it make it easier to get people together in the conference room, and not only does it mean you already know each other, but just on paper, if Andreessen owns 20% of Fivetran and 20% of dbt and you combine them, it does kind of suck.

Rory O'Driscoll

When you own 20% of a portfolio company and combine it with another leader, it totally makes sense on the spreadsheet—a great outcome—and now I own 8% after the deal. I go from 20% to 8% because I combined them and there's dilution and all this. It may make sense in the real world, but if I own 20% and 20% and I got 20% together, these deals have a million reasons why you should mash your own portfolio together. It just makes it easier.

Jason Lemkin

It does make it easier, but I understand what you're saying. To be clear, what you're saying is, if I had ownership in 1 company but not the other, I have 20% ownership, so I have 20% of the upside. Now you merge, it's a 50/50 deal, there's some dilution, and now you're down to 8%.

That is fundamentally the reason why these deals are hard: the preference stack makes it even harder. But even on an ownership basis, there's a little part of you that thinks, "I have this little at-bat, and if this company takes off, I'll get 20% of the upside." When you do this deal, you're saying, "If this combined company takes off, I'll only get 8% of the upside." So your leverage of your bet has diminished markedly.

I get it, and I remember thinking that when we'd look at some of these deals. But what you've got to internalize—and I think these guys have done a really good job internalizing it—is that 20% of something that's not going public is not nearly as interesting as 8% of something that is going public.

If you believe that it's not a continuum of value, a sliding scale of value, but rather it's like electron states—there's just a gap, and then you've got to go to the next state—if you're above critical mass and you can get public, you get the trees. If you're below critical mass, then your only option is Thoma Bravo and whatever pain that involves.

We've had these discussions in some of our companies. Would I prefer to have 20% of my bet? Yeah, but I prefer to have a bet that's worth something. I don't mean worth it in the sense that a $100 million company isn't worth it. But if you want to get to the IPO, and the IPO window is $300 million or $400 million, you've got to do what you've got to do.

Rory O'Driscoll

Of course, but if you believe the upside is not bounded per se, right? If you're optimistic, it's so much better to combine 2 portfolio companies and own 20% together.

I understand you can't argue the intellectual argument, but it's tough. VC firms are a collection of GPs, and it's a collection of interests. If my 1 winner goes from 20% to 8%, that's tough enough as it is. But owning 20% of something that is accretive—it's hard to argue against that intellectually or emotionally, isn't it?

Jason Lemkin

Emotionally, yes, but intellectually, no. You're right. I get it. I do the anchoring, and you—

Something you guys asked about last week or 2 weeks ago was individual portfolios. I often do this: individual portfolios should be less diversified than group portfolios because there's some value to the firm. This is another 1 of the values. The firm has to be able to—we have to talk as a partnership and say, "Yeah, even though you're going to go from 20% to 8%, this is something we need to do as we think about liquidity."

It's not ideal, but there's no point hanging on to a dream that's not going to happen when you can get a reality that is. The fatal mistake that always scares me is not the dilution. The thing that scares me is you go from a decent deal that's well run, where you know everything about it, to merging with something else, and then the combined entity screws it up.

That, to me, is the really shitty outcome, where you took your 20% bet and turned it into 8% of a disaster. That's why picking the partner and having it make industrial sense is key.

That's why I think this deal felt to me, from a distance—I'm not the infrastructure guy at scale—but it felt to me from a distance like that's a damn-smart, obvious combo that will get critical mass. You won't be looking at the S-1 going, "Why are these companies together?" You'll be going, "Oh yeah, I get it."

Rory O'Driscoll

There was a deal superficially similar to this in the numbers that I tried to work on.

Jason Lemkin

There was the A investor, the seed, and the pre-seed. And the A investor wanted to jam 2 of his companies together.

The pre-seed investor had another company that I thought was mid from his portfolio that he wanted to jam together. But I get it. It was almost as big, but mid.

And then I had this idea: “Listen, I have a third company, a fourth company to combine. I have no shares in this other company. Okay? I’m going to go through 50% dilution, but I know the CEO, and he’s the best in the industry.” The AI idea and the pre-seed idea were both fine, but both would maintain ownership and their own thing and their own properties, and nothing’s happened.

And that’s why you need to be an active investor. That’s why you need to be a board member. Because it is tempting to try and take care of yourself at the same time, but you can’t. Because remember, the bad thing about doing that is you actually will create the situation I just talked about. If the CEO isn’t saying these companies obviously belong together, then it’s probably a dumb idea.

Jason Lemkin

Yeah. When the CEO doesn’t drive it, it’s weird too, right?

Oh, totally. No.

Rory O'Driscoll

Yeah.

Rory O'Driscoll

This is what happened with Clari, though, no?

Jason Lemkin

And this one’s easy to be critical of, right? It’s easy to be a critic. It’s just combining a series of some properties that Vista has underinvested in with another one that has scale but isn’t growing.

I mean, it’s easy to say this is the bad version of Rory’s story. Rory’s saying we’ve got to combine 800 B2B unicorns—or whatever it is, right? But mashing together a bunch that are growing single digits is the suboptimal strategy, right, if that’s the case here.

I mean, Drift is probably shrinking based on just looking at how the deal happened, right? It’s probably shrinking. And leaking all the Salesforce tokens for Cloudflare, leaking everybody’s data too, because it’s been adorable.

They obviously have that Drift. I’ll take it on the chin and push back, but agree in a way: the combination of a Salesloft-type company and a Clari-type company makes a ton of sense. You have a sales engagement platform, and then you have a forecast. It intuitively makes sense.

I wonder if tech PE now question their business model a little bit more. When they see the multiples that you can get on the money that’s being moved by your Kirsch and your big firms, combined with the increased loss ratio that will happen from an increasingly volatile new AI world, are you suddenly going, “Shit, I’m not getting paid for the risk that I’m taking on the multiple on the upside, given the displacement on the downside”?

To be explicit, because you didn’t make it clear, what you’re saying is: are the tech PE people looking at their business model that looked so secure for so long—of buying SaaS companies and just running them, paying down the debt, and optimizing—and are they saying, “This might have more risk than we thought and less upside than the other game”?

100%. Buying your Pipedrives or your Coopers or your you-name-its, it’s harder than ever because, as we said, opportunity-cost-wise, you can move more money with better multiples elsewhere. And then, secondarily, displacement-wise, there are more and more ways in which they’re getting attacked through better and better startups.

Rory O’Driscoll

They might be saying that, just like sometimes we say, “Oh my God, PE looks so easy. They just have these big sums of money, and they do it.” I think it’d be a mistake. Generally, the record of people trying to transition to a totally different sector is pretty mediocre.

To my view, going from what they do to making non-control, late-stage investments just because—pick a name, Thrive do that well—would be, in my view, stupid, because Thrive are really good at that, and they’re not. They should be saying, “Any deal we underwrite today, you better have a clear understanding of the AI downside risk,” to Jason’s point. And if you have a lot of downside risk, maybe you shouldn’t be doing this.

Because I do agree with you there, it would be fun to speculate on how—I don’t know, actually, Jason. It’s like, how embedded would a non-AI app have to be for you to say, “This thing is good for 5 more years of revenues?”

Jason Lemkin

The problem is, I think PE thinks about this maybe from a slightly different perspective, but I think this is the concern. Anyone that, like us, has been doing B2B for a while, these products didn’t change from about 2008 until 2023. They’re the same products.

And Brian Halligan will agree, and I said this with Henry Schuck, and he’s like, “Yeah, looking back on it, none of our products changed for a decade,” right? And so it wasn’t just that we had high NRR, which was the spreadsheet glue for the PE model.

I led the seed round on Pipedrive, and that product didn’t change for—it took them 4 years to launch a mobile app. You had 4 years to launch a mobile app. That was my first venture investment. It was a $1 billion cash exit, $1.5 billion—my first investment.

Could you imagine today waiting 4 years to launch your AI copilot? You’re dead in the water, right? And so that was the part that was underappreciated, underdiscussed. Yes, 140% NRR meant we could buy Marketo and fire everybody, but the products can’t be static.

And AI is the accelerant there, right? But that’s why I worry. I worry there aren’t enough buyers for any of this stuff, right? Because it’s the rate of change—it’s unprecedented in business software.

Rory O’Driscoll

I just want to double whatever cliché is on that. That is such a big insight, right? Because you’re right, there were 15 years when we made the same product, and you didn’t have to think that much about product direction at the macro level.

Jason Lemkin

It was roughly the same form factor. I mean, you look at Salesforce in 2002 and 2022, it’s the same thing. And that’s now changed. That’s huge, and it’s huge.

So there are 2 consequences, though, for both sides of the table. On the PE side, you’re exactly right. You look at that and you go, “I might get away with the next 10 years making the same thing and not changing it. And so maybe I’m entering into some kind of tech risk that I’ve never before internalized.”

And the weird thing is, even on our side of the table, for these new post-LLM startups, I’m finding that—I think we talked about this before—is that product-market fit, when you locked into it in SaaS land, you just didn’t unlock for 10 years.

Whereas here, you can lock in and out of product-market fit as the models change, and you look back on the product a year ago and you think, “Oh my God, it feels totally obsolete.” So there’s more risk on our side of the table too, I think.

David Sacks

That’s why it’s good the growth is higher, because the risk is less stable.

Adding to your point, what makes our job harder now—and I’m not asking for sympathy. I know it’s not easy making money, but that’s what makes it harder now. The predictability of markets in the old days was easier.

Jason Lemkin

Yeah, absolutely. A lot of things Jeff Lawson said, I’m still processing.

David Sacks

Yeah.

Jason Lemkin

It was a good show. If people didn’t watch it, they should go watch that one.

His point was that if he were running Twilio today, it would probably be thriving because he sold at the API level and could benefit from the AI boom, right? I’ve seen that with RevenueCat and others in my portfolio, and the seat model is at risk, right?

And I got burned out by LinkedIn people saying the seat is dead because it’s obviously not true at some level. Seats are growing. But good God, now that we’re running 12 AI agents, we only need 2 seats of Salesforce.

Because you don’t have the people.

Jason Lemkin

We just don’t. And if Salesforce Agentforce can do all 12 of those agents, then we’ll actually end up paying more to Salesforce. It hasn’t happened yet.

But this change—not needing as many seats—it’s… We thought it was a layoff thing in 2022 and 2023. “Oh, my God, we’re laying off people.” Smaller headcount is an issue, but ultimately, if the economy grows, you get past it, right?

You get past the layoffs, and the companies reaccelerate. It’s a transitory thing, like a global pandemic. But the agents taking over humans and fewer seats in software—my God, it makes the PE model worse and our jobs harder.

It just… Now we have 6 agents that plug into Salesforce. They’re like 6 human equivalents. But Salesforce may change their API pricing, but they sure don’t need a seat.

It just makes it even tougher for PE to buy these seat models. Not only do the products not last a decade—

Right.

Jason Lemkin

—but the AIs don’t need as many seats.

Rory O’Driscoll

Totally. 2 things on that. One is, you’re exactly right. Seats don’t have to go to zero to be a lot more variable than they used to be.

But then the second is, I was thinking of you, Jason, because you are always, if I may say it so pleasantly, so brutal about the impact of AI in terms of employment and the consequences, and I always recoil because it feels a little mean.

But I prefer the way you talk about it to this version of corporate speak. Let me give you corporate speak. I saw it, and I’m not dumping on it, but the CEO of Accenture—the quote when they said they’re laying off a bunch of people, right? “We are exiting on a compressed timeline.”

Jason Lemkin

People were reskilling. Based on our experience, it's not a viable path for the skills we need.

Now, that's just a brutal corporate-speak epitaph. We think you're no good in the AI world. You're out. I just thought it's entirely correct. There's nothing objectionable about it. It was just such a wonderful mix of corporate speak plus finality. I had to laugh and print that out today and look at it. Wow, there you go: “We are exiting on a compressed timeline.” All you people who are no good. Have a great day.

I'm going to finish on my wild card, which I'm not naming names, and it is not political, but we always stick to advice for founders. As we move into a more and more political world, do founders have a primary fiduciary role to team members, investors, and shareholders to do what's best for the company over freedom of political expression?

Jason Lemkin

It would trouble me to say yes, in the sense that it would trouble me to think that just because you're the CEO of a company, you're not entitled to your personal opinion separately from that. It's a reflection of the times that you'd have to even say that, because you should be able to dissociate the two most of the time, and I have been on boards where we've wrestled with that. You have a particularly outspoken CEO, and I've come to the conclusion that if they're expressing their personal political beliefs on a personal basis, I would be actively resistant to stopping them.

Even if it had an impact on the company?

Jason Lemkin

I think the recent trend at the company level of saying less has been smart. A lot of companies took a lot more positions 3 or 4 years ago, and it's been almost fun to watch. Just like universities, they've realized that, speaking as a corporation, you probably should stick to the mission of the corporation. The University of Chicago principles have been proven to be so much cleverer than anything else that all those other colleges are scrambling for that safety, and I think as a company, you probably want some version of the same thing. You just want to stay out of the culture wars, especially when they're so vehement.

As a company, I think companies should stay out, and I think they should think long and hard before getting into anything else. I think what's hard, and what I'm struggling with a little, is this: when you're the CEO, do you really give up all personal right to have a political opinion?

It's worth pointing out that there are a lot of roles in society where the job does involve exactly what you said, Harry: not having a political opinion. It used to be, for example, that people in the military were scrupulous about not declaring their political opinion. When Eisenhower was solicited as a candidate for President of the United States in 1952, they didn't know if he was a Democrat or a Republican, and both sides asked him to do the job.

I wish that wasn't the case, but actually the wisdom from some of those old learnings of staying out of it is making me tweak my opinion a little. Do you understand what I'm saying? I want everyone to be able to have an opinion, because I think everyone in this country should be able to speak. It's why this country is so fricking amazing, right, and say their opinion, and we have to get a lot better at not trashing other people for it.

But I do recognize that, in some cases, there are other examples of institutions that don't. It would seem a shame that that needs to extend, but I understand the point.

David Sacks

Well, I'll give you a tactical answer. Especially for folks who are active on social media, once in a while you'll say something that either you shouldn't have said, or maybe you should have, but you went too far, or you said it the wrong way, right?

Harry and I have known each other for a long time. I can't think of very many times, but I think a couple of times one of us has DM'd the other and said, “Hey, here's a tweet. Maybe you didn't really mean it,” and we've deleted it or modified it. It happens—not all the time, but it has happened multiple times. There's a level of trust, and I've done this maybe with 10 CEOs that I know a little bit. I would do it with Jeff Lawson, who I barely know. I would do it with Brian Halligan. I'm not saying I have, but I would do it with folks we've had on the show.

Jason Lemkin

Yeah.

David Sacks

Right? And I've done that multiple times. I've said, “Listen, you be you, but just to let you know, this tweet may not have landed the way you thought. Or it might bother some folks on your team, or it might bother some folks, right?”

I can only think of 1 public company executive who responded positively to that. Not that no one was negative, because I don't do this all the time. I'm not preachy. It's always a quiet thing. I try to be. But I only do it when I know the impact was more than they thought.

I can think of 1 that we all 3 know well, where he was like, “Holy crap, I didn't—” It was, like, “Thank you.” Sort of thank you. It took a beat to be thank you. It wasn't an instant thank you. At first, he was like, “You're wrong,” but it was a thank you.

Every other time, what I've been told by all the other 9 is, “You might be right, Jason, but I don't care. I feel so strongly about this. If I alienate 40% of my customer base, if I upset some of the less-represented folks on my team, if I do whatever, I feel so strongly. I don't care. I just don't care.”

And so I've become much more reluctant to do that, and it's rare, right? I only do it when I think I can really be helpful. The moment I see what I think is a mistake, I do it maybe once every 4 or 5 months. But I can only think of 1 where it was well received.

What I learned from that is, like a lot of things in venture—and these aren't companies I invest in, but these are public company executives I know—it doesn't really matter what I think. I will provide some feedback at times, and I'll provide it multiple times, and at some point it's your company, it's your keys. It's an interesting theoretical question. I think I 100% agree with Harry's point, which is this is bad for business.

How important is it to post that? There was no need—

David Sacks

Well, we agree—

—to post that.

David Sacks

We agree, but what does it matter what you and I think? My learning is that some folks who have been on your show, some folks who have very strong opinions that are very—I’ve talked to just a handful—and they're cognizant of the risks. They're cognizant of the downsides. It's not a mistake. Every once in a while, someone makes a mistake. They're cognizant of what they're doing.

David Friedberg

I'd love to ask someone like Brian Armstrong their opinion on this. Remember, there is a distinction between bringing politics to work and not having that, which I think has been validated as the correct strategy. I wouldn't say that's fully a given now, but I think that would appear to be the consensus.

Jason Calacanis

Right?

David Friedberg

Because everyone tried the other theory and tested it to destruction and failed. As a board member, I would struggle to attribute some business blame to someone having a personal opinion that's clearly their personal opinion. We have free speech in this country. It shouldn't be.

And then you can say to yourself, “Well, let's just…” I mean, you have to play out the other extreme. What happens if that personal opinion alienated 50% of the country such that they literally cancel all your business? Then you could argue at some point maybe you aren't the right person to run that company. But—

Or your team left. 10 great engineers leave.

Jason Calacanis

But my learning is 9 out of 10 of the executives are fine with that. Let them go. I think Brian Armstrong was fine with it, wasn't he? And I didn't agree with Brian, but I think he said, “Go. There's the door.”

The one thing I do think is that the attention economy is also more fickle than ever, and just like Deel and Rippling was such a big deal, actually everyone forgets it. Now, this story—whatever story.

Jason Calacanis

No one cares.

Do you remember that Elon and Donald Trump broke up in the most blazing of rows?

David Friedberg

I think that's actually very insightful, Harry. Just keep moving forward. People move on, so the rearview mirror vanishes so quickly.