20VC：Benchmark 对阵 a16z：阶段专注型基金为何胜出｜Windsurf 以30亿美元出售｜Decagon以100倍ARR估值融资｜超大型基金能否赢得VC的未来｜哈佛失去免税地位对VC意味着什么

Jason Lemkin

Benchmark did something like 63 Series As and had a 10% hit rate across 15 years. And Risen did a 454 series As and had a 2% hit rate. Now, in absolute numbers, they had 10 $5 billion hits, and Benchmark had 6. In those numbers is exactly the dilemma of the megafund versus the focus fund. The focus fund is better at hit rate, has more as a percentage, and a lower absolute number than the guys cranking through 454 As. That's all you need to know.

Boys, this is the highlight of my week. I love these chats. It's terrible. The team are like, "Harry, why do you enter these ones so much more excited than the others?" And I tell them it's because Rory's going to call me a hypocrite and bash me again, and it's going to be so fun. So thank you both for joining me again today, and we're just going to dive straight in.

1. Windsurf Sells For $3 Billion

Windsurf has potentially confirmed an acquisition for $3 billion. Literally, half an hour ago, tweets were going out. How do we feel about this? What changes? What does it mean? What should we take from it?

Jason Lemkin

Well, Rory, you probably have better thoughts than me. I'll tell you, it's funny. The world is changing so quickly these days, right? I can't keep up. When we talked about this a little while ago, I thought $3 billion was a lot. I'm not being facetious. I thought $3 billion was a lot. When I saw the tweets again, I thought, "It's not that much."

Everyone is just hunting these mega-outcomes, right? Every junior engineer from OpenAI is raising a $10 billion pre-money valuation, and I'm like, "$3 billion sounds like..." And listen, best product, best CEO, best everything. There's nothing new with the company. I'm just so inured to these numbers. It's like 2021, when you would say no to a $3 billion acquisition from a project-management tool, right? That was kanban. I'm anesthetized to these numbers now that aren't in the tens of billions.

Rory O'Driscoll

You know, I just think it's a great country and a great business. This is a place where you can go and, three or four years ago, do a startup, two years ago kind of half-pivot into a VS Code fork, crank like crazy, and build something that gets sold for $3 billion. Isn't that amazing? I mean, it's why this business is fun. All you have to do is just get it right. Bob's your uncle, 3 billion quid. It's a great outcome. Good for them. It makes sense for both sides.

Jason's entire analysis last time is correct. It's 1% of the market cap to play in one of the largest use cases for AI, and one that the core constituency of developers loves. It just makes total sense for OpenAI, so congratulations to the team and to everyone involved.

Do you worry if you're a shareholder in Cursor now? Obviously, you've just paid $10 billion. Distribution is everything. Touch points with end consumers are everything. I do not want to stand in front of the OpenAI train. Do you suddenly worry slightly if you're Cursor?

Rory O'Driscoll

If you're going to worry now, you might have thought of that before you turned down the offer, if there was, in fact, such an offer. So it's too late to worry now. The time to have checked your manhood was before you turned down the big number.

Whenever you turn down a big number, whenever you get to that point where you're turning down a big offer, one of the questions you always ask yourself is exactly yours, Harry: How will we feel when it crosses the tape, they buy the number two, and now we're hanging out there?

So whatever regrets they're having or not having now, it would have been more useful to have them a while back. My guess is they're probably using the following logic: When you're the number two and you get the heavy squeeze from the adjacent acquirer, it often makes sense to fold, because otherwise they might buy the number one and then you're done.

When you are the number one, you might be able to say to yourself, "You know, I'm still the independent winner. I can create value. There are other acquirers." So they're probably bravely going forward, saying, "This is the bet we're taking." But yeah, it takes real courage to turn down whatever was offered and say, "We're going to compete against these guys instead."

Jason Lemkin

You know what's funny? It's funny when these deals happen, and it's funny to talk about them. They're routine, but what is very interesting is how, especially when it's right after an investment, the different investors react up and down the valuation stack. It's not always exactly what you'd think, in my limited experience. You have more experience than me. It's not always what you'd think, but the advice you get and the feedback and pushback are wildly divergent, aren't they?

If I just put in at $10 billion and this was a risk factor in my prospectus or my internal diligence, I'm pretty zen. If I did the $1 billion round at Cursor, I might be thinking, "Oh, this is the worst idea ever—not selling," right? And then the seed folks who were friends with the CEO might be like, "Kumbaya. I already sold half in my secondary anyway. I put in, I sold half, and I love you guys. You be you," right?

It's just so different, the feedback. It's not that you can't trust the advice; it's just so biased, right?

Rory O'Driscoll

Totally, I think everyone talks their book. They sometimes don't always talk their book in a way that you think makes logical sense, but we're just human. Everyone comes to these M&A discussions around a boardroom table mentally running their internal cap table and saying, "What does it mean for me?" right?

That's why one of the things I always tell CEOs is, when you get this kind of offer, understand those numbers for everyone and understand where people are coming from.

Jason Lemkin

Yeah.

Rory O'Driscoll

There's a vibe check I've seen change as funds have gotten bigger and raised faster, right? For someone who just invested at a mega-round, if they just get a 1x in a year or two, it's okay. You and I met when I sold, and there was so much drama around every exit.

Jason Lemkin

Yes.

Rory O'Driscoll

But when I look at it, I first saw this when Loom sold and Andreessen invested at $1.3 billion, and they got their 1x back in a year, and they were like, "That's cool, guys. Let's do the next one together." And you used to say, "Let's do the next one together," when you did the pre-seed.

Jason Lemkin

Now it feels like, “Let’s do the next one together,” at the growth stage, and I think it’s a good thing if it takes a little pressure off.

Rory O'Driscoll

It is, and I’ll give you a different example that actually sticks in my mind more. Thrive invested in Instagram, and literally 4 or 5 days later, it sold for 2x.

In one sense, 2x is not the target return, but if you look at the PR for that, that is the soundbite that leads almost every Wall Street Journal description of them, right? Because it just looks so amazingly savvy. You paid $500 million, everyone thinks you’re an idiot, and 2 days later someone sells for a billion.

So it’s not just about the numbers; sometimes it’s about how it’s perceived and what it does for you as a firm at that particular point in time. I think that was an amazing entrée for those guys. They looked so sharp, and then obviously they built an amazing franchise on it.

I think the Loom example is a different one. I think that was, “Oh my God, we paid a high price in 2021, and I’m going to be saved in 2023. Thank you, God.”

Loom was a great exit. That one, I was like, “Kumbaya, guys. Well done getting that out the door.” I think I messaged Scott at Atlassian, being like, “Dude, you could’ve paid 35 more. Just give them a billion. You did, like, $965 million. Come on, come on.”

Jason Lemkin

Some weird story there. Maybe they’re careful not to push too far, Harry.

Maybe. A billion would’ve been gauche.

Jason Lemkin

I also think you asked Harry a while ago, when we did this, about how many 10x deals you’ve done, right?

Mm-hmm.

Jason Lemkin

And I think part of it, when I think a lot about these conversations, is that if you’re a seed investor, in the early days it’s all good, right? The checks are smaller. But once you have a 10x-er, you do become risk-averse because it’s material. If you have a double-digit-million fund, that’s a big deal, and you don’t want to lose it.

Rory O'Driscoll

But as I think some more, that may be true, but I look back and I go, letting the winners run is the first golden rule. That’s probably a mistake, then, being overly risk-averse on my winners. It’s the military doctrine: reinforce success, starve failure.

If you’ve just had a big 10x markup, if you got Sequoia in at the late stage, provided you don’t know something they know about the deal, remember, a 2x from here turns your 10x into a 20x. Riding your winners is one of the key parts of making the math work.

I’ve been on both sides of that. I know the fear of, “Oh my God.” I remember my first big win: “Oh my God, let nothing go wrong.” You lie awake at night the night before the IPO, literally thinking everything’s going to end. “Will this fricker get done?” And then it does, but you look back and you go…

I’m thinking of a specific deal. We took the money off the table early. I look back and I go, I probably could’ve 2x’d to 10x’d, which, to state the obvious, is a 20x, and that’s a big difference.

It’s funny. Brian Singerman always taught me the value of the final double, or the next double. Going from $6 billion to $12 billion in company trajectory actually can be 12 months of work. That is often double your returns in a portfolio.

Rory O'Driscoll

He’s exactly right. Almost everything about PE is better in terms of making money than what we do, and the only thing we have in our favor is that every once in a while, maybe once every 5 years, you find yourself with a 10% ownership in a thing that's already worth billions of dollars and is compounding like crazy, and you just gotta lie back and say, “How far is this gonna take me, all the way to tens or hundreds of billions of dollars?”

That’s the outlier that you just don’t get in PE that you do so occasionally get in venture. And he’s exactly right: that double from there is so much easier than grunting it out from $1 million to $5 million in ARR.

Jason, you did it as a CEO to $10 million in ARR, then the shitty year where you only go to $16 million, then you reaccelerate a little. Oh, my God, and now you’ve taken $10 million and turned it into $25 million of value. Whoop-de-do. It’s “let your winners run.”

2. Mega Funds Win the Future

We mentioned the sheer size of returns needed. Since our conversations started, I have completely changed my mind on who is going to win venture in the next 10 years. Just roll with me.

Fundamentally, we see the shift from public markets and IPOs to private markets with mega-funds like Lightspeed, General Catalyst, Thrive, you name it. Okay? There will not be many more of those. The majority of your sovereign wealth funds, the mega-players, have chosen their provider, their partner at that stage, and there are 5 to 7 of them.

And so there are very few places for the Anthropic, Glean, and Rippling companies of the world to go. The outcome scenarios are bigger than we’ve ever seen, with trillion-dollar companies becoming more normal than ever. These guys are gonna print billions, is my takeaway.

And on top of that, their cost of capital is so low they can shit on me and you and do $10 million on a $100 million valuation for a seed round, as they’ve done twice in the last year to me. I think multi-stage firms win the next 10 years.

Rory O'Driscoll

There’s a lot in there, and I have the advantage, which our listeners don’t, of seeing your agenda. And Harry, I love your start here, changing your mind at the last minute. It’s good to change your mind when the facts change, so I respect that.

But the agenda is intellectually incoherent, then, because you have this one, which is “the mega-funds are going to win,” and then the next thing we’re going to talk about is Josh Kopelman’s wonderful piece, “The Venture Capital Arrogance Score,” which would argue for the opposite side. Then we’re going to talk later about secondaries being the only liquidity, which would also argue against.

So we’re oscillating on this question a lot, but it’s actually okay because it is the biggest question. It’s okay that we’re gnawing at this bone and even changing our minds week to week as we think about it.

But because I got exactly half an hour’s heads-up that you were changing your mind, I think my summary would be, on your thing—are they going to win?—I’m going to say 3 things, and then we’ll probably end up pulling them apart over the course of the conversation.

One, I think they already have won because they have the money. Step 1 in winning is: if you’ve got $7 billion to invest from 2024 on, forget “will win”; you have won, and you’re in an excellent place.

So first is winning by having the money. Then the second thing is, can they invest it profitably? And look, they’re all excellent investors. They have between 50 and 60% of the capital. Provided they don’t under-index the rest of the industry, they’re going to have 60% of the wins.

So when someone says, “Oh my God, all these people have all the wins,” I’m like, “Well, dude, they have all the money. If you have all the money and you do all the deals, you get all the wins. It’s just math.”

For a long time to come, I think you described it exactly correctly, which is because they can do those later rounds, they’re going to be able to option-value a seed deal and even option-value an A and a B. That’s just the dynamic you’re in for a while.

The interesting question over the long term, and it’s only over the long term, is: will that winning be enough? The Kopelman question. In other words, if 6 or 8 people each have an $8 billion to $10 billion pool of capital, can they all make money over the medium term?

They will, in the process of figuring that out, trample on a lot of other people’s economics. But the long-term question, when the verdict goes back to the LP, is: do those funds make enough of a return to warrant re-upping in 3, 5, and 10 years’ time?

To me, that’s not as clear, right? So my operating assumption as a mid-tier firm in terms of size is that for the next 3 to 5 years, there are great big walls of capital that will make a lot of investing very difficult. And even if it doesn’t work out quite as well for those firms over the medium term—not because they’re not great firms, they are, but because there might not just be enough money to go around—even if that’s the ultimate outcome, it’s going to be rocky and, to be very direct, a pain in the ass for the next 5 or 6 years.

You’re competing against people who literally look at your Series A and it’s like the mafia guy saying, “That’s a really nice Series A you’ve got there. It’d be a shame if it got broken.” They’re coming in on your Series A business and your seed business, saying, “Hey, we can just roll over this thing.”

So, a lot going on in that, right? So your thing on winning, I think in some elements they’ve won, in some elements it’s TBD, and it’s going to be a long, interesting sorting-out period.

Listen, whenever I get an email from a founder that has what appear to be those metrics—that on their seed they’re going to get $10 million at $100 million, right, $10 million, $15 million—I just email them back. I’m like, “I can’t compete.” I don’t take the meeting. I don’t talk about it. I just say, “You look amazing. I can’t do the deal.”

And once in a while they’ll email me back and say, “Well, what would it take?” And I’ll just always offer the maximum that I structurally can, and that’s worked out a few times. But I’ve given up instantly. I fold before the first hand because I agree with you.

I don’t have the answer. There are obviously the non-obvious ones, because this money has to be attracted to the obvious candidates. But that’s why so many people glamorize inception investing, which I ain’t gonna do.

Jason Lemkin

There’s one thing I ain’t gonna do. This is the other thing you have the most respect for: true inception investors that aren’t bucket shops, that aren’t trying to get 1,000 founders to go through and take 10% of their company.

They are doing inception investing harder than ever before. I actually lost an inception investing check this week—

Jason Lemkin

Yeah.

—to the 2 big ones. 10 on 50 for some good people out of a good company.

Jason Lemkin

Well, good people. When I think about inception investing, it's good people out of a good company with lots of boxes checked. It is technically inception, but they've already checked several of the boxes.

The real inception is finding the guy down the street from you, Harry, at the carriage house who didn't go to college, didn't come out of Stripe, didn't go to YC, and spending months with him, getting to know him, and saying, “Here's $800K.” That's too much work. No one works that hard these days, do they? No one works that hard in venture.

I've known a few people over the years that work that hard. Most folks are not working that hard. It's easier to just pay 30% more than Harry. That's the easiest way to do venture: Get a big fund, wait until you have a term sheet from Harry, and spend 5 minutes outbidding him.

Rory O'Driscoll

Look, it turns out getting a big fund in itself is hard work, to be fair to everyone. But within the smart-ass comment, the true comment that you're making, Jason, is exactly right. The easiest way to win if you've got $8 billion is not trying to pretend to be anyone's bestie, just to be willing to pay a price that gets you the deal.

If you're not making your economics on the going-in round, then you've just got more degrees of freedom to do it. I'm not saying every firm does that, but you're exactly right. The advantage of a wall of money is it means in those early situations, you can price the thing.

Think of it: We've become a bundled good, and the seed and even the Series A is a loss-leading product. It's like milk at the grocery store. Come on in, buy your cheap milk, but we're gonna upsell you all the strawberries you can buy, baby. Wait till you see the Series C and D. So that's what you're up against.

To your point, Harry, there are lots of reasons why those big firms can win. I saw your podcast earlier this week. There are all the other wonderful things that they bring in terms of platform and all that, but the most wonderful thing an $8 billion firm brings is $8 billion.

3. Stage Specific Firms Face Pressure

My question is, can you even do multi-stage if you don't do pre-seed today? We have Series A investors here, and they're like, “For fuck's sake, Neal Mehta is doing the seed and the pre-seed for Windsurf. Sequoia, Lightspeed, and General Catalyst do more pre-seeds than anything.”

You won't see the A if you don't do the pre-seed. That's how bundled a good we are today, Rory, is my thinking. I don't think you can actually do the As and the Bs and the best unless you do pre-seed.

Rory O'Driscoll

We're wrestling with that. I hear you. It gets to the thing. We've become a bundled good at the widest level. When you can go all the way from $100 million to $2 million and that product is on offer, if that product in every other dimension is just as good as a single-stage investment, you're up against it.

So you have to think about how you see those seed deals. Do you have to do lots of them in order to see the As and Bs? Yeah. It's a legitimate question. How much bundling do you have to do?

Rory, why do you not do it with scale? I have so many LPs message me their love for you after our shows.

Rory O'Driscoll

We thought about it. Look, we've wrestled internally, and I would say we're thinking about it. I just lost a deal a couple months back where I would say the number one thing was that the other investors had a relationship from the seed.

What we won't do is bullshit and say we're gonna do a whole bunch of seeds and then not do it. So I just don't think that's fair on the entrepreneur. We're wrestling with that, because if you're going to say you're doing it, you've got to do it.

But it's a legitimate question. In this market, where so much is changing and so much of this bundling is taking place, you have to figure out how far up and down the stack you have to go.

A zoom-out insight I've had, and I've been thinking about it a lot, is this: To the founder, they don't give a damn about your nuanced, stage-specific strategy. A founder wants 2 things from their venture investor. They want money, lots of it, with the minimum amount of hassle and perhaps the maximum amount of help.

So from the founder's perspective, they actually don't care if you're crap at seed. They don't care if you're crap at A. There's no override from the founder's side based on whether you're executing your investment strategy well, to a rounding error.

If some firm has a “we literally do every freaking deal” investment strategy, now the LP should be paying attention to that because they're gonna lose money. But from the founder's perspective, someone who's loosey-goosey drunk with money is their best friend.

So I don't think this bundling thing is going to stop because the founders don't like it. They're gonna love it. It's only going to stop if the returns from it are subpar relative to the returns of people who are more specialized. But even if it is true, it's gonna take 5 to 7 years to become obvious.

Let me push back on that just briefly. I have a lot of founders in the process of courting who ask me, “How many deals do you do per year?” And I know full well that they don't want me to say 12. They want me to say 2 to 3, because they want to feel the love. They wanna feel that when they want my attention, they get it.

Rory O'Driscoll

But that doesn't reconcile. Again, bullshit, Harry. I do 2 deals a year. Shockingly, I've been in this business for 30 years. I've done 60 deals. I'm a pretty consistent guy. No one gives a shit.

The odd thing is that the founder might want you to be focused on him, but the truth is, if the firm is doing lots of deals—and many of these people are—I think, realistically, we do as a firm 8 to 9 deals a year and have done so consistently for the last 15-odd years.

There is a big advantage in terms of news flow of doing 20 or 30 deals a year. There's always something good in the portfolio. So again, it's all part of the same theme. There is no forcing function between the founder and the investor that worries about investment return quality.

That's a dynamic between the investor and the LP, and as long as either those funds are working or people don't think they're working, that money's gonna be there. Colt Rockman at DST did an excellent piece on Series As. Just a really great analysis on the volume of As that some of these firms are doing, and then the hit rate and the success rate, which we can talk about later. Firms that are doing well are doing 20 or 30 Series A deals a year.

4. Benchmark Beats on Hit Rate

I saw Benchmark had a 33% hit rate on $5 billion companies from 2013 to 2018.

Rory O'Driscoll

Yes. I looked at it, and there are 2 facts in it. One is that Benchmark had a 10% hit rate, and all of the other 19 investors listed here—or 18 investors—had a hit rate between 1% and 3%.

Let me repeat that very carefully. Let's call it an average of 2%. With a sample set of 20, it gets right back to your comment about the firm that has chosen to be most successful on one stage had a hit rate of 10% across 14 years, and the firms that have chosen to do everything have a 2% hit rate. That's probably not a coincidence.

What it said to me is, contrary to the thing we've just been talking about, the focused firm pulled it off better. And let's stipulate, both of those firms are amazing, and all the people there are wildly smart. Let's just stipulate that. Therefore, we're just comparing strategies, and then we have to figure out which is the best.

Benchmark did something like 63 Series As and had a 10% hit rate across 15 years. Andreessen did 454 Series As and had a 2% hit rate across the same period of time. Now, in absolute numbers, they had 10 $5 billion hits and Benchmark had 6.

In those numbers is exactly the dilemma of the megafund versus the focus fund. The focus fund is better on hit rate, has more as a percentage, and fewer as an absolute number than the guys cranking through 454 As. That's all you need to know.

It just shows clearly that if you scale the thing up, your quality does slip, but the aggregate numbers keep going up. The only question, therefore, is which of those strategies makes the most money. Does the larger-volume strategy—which 5 or 6 other firms are pursuing as well—pass the return threshold? And if it is, that bigger strategy works. That's the guts of the question.

It was a great analysis. I've never met this guy, but I printed it off and read it for 2 or 3 hours. I'm like, there's a ton of information in there.

Jason Lemkin

Those deals were also a while ago, right? It was such a different time back then. And I'm not saying they won't reproduce it, but when I look back, that was when I started to invest. It's nothing like today. There's nothing in common with 2013 to 2018, when I started. Nothing.

Rory O'Driscoll

You're exactly right, but there are potentially 2 consequences of that. The first is to say, “Hey, it wasn't as easy as that,” right? It's gonna be harder now. Agreed?

Jason Calacanis

Yeah, for a lot of reasons.

Rory O'Driscoll

But if it's harder now, let's move from hit rate, which is how many times you got it right, to what percentage of the best outcomes you got. In a less competitive time, the best firm in terms of percentage of total outcomes was Andreessen. They got 10% of the good outcomes, Benchmark got 6%, and everyone else bunches in the 2%, 3%, 4%, 5% range.

In other words, when there was less money than there is today, the most aggressive firm only—and I say “only” with parentheses because it's an amazing outcome—got into 10% of the great deals.

Now you circle back to the Josh Kopelman thing, and you realize it's really hard to build a fund that says, “In 2026, you're gonna get into 20% of all the good deals.” Then I say to you: Andreessen, the most aggressive firm in a less competitive market, only got into 10% of the deals, and all the other firms did less than that. It might be possible for one $8 billion fund to be fricking amazing. It's gonna be very damn hard for 6 or 7 $8 billion funds to be fricking amazing at the early stage to the extent required to make the math work.

It's just about the multitude of trillion-dollar companies that will exist. If there's 2, then you're right, they're fucked. If there's 10, there's a business.

Rory O'Driscoll

I totally agree. To the extent that the big strategies work, it won't be because they get more Series A's than 10%. They won't get better market share in 2025 than they did in 2014. It will work exactly as you said, Harry, to be clear.

The deciding factor in whether this strategy works or not is: are there companies that compound from $100 billion to $400 billion in the private markets before they go public? And right now there's 2. There's SpaceX, there's OpenAI. If you have 4 or 5 more of those, the math works for everybody, provided you're in them.

Jason Calacanis

Can I ask you a really simple question on this? I mean, Harry's trying to count how many dozen trillion-dollar exits he's gonna have and commit to his LPs. The global economy—the world's gross domestic product, what's the acronym here?—is $100 trillion, okay? I don't know what revenue multiple we put on everything, including grass and dirt, but how many, out of a $100 trillion world, how many trillion-dollar exits can we have?

Rory O'Driscoll

I'm gonna go on this, in fact, because Harry uses trillion because that's his Harry, right? The US GDP's around $30 billion. The US stock market trades at roughly 2x GDP, so—

Jason Calacanis

2x.

Rory O'Driscoll

—$65 billion. Noah Smith wrote a great piece on not conflating income and market cap. But around $60 trillion. The more important point is every decade there's roughly, there's roughly $1 trillion per decade of new value created, plus or minus, and that's been true in the past. The real question is, does that one go to 2? It's roughly of that order of magnitude we're dealing with here.

5. AI Replaces Knowledge Workers

Jason Calacanis

Help me do the math. If half of all the tech labor force is replaced by AI, which I did not believe 90 days ago and now I'm 100% convinced of, how many trillions does that create for tech companies? If half the knowledge workers are turned into AI, which I think is gonna start to happen next year, so fast, how many trillion-dollar startups do we get out of that math?

Rory O'Driscoll

I think talking about trillion-dollar startups is not useful. Even though—let me make the following sentence. There are 6 companies with a trillion-dollar market cap. All of them but Berkshire were funded by VCs and founded within my lifetime, at least. To the extent trillion dollars is possible, it's only possible in venture. That's just a reminder to all our private equity friends that, in the end, we are better.

Let's not focus on a trillion because it's just too much public marketing. I think $100 billion is the kind of mental high end of good. Now, to your question on whether AI can—

Look, if you're selling the thing that allows your companies to be more efficient and allows the rest of corporate America to be more efficient, it's gotta be pretty damn good for you. Simple economics says you're selling the thing that can cut costs and make companies more efficient. AI and the ability of AI to unlock value is clearly the big lift. Witness the acquisition we started talking about.

Jason Calacanis

Yeah. But these mega-funds, I think they're predicated on this, and Vinod's been saying this for years, and I didn't get it until 90 days ago—6/90. Until we ran our own AI with 130,000 conversations through it, I didn't get it. Now I get it.

Half of all these knowledge workers are gonna be gone in 24 months, and can software capture 10% of that? 5% of that? What is the average knowledge worker worth, $200,000 a year? And how many of them are there times 0.1, 0.1?

Rory O'Driscoll

I'm gonna take the counter on that. I think that the past is the best predictor of the future. AI's exciting, there'll be lots of savings, it's the new, new thing, and we're investing in it. As you add economics, it's hard to move macro dials. If it lifts GDP growth from 1.5% to 2%, you'll barely notice.

It's gonna be like PCs and the internet. It takes a long time to show up in the numbers. So it's not gonna be some step-function change, but that doesn't mean you can't make many multibillion-dollar outcomes from it. I don't buy the mass unemployment in 12 to 24 months.

Jason Lemkin

It's coming. I'm not smart enough to even know what's gonna happen to GDP. In fact, I'm pretty skeptical that most software that increases efficiency really contributes much to growth. Come on, we've all invested in CRM and all this stuff, and it hasn't really—

But I gotta tell you, Rory, we do not need SMB sales reps next year. We do not need marketing managers. We need almost no one in customer success. We need no mediocre QA engineers. We need almost none of the mediocre product managers. I will bet you $100,000 that more of these people are unemployed 12 months ago than you think.

Rory O'Driscoll

12 months from now.

Jason Lemkin

$100 grand. And it's already happening. I'm slow. I didn't get it. Literally, even at SaaStr, we've gotten rid of 5 people on our team in the last 90 days due to AI. 5 people off our team.

And it's not just efficiency. It's better. And, 2, they don't complain about the job. They don't complain about the job. As soon as AI's even 80% as good as a human, they'll all be gone.

No one—you can't get anyone to work at these boring SaaS companies. Literally, I talked with an old marketing manager I worked with who's not even that senior. She's been out of work for 6 months, Rory. 6 months. And she says, “I need to make at least $300K. I just wanna attend meetings.”

That's what she said to me. I've known her for years. “I wanna make at least $300K in tech,” because that's what she did in 2021. She went to meetings and made $300K. I'm like, “I'll keep my ears out,” is what I said to her. “I'll keep my ears out for that $300K meetings-only, hands-off-keyboard role.”

They're all gonna be gone in a year. They're gonna be gone.

Rory O'Driscoll

You love extremes—

Jason Lemkin

You'll see.

Rory O'Driscoll

—and directionally, you're correct. It'll take longer. Even in your business, you're saving a bunch on OpEx, and I think you'll be super focused on this. You'll save a bunch more on OpEx.

Jason Lemkin

But it's not even OpEx. Do you know what the problem is? There's nobody to do the work. Harry's gonna agree with me. There's no one to do the work. That's the problem, Rory, that VCs are missing.

It's not OpEx or CapEx or CAC or NRR. We are missing the fact that no one wants to work. You know who says it? Fiverr, Shopify. If you squint at these emails, what they're really saying is, “No one wants to work, so you're out of a job.”

Rory, you're a better investor than I'll ever be, but at least Harry and I are managing teams that aren't just investors. I can't pay somebody $150,000 to do anything at SaaStr, Rory. They will do strategy. They'll write a memo that takes 90 days. They will do something late, okay? No one wants to work.

Rory O'Driscoll

And look, there are a whole bunch of jobs that will be happily automated by AI. I agree.

Jason Lemkin

Yeah.

Rory O'Driscoll

I'm not fighting that trend. We're investing in that trend. I don't think your profits are gonna quadruple.

Jason Lemkin

I agree. I think this is a misnomer. I think what's happening is we just can't hire people that are worth it, so we're just gonna turn the AI on. No one wants to work.

Even Rory, my son goes to a school for founder-privileged children. 10% of the boys in his class just didn't wanna go to college or work. It wasn't that they had a trust fund. They were just fine doing nothing.

You go on LinkedIn, and you know that little circle that says, “Open to Work”? Talk to one of those people. They're unwilling to work, okay? I know this is gonna make some people mad, but that circle means, “I'm unwilling to work, and I need $300K and I'll do 3 meetings a week.”

That's what that blue circle means: Open to Work.

Rory O'Driscoll

I'm not gonna argue with grizzled cynicism from the front lines of the hiring wars.

Jason Lemkin

It's not cynicism. You think it's cynicism. I'm actually bullish on it. I'm excited about the future now because I'm burnt out trying to hire people that want 6 figures to do no work. I'm burnt out on it.

Rory, I actually agree 100%, sorry, with Jason. Then come to London, where it's even harder—

Jason Lemkin

It's harder.

—or Europe, where it's even harder. As we know, it has a baguette culture according to Jason, or a red wine culture, whichever one that was. That went down well in the European office. Thanks, Jason.

Jason Lemkin

Yeah.

But you use the analogy of a PC and the internet. There is fundamental installation infrastructure and hardware that goes into that era of technology adoption. We've now pressed Deep Research on a model that we were already using, and we can get rid of 3 researchers.

There is no installation. There’s no fiber. There’s no PC buying. There’s no implementation. It’s completely different.

I think the timeline to seeing value—

Rory O'Driscoll

I’m just going to say a zoom-out comment first of all. I simply don’t think you’re correct. I think GDP growth and productivity growth have been roughly 2% since the dawn of the Industrial Revolution, and I’m willing to lean into the fact that it’ll be 2% for the next 20 years.

We all like to think the era that we live in is exceptional. In that, we’re just 250 years into compounding free-market capitalism. Thank God. And while I think Deep Research is cool, I’m willing to bet that if you compare it to, “Oh my God, we don’t have to pump this water out by hand. We’ve now got an automatic pump, and we can help pump out the mine with a steam engine,” or, “Oh my God, we’ve got electricity. We now don’t have to work in the dark,” I think it’s probable, at best, that the inventions are equivalent.

That’s kind of my macro comment that I can’t prove in detail, but I know I’m right on. Now to the specifics: to your point, yeah, you’re right. Deep Research is amazing. I just love it for what we do here. Every time you’re looking at a deal, if you’re not running that out of the gate and doing a whole bunch of really great queries, you’re toast.

But we’re not going to get rid of all the associates. We’re going to make them more efficient, and you’re going to be able to say, “We can look at more deals. We can know more. We can get some leverage from it.” Maybe you lose 1 or 2. So my point is merely, it’s a great trend, it’s a wonderful trend, but it’s not going to be this step-function change.

It takes time to diffuse any technology, even AI. It will be interesting to see the adoption of AI in enterprises over the next 3 to 5 years. If you had a step-function adoption, then you guys would be correct. If everyone went, in the space of 12 or 24 months, from pre-AI to top-of-the-range, all-it-can-do AI, then maybe you’d be right. I think humans just don’t work like that. And there are still people running DOS PC software out there.

Jason Lemkin

There are, but there’s no question the overall adoption curve for AI in deep enterprise is going to be slow. The thing is, the early-adopter phase is so large in AI. And 2: all of tech is becoming an early adopter.

When we started investing, tech was not the largest segment of the economy. Today, it is. So if these old manufacturing guys take 6 years, but all of tech fires half their team—I mean, Marc Benioff said, “Listen, I’ve got 6,000 people in support. I plan to repurpose them into sales.” I love Marc, I love all of it. How are you going to repurpose 6,000 people from support, right?

Rory O'Driscoll

First of all, the first part of that comment is really great. The second part’s really great and fun. Let’s work it out. I will give you that. I think what you’re right about is the sectoral composition of the US economy in 2024 means that the early adopters are now a bigger percentage of the total.

Obviously, we have an administration that would much prefer us all to be manufacturing toys at home so our kids could have $3 dolls. But given that we’re not making dolls at home in America, you’re right. It’s tech, it’s biotech. There’s a bigger percentage of US GDP that will probably lean into AI more quickly than, say, in the 1980s and ’90s, when a more manufacturing-centric economy leaned into computers. I will give you that.

Yeah.

Rory O'Driscoll

So you’re right. And as I think this through, you probably have some accelerated returns to scale from AI that you might not have seen in the PC or the internet. It might be boomier quicker. That I will give you.

Jason Lemkin

Yeah, I don’t know how to draw the curve, but that early-adopter plus tech is so large that in our industry it’s going to lead to massive human disruption. Just as many founders—

Rory O'Driscoll

Yeah.

Jason Lemkin

Just as many VCs. But, man, if you’re a hands-off-keyboard middle manager, you’re going to be gone in a year.

Rory O'Driscoll

And closing the loop, because I am a nerd, what you probably will see is massive productivity in those sectors, and then you’ll have bumball disease in health, education, and some of the other stuff.

If overall GDP growth remains, and I’m correct, at 2%, you might have massive productivity gains at Salesforce and utterly no productivity gains in healthcare, maybe education, maybe some government sectors. So I think that the adoption within the tech sector will be super fast.

Rory O'Driscoll

Now to your second point. Hmm. Yeah, what happens to those 9,000 people? I don’t know. I think you might—

Rory O’Driscoll

Vinod said this so many times. EF did a Demo Day out here, and I watched Vinod again. After building our AI with 130,000, he said, “Half these people are going to be gone. There will be no jobs for them, so taxes will go up. We have to pay for them, and we will all be better.”

And you can laugh at this, but when I heard this, say, a year ago, I’m like, “This is the guy that invested in OpenAI.” Today I see it in my own AI. There is no… Those 6,000 people at Salesforce, with benefits and taxes, probably cost 6 figures. There will be no jobs for them.

They may have to work at Subway, and it’s terrible. There are no tech jobs for these roles. There are no jobs. And every CEO that I know at growth scale has some version of a hiring freeze going on, unless the growth is insane. It’s all AI-first, so you can hire, but you’ve got to get rid of somebody.

It’s even worse for these folks because everyone’s got some sort of soft freeze, even if it’s just a quality freeze. So who’s going to hire these people?

To what extent is this not just Adam Smith’s invisible hand? One of the biggest shortages in labor markets today is ambulance drivers, fire engine drivers, truck drivers, plumbers, and roofers.

Rory O'Driscoll

Agreed. I’m always willing to change my mind when I hear new data. Thinking about what you said, I saw the journal article on graduate unemployment creeping up. There’s definitely overproduction of some skills and underproduction, as you say, Harry, of some of the more vocational skills.

I do think that’s a thing. I think, give Peter Thiel credit, 10 or 15 years ago he said, “I think the return on college is pretty good for the good student. It’s pretty good for the STEM student, but the marginal return on the marginal entrant to college in the last 10 years is profoundly negative.”

You’ve got this set of skills that don’t have market value, and you owe $150,000. So I do think you’re right there, and those folks are looking for the soft jobs. Not soft as in easy, but soft as in marketing. It’s not STEM skills, and it’s just really hard.

That said, if you’ve got 3 really smart friends in STEM and you can crank out a VS Code fork, you too can have $3 billion in 24 months if you can just get shit done. There’s always going to be room at the top, baby.

Rory O’Driscoll

There’s a limited element of college that’s already UBI. At Harvard, if your family makes $200,000 a year or less, you don’t pay. And at Stanford, I think they raised it from $100,000 to $200,000; you pay nothing.

That said, Harvard, even though it may become for-profit soon, can pay for this. But when every college is that way, it’s just UBI. You’ve got to do something with these kids. Well, that’s where we’re going.

6. Harvard Threatens Venture Funding

Can I ask you guys? You mentioned that Harvard might be for-profit. I mean, that was absolutely in the news. I’d put it as one of the number ones. When you look at, “We’re going to be taking away Harvard’s tax-exempt status. It’s what they deserve,” Trump posted to Truth Social.

Listen, yes, I care about Harvard. I like them very much. They’re great to work with. I also worry intensely that this is going to happen to every endowment fund, and if it does, what happens then? Help me understand: is this the start of a much bigger wave, and how will this impact commitments to venture?

Rory O'Driscoll

“It’s the end of civilization. What does it mean for me?” said Harry Stebbings. Which, by the way, I actually totally respect, because if we go off into some kind of blather about what we think about Harvard, I’m no more qualified than you or any of us to—

Rory O’Driscoll

Also, Jason, when you think about who listens, no one cares what we think about Harvard.

Jason Calacanis

Yeah.

Rory O’Driscoll

Unfortunately, going right back to the first thing, if it turns out that there is pressure on endowments, this is going to be huge pressure on precautionary cash planning in all the endowments.

Going right back to our discussion at the start, unfortunately, those are the LPs of choice for the small, early, innovative funds. It’s another thing that’s going to reinforce that the big will get bigger, and it’ll be harder to be new.

It’s not a great trend because, if you’re raising $8 billion, you’ve long since stopped talking to Harvard in a meaningful way. You’re actually talking to, pick your sovereign wealth fund. If you’re raising $150 million for your first fund, those are the people you’d be going to.

So it’s bad news within venture investing. And then I do think we’re in the business in venture of funding the things where the US has a massive comparative advantage, and that comparative advantage is typically caused by high-intellectual-property, high-knowledge-worker industries like biotech, software, and robotics.

That won’t be possible if we don’t have a well-funded higher-education sector. So we can talk about all the old dumb things Harvard did and did not do over the last 10 years, particularly with that report that came out on antisemitism. There’s a ton they have to be ashamed of.

Jason Lemkin

But sticking back on my venture hat, avoiding trying to be Mr. Political, for our industry, one of the non-negotiable ingredients is a strong and vibrant technology university system that generates graduates and research that have kick-started the whole thing. So I don't want to lose Harvard. They may be arrogant asses. They may do this whole “I was at school in Boston” thing. Whatever. They turned me down 30 years ago. I'm still grim about that, but I don't want to lose them.

Rory O’Driscoll

You don't want to kill the golden goose.

Rory O'Driscoll

We have a good thing going here in venture, and a huge amount of it is the smart, talented young people who come out of these colleges educated and ready to go. Don't blow it.

7. Unicorns Get Scrunched

Jason Lemkin

One piece of news that really struck me—and it kind of went under the radar—but I called it an acqui-ouch, because I remember one of the hottest companies at the time, a couple of years ago, was Census. This company was super freaking hot. Everyone wanted to invest. Sequoia did it. They did a next round, and they got acquired by Fivetran super under the radar. They'd raised $80 million from Sequoia and Jason. And I was like, “Wow, that didn't happen how we planned it.”

I guess my question to you is: how did you guys think about this, and is this the wave of a series of companies that were supposed to be high flyers just getting bought for cents? These are deals, for what it's worth, where, as a seed investor, I'm that guy that you talked about at the beginning. I'm the grouchy guy.

Jason Calacanis

Yes.

Rory O’Driscoll

I'm the grouchy guy. The last guy, whatever, but for me, that was my high flyer. That was my fund returner, and now I'm getting, like, 8 shares in Fivetran. I'm like, “I'm not so happy.” I have one of those deals. I was pretty grouchy about it. Now I have shares in a decacorn, right, that will never IPO. Hooray. But it looked great on the press release. I was that grouchy guy for good reasons. For good reasons, unlike me.

I don't know the details of this deal, but that's where it makes you grouchy. You put all the time in, and it does. If you're in it for a year and showed up as a board observer, it's not your only hot deal. But as a seed guy, it makes you grouchy.

Rory O'Driscoll

I mean, I don't know how to break it to you, but some deals don't work. It sucks. Maybe it hasn't happened yet, but when it does, hold that thought. But you asked what I thought of that. Honestly, I didn't even notice, because it's going to be one of 500 or 600 of these that's going to have to happen. You know, there's somewhere between 800 and 1,000 unicorns, and a couple hundred of them are going to go public, and the rest of them are going to have to be scrunched into other companies. This is what that's going to look like.

Jason Lemkin

You know, the craziest one, even though it's not brand new, was Lacework, right? It seemed like it was as hot as Wiz. I'm not a real security expert, but I thought it was number 2, just behind Wiz.

Jason Calacanis

Yeah.

Jason Lemkin

When I was at re:Invent, it had 7,000 square feet. It had, like, a $4 million booth. I'm like, “This thing is neck and neck with Wiz, right?” And then it sells for nickels, right?

Rory O'Driscoll

Well, I think, yes, for nickels in terms of enterprise value, but I think it was a significant portion of cash on the table. The investors, maybe rightly, maybe wrongly—I’ve heard both sides—looked at each other and said, “You know, if we could get 50, 60, 70 cents on the dollar back from the cash that we put in here rather than keep going, maybe that's the right thing to do.”

Now, I don't know. I don't have the specifics, but it wasn't like they took $1.5 billion and burnt it all up. It's that they just said, “2 years ago, we thought this was awesome. We've reflected. We've spent $100 million. We have $800 million left. Let's just call it a day,” which might be a shrewd call.

Rory O’Driscoll

I'm sure it was objectively right. It's just, again, the stress for different folks in the investor stack can vary. Some folks will be like, “Whatever. I'm on 20 boards; I don't care.” For someone else, it could be their only winner. It's just the impacts are varied, right? It's never that great for the employees, though.

Rory O'Driscoll

Oh, totally.

8. Decagon Raises at 100X ARR

Speaking of investor exuberance, we saw that with Census. I'm sorry that you didn't notice it, Rory. You're clearly much busier than me. I'm just a humble podcaster. What can I say?

My question to you on the back of that is, we also see Decagon raising at 100X in a similar style to 2021. It was even $15 million of ARR at $1.5 billion. My question on the back of that is: how did you guys analyze that? It felt very 2021—an incredibly strategic move.

Jason Lemkin

It's not wholly crazy at all. If you run through the logic, the number one use case of AI is just personal chat, the number two is coding, and the number three is customer service. Of all the areas, to Jason's point earlier, it's the one where the ROI is the clearest. We talked to people who said—and I had an investment in this space pre-gen AI—that the resolution rate was roughly 30%, 35%. In other words, one in three calls got solved. We did a bunch of references around this space and around the impact of gen AI, and the conclusion over and over again was that with gen AI you can get that resolution rate to 60% to 70%.

Rory O'Driscoll

In other words, you can handle most of your calls without humans. And customer success, customer support is a massive, massive people sink. So it’s just a great big market. So you start with that. Then the only question therefore is, is it going to be a winner-take-most market? Is there going to be more winners? And that’s where it gets kind of tricky. I think Decacon’s done an amazing job. With Sierra, they’ve established an interesting lead. I think it’s going to be a lot more competitive than that, but it wasn’t crazy. You’re leaning into growth. You’ve got a lot more runway ahead of you than many of the ’21 companies. So I don’t think it was wholly crazy.

I don't understand it. I'm sorry. I know Des Traynor very well at Intercom. He's a fantastic product guy. Intercom is an amazing story, but it's not a huge enterprise value today after 17 years. I know $2 billion is a lot. I know it's a lot, but they're fucking brilliant, and it's taken a lot of money and a lot of time, and they are one of 10.

You mentioned Sierra. You want to go against Brett Taylor? Good luck—and Neil Mater bankrolling him—and then you want to go against the 50 others coming out of YC, all for individual verticalized solutions. Seriously?

Rory O'Driscoll

Yeah, that's the common case. You're exactly right. We've agonized about this market a lot. You have the pre-gen-AI people, and I think you're exactly right. Intercom is by far the best of those. They've done an amazing job of adding AI, their little Fin. If there's anything that a pre-gen-AI company could do to get relevant in gen AI for customer success, I think Intercom have done it. So they get an A++, and they're Irish, so that gives me double votes.

I think the problem is that whenever you're one of the more mature businesses, you're encumbered by facts, right? You have a scale, you have a growth rate that you can kind of project off that. If you're doing—I don't know the numbers—I'm going to put $400 million growing at 20%, whatever, you can value that, and it's kind of bounded.

When you're selling quadrupling and 5X-ing year on year from, you know, $3 million to $15 million—or was it $5 million to $25 million?—people are just more willing to lean in and say, “The future's unbounded. You can treble for 3 more years,” and suddenly the math works and you're worth $1.5 billion. I know how it happens. Venture guys love new shit with option value over old shit with intrinsic value. It's as simple as that. We don't do intrinsic value. You know why? There's no upside in intrinsic value. We are upside junkies.

Can you just break that down for those that don't understand? Why is there no option value in intrinsic value?

Rory O'Driscoll

Because if something's $400 million growing at 20%, and it's been doing that for the last 3 years, you're probably going to grow at 20% for the next 3 years, plus or minus. There's a price at which you'd love that asset, but it's not going to trade at that price. It's going to trade at 6 times today, it's going to grow at 20%, and it's going to trade at 6 times when you exit. So it's pretty bounded. There's no magic pixie-dust upside.

If you buy it at 6 times and sell it at 6 times, you can double your money if it compounds for 4 years at 20%. With low growth, there's just no way to tell a story where something magic happens.

Conversely, a new deal that's $1 million or $2 million, $3 million going to $25 million—well, shit, maybe it'll 5X next year as well. Maybe it'll go to $50 million, followed by $150 million, followed by $300 million, and, oh my God, that's still worth 20 times. It could be the next fill-in-the-blank. That could be worth 20 times $300 million, which is $6 billion. We can pay $1.5 billion now. There, you got your 4X.

Because you're selling futures, and you're selling upside hope. Now, people may be massively mispricing that option, which is what you're saying, and you could be right. In other words, the probability of that working might only be 1 in 100, and they're pricing it as if it's 1 in 2. In other words, they're pricing it as if it's certainly going to work, when in fact it just might work. And that's where these kinds of bets go up.

One of the hailed pieces that I always go back to is Bill Gurley's “The 10X Fund.”

Rory O'Driscoll

“10X Fund,” yes.

Yeah, and you know what he said there about global GDP and 2X.

Yeah, well, 10X. I look at that and I'm like, getting to $150 million in ARR from $15 million is a journey. You're paying for it.

Rory O'Driscoll

It is a journey. We had some internal discussions: should we be 1 of the 100 people pleading to put money into Decagon at $1.5 billion? We had some interesting discussions.

That is not a scale deal, not that.

Rory O'Driscoll

No, it's not. That was my comment. But my point is merely this: going back to the thing that you said, Harry, the market is changing so much that if every day you're not saying to yourself, “Are we doing it right? Are there things we should be thinking of that feel unnatural to us?”—and if you're not at least asking that question, you're missing the point.

Conversely, on the other extreme, if you start drifting off and doing every new thing, you'll probably also screw up because you'll lose what you have. But that's the challenge of being an investing manager in 2025. If you just stick to the same old boring shit, you could be done, and if you lose the plot entirely, you could blow all the money. You gotta thread the needle.

I've just led a deal for a vertical SaaS for dentists, Rory, so I'm at the cutting edge of AI. Thank you very much.

Rory O'Driscoll

Good market. They have the whole imaging stuff.

Oh, yeah. Oh, yeah. I'll show you the AI because you're so nice to me.

Rory O'Driscoll

You're all sweet. I knew there had to be something good come out of this.

Jason Lemkin

The one about Decagon—the meta question—I have done a lot of investing in support and know a lot about AI in it. This is true of Windsurf too, but the defensibility is confusing. But I think what they're good at is doing strong enterprise deployments—getting it done, doing the heavy lifting, I think.

I just tried the one on Notion, and Substack were on it. It couldn't answer my generic question, but that's not its strength, right? I asked Notion how to embed my AI in Notion, and it said, “The team will get back to you in a day,” okay?

So I have a lot of the data. I'm on the board of this company called Gorgias, which is the biggest support company in e-commerce, and I see all the data, and they have all the data for all the vendors. Gorgias' biggest challenge is that, objectively, they are the best, but the gaps are narrow. The gaps narrow, and listen, ripping out a support desk is a big deal. It's not going to happen in the enterprise over years, right?

But I do this moats-versus-momentum thing. Even though it's venture nomenclature, I think about this a lot: moats versus momentum. Decagon is cool, but if Quadracon or Dodecacon is better next year, I don't know. I just don't know, right?

Rory O'Driscoll

I hear you, but the argument I'd make is this: there are times when market windows open, and there are a couple of years where you scurry through. There's no moat at that particular point in time, but momentum begets its own moat.

I do believe, let's just say fast-forward 2 or 3 years, that the state of the customer service market will be like this: Gorgias or 1 or 2 of the old guard will add enough AI and be really relevant. Intercom, Gorgias, a few of those. There'll be 50 new companies trying to do it, but I'm going to say Decagon and Sierra—we have Observe.AI in the phone side of it—2 or 3 of them achieve critical mass and explode.

I think at some point, when you become the safe choice, windows shut and the opportunity to walk through them closes. So I don't think that those companies will get eroded, because I don't think 3 years from now Decagon will be at 100 and NewCo will start taking their stuff away. I think this is a point in time, like Salesforce, where you have the chance to grab a 10- or 15-year market slot.

Jason Lemkin

Yeah, it's not that I don't think you can get the momentum today. What I worry about is just that when there's so much competition, I think everyone's going to be less durable. It's not your 10-year-old SaaS company that's seeing less durability. I think this is new—this less-durable revenue—and I don't see any reason why the new guys—

If you listen to Varun at Windsurf, he's like, “Our only mode is working harder than everybody else and speed.” He's not claiming he's building any moat. This product didn't even exist 90 days ago.

Rory O'Driscoll

You're exactly right. I do think in enterprises the truth is, once you're installed, it's hard to take out for exactly the reasons you said. The shit doesn't work so well unless it's trained and tuned. You just have a bias to be there.

And then the other thing is, once you're the perceived leader, you do have all that positive reference value. I don't think Salesforce was winning in 2010 because it was the best CRM. It was winning because it was the default option.

Jason Lemkin

Yeah, but I just worry that with so much great competition, it's not just that your revenue is going to go to zero. I just worry there's going to be more churn, more downgrades, and harder-to-win deals. The benefits to hitting scale, I think, are less than they used to be, even if the budgets are exciting.

I just don't know how to predict where the future of anyone will be. There's going to be so many shiny pennies in AI and so much change. These chat apps are great, but what's just starting right now—it's just starting—is having real digital people join support through chat, voice, and bots.

Rory O'Driscoll

Yeah.

Jason Lemkin

Not dumb cartoons or somebody with audio that doesn't match the video. I'm talking about people better than a human joining it. Now, maybe that's not Sierra or Decagon or Intercom or Gorgias or Zendesk. It may come from another place.

And in these spaces, it's not a once-a-decade disruption or a once-every-5-years disruption. Now it's literally a disruption every 5 weeks. So this lack of stability is where I think the Decagon revenue growth justifies 100X. It's the stability that I worry about. If it's stable, I'm all in. If it goes from 1 to 15 in 12 months, I'm all in.

Rory O'Driscoll

That is fair in the sense that you have significantly more variance in product-market fit in these AI products than you saw in SaaS. I would still assert that enterprise-grade, big installs with lots of integration will be way stickier than most. They'll also be slower to build than most.

But yes, I think across the board in AI, Harry, you look in pain. Say it.

Well, I'm just saying AI is the greatest friend for verticalization, which is why we led the Series A for a company called Solve. It's AI for patent lawyers.

If you think patent lawyers are switching software tools often, you are high. It's a once-every-10-year switch. Difficult thing to do. There is no way the churn is what it is with horizontal developer audiences like it would be with Cursor or Codeium.

Jason Lemkin

And I agree, but I think there's a bit of VC old-school hubris here, which is that it's killed versus maimed. I think once you're embedded in a workflow, once you're core—it could be an SMB, it could be mid-market—when you're core, it's hard to rip out, okay? It takes time.

But what's happening with AI is people are looking more often, deals are more competitive, and there's more pressure on pricing at downgrades. Anyone that says there's not—when some new AI competitor comes in and says, “We will do this at half the price and it's 10 times better”—even if folks take a look, everyone thinks their sales team is so great at resisting pricing pressures. You know what happens when they cancel? They'll do the deal for half price.

We're missing the fact that AI can maim leaders even if it doesn't kill them, and that can take them off the IPO track. That can destroy venture investing. Instead of growing 50% at $500 million, you're growing 30% at $300 million because you got maimed. You didn't die, but, man, you no longer can IPO. That's terrible.

And that's where people that are hiding their ostriches in the dirt, I think their startups are going to fail because they're not realizing they're getting these knife cuts.

Rory O'Driscoll

I think it's more that the ostriches are hiding rather than people hiding their ostriches, but I did get the metaphor.

Jason Lemkin

That $15 million from Decagon came from somewhere. It might have come from Intercom. It might have come from Zendesk.

Rory O'Driscoll

I hear your point. I do agree that the competition and churn are significantly greater now. Because, like I said, I think the world is in flux. It was locked in for 15 years in SaaS land. It's been in flux for the last 2 years and for the next 2 or 3 years in enterprise land.

But—and this is where I could be wrong—I'm just going to put it out there. I think that when a successful set of products in AI starts to gel over the next couple of years, the people who are in the lead at that point in time get a similar 10-year run—the 10-year runs you and I both benefited from in SaaS, Jason.

That risk of churn and that 60 shakes out to 3 or 4, and in the end, market formation evolves in the same way as it did in the enterprise space, which is, typically, any enterprise apps marketplace tends to be a modest oligopoly of 3 or 4 players where you have steady market share. That's the vision.

If I'm wrong in that vision, then these assets aren't worth 10 times revenues; they're only worth 5 times, and everyone is so horribly wrong my head hurts.

Jason Lemkin

I at least think it's much riskier than I thought 100 days ago. Much riskier. I'm not being binary; I'm saying it's much riskier that there isn't this stable state at the 14th electron or whatever it is. The stable state no longer exists. I don't believe it exists anymore.

Rory O'Driscoll

I hear you, and I will say I'm lucky enough to be on 1 board with an executive. I won't name him, but he's a very senior technologist at one of the model companies and really understands…

And I just shut up and listen to that. Rarely—you would say rarely do I shut up—but I just shut up and listen to him talk when he talks about model trajectory. His comment, over and over again, is, “You just have to internalize what the models are going to do in the next 2 or 3 years, and you mightn’t be able to do that because it’s going to be done for you.”

So that is the argument on your side, Jason, which is that the more the model can do, the more of that software stack gets sucked in. I do agree it’s a countervailing force. I don’t have clarity on it. But until you get a handle on that, you’re right: you are at the risk of more disruption than we’ve seen in SaaS in 15 years.

Jason Lemkin

I just think we should be honest. Portfolio company founders, if they’re seeing a little bit of elevation in churn, more pricing pressure on renewal, Decagon in a couple of deals, whatever it is, they should see this as a canary in a coal mine. Their CRO should not come to the board meeting and say, “Ah, it’s just a little. Yeah, we lost a couple. We’re seeing a little pressure on downgrades.”

This is not a bump. This is an exponential change in terms of risk, and I just think, if nothing else, maybe VCs will take the risk, but founders should jump on this. When you see a little bit of this start, you better be all over it because I talked with Yamini Rangan from HubSpot last week. This is HubSpot.

She said that now at HubSpot, with Cursor, they are pushing out so many features they can’t put them into production anymore. She wasn’t kidding. They said they’re 50% more productive at HubSpot. It’s a big effing deal, okay? The fact that HubSpot has now developed more features than they can push out, think about that when you think you have a stable state in your 50-person startup, or that you can rest at $50 million in ARR.

HubSpot has more features than they can put into production for the first time ever. She’s not Dharmesh, but I’m sure it’s 100% accurate. She’s looking at it, and she’s measuring this by code commits. It’s too much business process change. HubSpot was so stable for years.

“Okay, we’ll add CRM at $100 million.” I mean, Rory, you guys invested. It was a generational, “I’ll add CRM at $100 million, and I’ll add service at $300 million.”

“I’ll just keep layering this beast, and I’ll drive NRR from 85 to 100 to 110.” It was just this check-the-box. But if they can build more software than they can push out, what about everybody else?

Rory O'Driscoll

Got it.

Can I just touch on one final element before we wrap? You mentioned, like, maim not killed there, and we’ve said about the companies that may be derailed in going to IPO. Olo, the public company now for sale. The reverse of what we’re talking about of struggling to get companies out, a company that needs to sell. How did we think about and analyze this one?

Jason Lemkin

I’d rather be SevenRooms, which DoorDash just bought for $1.2 billion. My advice to folks that are being eclipsed today is: take the offer.

Take the effing offer. I’m not an expert in SevenRooms, but I think SevenRooms conceptually has the same challenge Olo has, which is that you’re focused on the enterprise end of an SMB market. Olo—great founder—was trying to do big chains of restaurants, but restaurants are a VSB space, not an SMB. They’re very small businesses.

SevenRooms is the same thing: complex reservation-management software for chains. I think they got the money. They got the $1.2 billion, and Olo didn’t. At some level, it’s true. It may not literally be true, so the only thing I can say is: if you’re losing, this is always true in venture, right? But especially in these moments, take the deal.

I mean, the crazy announcement today was actually Deliveroo—

Jason Lemkin

Yeah.

—which is also getting bought by DoorDash for 2.9 billion. Just to put that in context for you guys—and I don’t mean that rudely—but I’m sure you’re not aware of public markets in the UK. It was valued at between 1.4 and 1.5 billion. That is a $1.4 billion delta between how DoorDash valued it and how UK public markets valued it.

Rory O'Driscoll

And it may well be—and I can say this having lived in the UK—that you guys are just crap at valuing tech companies. I mean, that’s a genuine comment.

Yeah, I agree.

Rory O'Driscoll

Look, DoorDash is the machine. They’re the, I don’t know, $60 billion market cap. They’ve done the US. You get out a little map and start coloring it in. You say, “Oh, Western Europe. We can pick this one up and just be done.” You pay a premium, it’s in the noise, and you win.

Once you have the US domestic market as your core starting point, you just end up with the biggest version of everything, except possibly something that’s domestic China. Then you can just pick off Europe, one acquisition at a time. Totally makes sense.

We’re not going into China. I don’t want to rock the boat.

Rory O'Driscoll

No, we’re not doing that.

No, we’re not going to China.

Rory O'Driscoll

There are other podcasts that will happily cover politics until we’re blue in the face.

Final one. I do just have to ask it: Kopelman’s venture arrogance score. What did you guys make of this?

Rory O'Driscoll

I totally understood it. Yeah, we run something. I wouldn’t call it the venture arrogance score, but it’s the right question everyone should ask: is there enough market share for me to execute my business model? What do I have to achieve to achieve my business model?

Taking away the arrogance comment, which is just Josh being funny—I think Josh is amazing, obviously. He’s done really well. Clearly, when you get towards the tail end, you can have a quick sneer at everyone. But the analysis itself was spot on.

Every single firm should have to say to itself, “Are there enough deals of the size and stage I want to do to make the math work for me?” Obviously, if you’re a $150 million seed firm, you know without even doing the math that you’re fine. There are lots of companies out there. You just have to make sure you find them.

What it’s implicitly saying is that it gets back to where we started. If you have a $5 billion or $10 billion firm, what percentage of total value do you need to make the model work? That’s why, when I was preparing for this, I got that other analysis I talked about much earlier on, the Coy Ratman stuff about what people have done in easier times.

You take Josh’s analysis on what percentage of total value you need to make the math work, and then you take Coy Ratman’s historical analysis on what people have done in easier times. The conclusion is that no one has achieved the market share that it would require to make this math work for venture investing.

You look at that and go, “That’s a sobering statistic.” Now, I’m not saying the model doesn’t work, because Jason said the right answer, which is you won’t get there by doing more Series A’s. Let me repeat: the best firm got 10% of the Series A’s. The next best got 6%.

8 firms aren’t each going to get 10%. The only way all those firms can, quote, “make their model work,” is by stuffing huge amounts of money into late-stage deals, which gets back to the same thing every fricking week: if people go with staying private for longer, then you can own and compound these assets, probably at a lower return, but probably over the hurdle rate. That’s what the bet is.

I thought his comment on duration was amazing.

Rory O'Driscoll

Yes.

Being that 2X in 10 years is relatively similar in terms of IRR to 4X in 17.

Rory O'Driscoll

Yes. Time value of money is a bitch. It was spot on, the analysis.

You should know for your firm: this is what you need, how many of them do you see, and how often do you get the picking right? They’ve got to exist. Then you’ve got to multiply that by how many of them you see, then how many you pick.

Rory, are you doing a coverage play?

Rory O'Driscoll

Everyone’s doing a coverage play. It’s just a question of what kind of coverage. Some people are trying to cover just the 10 best deals; some people are trying to cover 100 deals to win them. But everyone, at some level, has to monitor some version of coverage to get there.

I think he said one thing, and then we can finish. He said one thing I did disagree with. He said activity in terms of deals drives relevance. Of course he’s right, but it felt relatively binary, and it actually missed the fundamental reason why I do content, which is that content is the most effective way to stay relevant without having to put dollars out the door in deals that you maybe don’t want to do.

Rory O'Driscoll

Yes. Even though talking with you isn’t fun, Harry, I’d prefer to talk to you than piss away $20 million bucks.

There we go. So you see, Rory, even though you have to do this on a weekly basis, at least it’s better than pissing $20 million out the door on a Decagon at 100X.

Rory O'Driscoll

I’m not going to conflate those 2 things. I think Decagon is genuinely an amazing company, but I agree with you. Josh is so shrewd. As long as firms have a lot of money, they can do a lot of deals.

The person who does 10 good deals a year struggles to be relevant versus the person who does 100 good deals a year. Josh is exactly right. We’ve all got to pick our way to win in this market, because it ain’t going away soon.

This is the game on the field right now. It mightn’t be the game that is a stable long-term equilibrium. We might find, 10 years later, that some of this was a horrible mistake and some of this money gets withdrawn, but it’s the game on the field for the next 5 years. So quit bitching and play it. And now I’ve got to go chase a deal.

On that note, Rory, I know you love the visuals we do for each show. The visual we’re going to do for this show, thanks to Jason, is “No one wants to work these days.”

Rory O'Driscoll

Oh, no.

With your face right in there.

Rory O'Driscoll

With my face right in there. You are not doing that. Look, I have even—I was telling Jason this before you got on—I have even switched from a PC to a Mac to make this work.

Wow.

Rory O'Driscoll

So I’m trying my best, Harry, so come on.