a16z的200亿美元基金、Founders Fund的46亿美元，以及Josh Kushner为何已掌握这场游戏

The Thrive strategy was brilliant: buy the best property on every block. It's like Monopoly: fintech block, Stripe, tick; OpenAI block, tick; infrastructure block, Databricks, tick. Then you just go home when you're done and wait for the checks to roll in. It's genius. Why struggle to pretend you can do 8x over 20 years on a seed fund when you can just write one big check into a winner, call it a day, and achieve liquidity in a quarter of the time?

1. What is Wrong with Billionaires on Twitter: Are They Depressed?

The multiple will be lower, but the absolute return will be higher. It's so stupid. It's for suits, for suckers. Jason, Rory, I'm so excited to have you here. I was thinking, who are the most insightful venture investors that I can bring together to discuss today's news? Sadly, Bill Gurley turned me down.

What was Chamath doing, by the way? Did he turn you down too?

Jason

He was teaching Larry Summers about economics.

I see it's going to be vicious. I love it.

Jason

This is a new one since we have you, Harry. Go on. But I want to know why these billionaires are so bitter on Twitter. I think Rory will have an answer for us here.

Rory

I don't know. Bitter. Well, first of all, you must be bitter if you bought this product 4 months ago and said they're really smart and really intelligent and are going to run the country really well. You must feel like a bit of a buffoon. And when you feel like a buffoon, you've only got 2 choices: double down and bluster your way out, or fold and go away quietly.

Billionaires tend not to fold away quietly. So they're just going to bluff their way out and say, “This is all part of the plan.”

Jason Lemkin

It's a tough look, by the way. It's a tough look, right? But whatever. I think what it shows is that just because you really understand one domain, investing or technology, it doesn't automatically make you understand a totally different domain: politics. It turns out raw IQ is not transferable, and you can't walk into a different game where people have been playing it for 20 or 30 years and think you're good just because, hey, you're smart.

It's so interesting you say that because I actually just wanted this to be a very free-flowing conversation. We released a show the other day with Victor Lazarte from Benchmark, a GP at Benchmark, and he said the generation of SaaS investing before this is dead. Spreadsheet SaaS investing, where you look at NRR and growth rates and can reasonably predict good-quality companies, is dead. Nabeel Hyatt at Spark said the same.

Is the way that we've invested now dead? Do we fundamentally have to change all of our rubrics? Rory, you've been thinking about this.

Jason Lemkin

Actually, you know, when Rory and I first met, he was the first guy who really opened my eyes to this question of SaaS metrics. I think the first time I met Rory was at the first Upfront Summit in 2013. I might be wrong, but I think so. I asked him what a good SaaS startup was because I didn't know at the time.

I'd done Pipedrive and Alation, but I didn't know. I made this up when I worked at this other VC firm. We didn't have a consensus on what good growth was. He said, “1 to 10 in 5 quarters or less is S-tier.” 1 to 10 in 5 quarters or less.

That's that. I think I copied that with attribution. I used that as my investing yardstick for years, right? And then he's done the Mendoza line, right? But then I'll say one thing and then I'll shut up.

I think in late 2020, it seemed like every startup met that. I had 2 startups in my portfolio—2 of them—that a VC all 3 of us know really well, one of the best cloud VCs, offered term sheets to, I remember, at high 9-figure valuations without talking to the founders, just immediately, in late 2020. In late 2020 and early 2021, you only needed a spreadsheet, right? If you're growing 20% a month at $10 million in ARR, you didn't actually need to know what the company did in SaaS for a while, right? And so I think that is dead, right?

Rory O’Driscoll

I think it's just that spreadsheet investing is one component, and SaaS is another component. There are 2 problems with that question. It's true that first-generation SaaS investing has definitely—I don't know if I'd say it's done, but you've hit a plateau. There was a 20-year period where it was pretty obvious what to build, and you built it. Because the broad direction was obvious, all that was left to analyze was the math, right?

It was pretty clear: the direction of travel was to take X, move it to the cloud, compound for a long period of time, and get a great outcome. Pretty straightforward. So the only thing you had to do was actually fairly simplistic: evaluate the relative growth rates of different things and pick the thing that's grown the most at the most efficient level. There was a 10-year period where these companies didn't change.

I invested in Box in 2010. It didn't change. Again, Jason and I competed in the e-signature market, DocuSign and EchoSign. The thing that we invested in in 2010 was exactly the same in 2024. It's stunning. So there was no conceptual thinking about what we should build next.

It was just like, build this thing and sell as much of it as you can, and that's done now, right? In 2 ways. 2 things happened at the same time: the existing markets saturated, so all the growth rates flattened out, right? Anyone who needed a Zoom account or a DocuSign account has a DocuSign account because they all got them during COVID, right? We're done, right?

2. Why Does Product Market Fit Mean Less Than Ever

At the same time, these new AI startups took off. Jason and I were just chatting about this. Unlike the SaaS thing, where stuff was the same for 20 years, this shit changes every 6 months, right? Literally, I've had companies acquire and lose product-market fit 2 or 3 times in a 2-year period. It's terrifying, right?

So it's way harder now. When it works, it's way better. But, oh my God, it used to take you 5 years to fall out of product-market fit. Now it can be 5 weeks.

Jason

Absolutely. For real. That's not just a catchphrase. Literally, when all 3 of us started—I mean, Harry, you were dropping out of school—you could count on, if you hit product-market fit and had a decent team, that you had 5 years to run. There were exceptions, but you had 5 years, and you had to reinvent yourself around year 4 or 5. You can't count on any of that today, can you?

And the reason for that is what? What has changed that has made product-market fit a very transient and fast-moving thing, rather than something that you held for reasonably long periods of time?

Rory

Probably 2 things. 1 is model progress probably has something to do with it at a very deep level, as what you can do gets better. And then the 2nd thing is we're still at the figuring-out stage of what you can do, right? I think even absent model progress, there's a lot of, “Oh, we thought they would do it this way,” and you fast-forward 6 months and it turns out, well, they do it this way for a few months, but then they want to do it a slightly different way.

In fact, if you don't add more value, the customers say, “No, I can do something better somewhere else.” So we're in this exploratory phase, which makes sense that it's changing, because we're not yet locked in. I remember there was a period from about 1999 to maybe 2002 or 2003 where what an SaaS company was was changing. I mean, you had Salesforce nailed it, but before that there was this ASP weirdness, and it wasn't quite clear what an SaaS company should be.

I think it's the same thing here. It's not clear how, and it's much harder here because instead of just automating some back-office shit, you're really trying to automate the work of the worker. You've got to get in the head of the sales rep or the SDR or whoever you're augmenting and assisting, and just figuring that out is really hard. Then it changes as the AI can do more.

Jason Lemkin

I also think we were talking before we went on about a hot AI SaaS company where literally the team was all on Adderall, and it was a joke, right? It was true but a joke. But I actually think in San Francisco today, most of the startups we work with are on Adderall—not literally, necessarily. I mean, I don't know. But literally, all the best startups I've invested in are working 7 days a week, 12 hours a day in the office.

In the office, 7 days a week, 12 hours a day. Now, it is true that as they hit super-scale, they're being more flexible for folks with families and more heterogeneous. But, man, everyone is working 7 to 12, right? And it's a vibe. You can make fun of vibe coding and vibing, but when your competition in 2021—I mean, people were working 10 hours a week from home, guys. Literally, they were working 10 hours a week.

3. Why is Venture Capital More Risky Than Ever and No One is Discussing It

Okay? Now your competition is working 100 hours a week for real, not for fake. If you haven't evolved, you're going to die, right? Especially when you can add AI on top of it, you're going to die.

I just want to go back to product-market fit being so transient, because if product-market fit is transient and revenues are highly unreliable or unsustainable, as we're seeing with your GenAI companies that scale to $20 million, $30 million, $40 million, $50 million very quickly but with a lot of potential for a sugar high, if we've got revenue unpredictability and PMF unpredictability, what are we underwriting? I want to know what Rory says because I don't know right now. You first.

Jason

You're missing the movie. You're taking on more risk. What you're underwriting is the upside, right? You know less at every stage, on every check you're writing today. You know less than you would have known 10 years ago at a similar-stage SaaS company.

A lot less. A lot more things can go wrong. But on the other hand, the upside is there and it's huge. You're just taking on more risk for a dollar of revenue.

Is the upside there and it's huge because the prices are inflated much higher than they were 10 years ago? It doesn't feel like you're getting paid for the risk that you're taking.

Rory

Well, disaggregating that, because, again, you inject a price into the equation. At the risk of channeling Monty Python—I was making a reference to The Holy Grail—but leaving aside price, I meant leaving aside price. In other words, do I think the outcomes of these companies can be huge and arguably even bigger than some of the SaaS companies? Yes. So, to quote you, the upside is there.

Now, the worst of all worlds, as you say, is if you've got high product-market-fit variability, high risk, still good, big upside, but then you pay up so much that even that upside has been competed away. Then it's a sucker bet, and yes, that would be bad, right? And look, it's a very scary time to play the game today, right? I mean, we all do it because we enjoy it, but every time you're writing a check today, you're going, "I know a lot less than I did on some of these other things," and paying a bit more.

The upside is amazing. Oh my God, look at that growth, but we've seen companies fall off the growth track in 6 months. So it's pretty scary. It turns out making a lot of money is hard.

4. Quick-Fire Round: OpenAI, Cursor, Deel vs Rippling

Rory, do you think we're going to have more bimodal results, where a lot of funds will just be massive underperformers because it's hard to assess the risk properly?

Rory O'Driscoll

Yes, by definition, I think so, and for 2 reasons. One is that each individual deal has more risk in it, and then, on top of that, there's the whole totally separate thing: the holding periods have elongated, right? And every holding period elongates, one of 2 things happens. If you roll the dice and you win, you go up 30%, and if you lose, you go down 50%. If you roll the dice 3 more times, by definition, 1 company will go up 2x and the others will go down.

So yes, it's going to be—I mean, portfolio construction really matters here because you're in a riskier game for a longer period of time, and yeah, some of you are going to make it, but a lot of you are not. It's scary.

Well, I mean, I had Victor Lazarte from Benchmark on the show, and he said that portfolio construction doesn't matter. His first check was 8% of the fund, with $55 million into HeyGen, which I thought was a lot. Jason, we've spoken before about percentage of a check as a percentage of a fund. 2% or 3% is standard; 8% is a lot.

And he said, bluntly, that they can raise whenever they want to, at will. So, a $500 million fund can be deployed in a year. We saw Kleiner Perkins deploy a fund in 12 months. I guess my question to you is: if you're a brand-name firm that can raise on demand, does it matter?

Rory

I think it always matters. Some people actually lose money, which is worth thinking about, particularly when they lose money 2 funds in a row. Even a brand-name firm can hit a bump, right? I never take it for granted that you can win the next one or that you can raise money, because I'm sure Jason has had the same experience too.

My partner Kate and I raised our first independent fund in 2009, and we were in the Lehman and AIG offices the day Lehman went bankrupt. It turns out they didn't need to add to their exposure to private illiquid assets that week, and I never take it for granted. It was damn hard; it took a year to raise that money. So, probably true for Benchmark and Kleiner Perkins, probably not true for the other 898 funds out there.

We were talking just about, "Hey, we see the growth," and the question is: are we getting paid for it? What about the normal SaaS companies? There are thousands and thousands of SaaS companies that will listen to this and be going from $1 million to $3 million in ARR, maybe $1 million to $4 million, and that was kind of good in 12 months. It was decent—4x year on year. It's still great in any normal world.

5. Will Private Equity Save a Generation of SaaS Companies and VCs

It's great, right? It is great. You're still elite. But can the companies that are doing triple, triple, double, double still raise? It's not Lovable. It's not Bolt. It's not Mercor.

Jason Lemkin

I think they can, but I don't think that's the issue, Harry. I don't think the issue is: can the companies doing triple, triple, double, double raise? I think the tough issue is that—and yes, they can—if you hear the story and you go, "Yeah, that makes sense. It's a totally good solution. SaaS hasn't been made illegal. It's a totally good solution. It doesn't have AI magic pixie dust, but it solves the customer's problem." And the proof that it solves the customer's problem is it's growing 3x, 3x, 2x, 2x.

I would do that deal all day, every day. So, let me put that out there: if you've got one of those, call me. I'm mentally thinking of a deal I turned down 2 or 3 rounds ago that has done just that, and I'm an idiot, right?

The real problem with SaaS isn't what you just said. The real problem with SaaS is that there are tons and tons of SaaS companies that have slowed down from exceptional growth rates—and, you know, 3x a year is exceptional—that are doing $50 million, growing at 10% or 20%, or $100 million, growing at 8% or 9%. There are myriads of those, and that's where the real question is: what those companies end up becoming.

But Rory, just to follow on, I think all of us would do some version. For me, the triple, triple, double, double, I'm totally into it if the CEO is amazing, right? Because that solves for everything, right?

But I will say, I remember it was kind of almost a chilling moment to me, maybe 15 months ago. I got together with another top cloud SaaS VC who I've known since inception and that all 3 of us know. He had a big fund, and he said, "I'm only doing AI investing." Then I started asking other folks, and listen, I don't have a survey. You know this better than me. I would say 70% to 80% of the folks I grew up with who were SaaS investors won't do those normal triple, triple, double, doubles.

You would, and you're a top-tier performer, but they're just momentum investors, and they want to put $200 million into the latest AI deal, right, and triple it in 8 months. They want to triple it in 8 months. It could be 80%; I would say they won't take these meetings.

Rory O’Driscoll

But what about this? I've often found that when people are using a heuristic, there's sometimes logic behind it. Maybe a more refined version of the sentence that they're giving you is, "I just don't believe I'm going to kiss all those SaaS frogs, and I'm not going to find my prince." So mentally, I'm not even going to bother because, like, I'd say, for me, most of the stuff I'm looking at is AI.

Our prior is that, without data, I would assume most anything that could have been done 20 years ago in SaaS probably has been done. So I'm not rooting around in SaaS land looking for a good deal, right? But if one was to crop up, tripling year on year, you have to look at it, right?

So I think, as I say, a modified version of that is: don't despair if you're in SaaS land and you don't have an AI pixie-dust story. But if you don't have the growth as well, then you're right—then it's compellingly hard, you know.

Okay. You say compellingly hard. We all have LPs. I have a lot of LPs call me up and go, "Harry, what the fuck happens to this company? Where am I getting my liquidity? I've got exposure from Jason. I've got it direct."

Rory O’Driscoll

Yeah, I mean, look, it is the $3 trillion question. The reason it's a $3 trillion question is because that's the rough fair market value of privately held venture assets, and maybe half a trillion to a trillion of that is high-growth new stuff. The other $2 trillion is mature, slower-growth SaaS and cloud companies that don't have the trajectory anymore for an IPO but as yet have meaningful value, right?

And I think that's the interesting thing: I was around in '99–2000. All the good deals went public, and all the bad deals were so fucked that by 2002 we closed them down. We said, "Whoopsie," and we all moved on, right? You can move on from a $200 million SaaS company; you can't move on from $2 trillion, right?

So there's a huge amount of really grim industrial work that's going to have to be done on everyone's portfolio to manage these companies through to a meaningful exit because, as I say, you can't walk away from $2 trillion. That's not only your LPs' economics; they're your economics. They're significant, big companies, and they're so big that you're not going to walk away, but it's going to be a lot of hard work you're going to be doing.

One option is you just grind your way to profitability. You look at a PE exit, you look at consolidations. You're going to see some private-to-private transactions where you put the 2 or 3 companies in the same space together and try and change the economics of the trajectory. Maybe you'll see some smaller IPOs where people go, "I know it's not a great market, but God, give me some liquidity." Price, all markets—you know, all of the above.

It’s going to be real case-specific, long, and tiring work. But, on the other hand, $2 trillion is real money even in America. Rory, one thing I wonder—and this is what worries me. I wanted to write this up, but I don’t have the data to support it because you have a much broader portfolio.

I’m worried that the PE firms aren’t trying to buy these companies. That’s what I’m worried about. It’s not the valuation; at least you have an option. I’m worried about that, and the private-to-private, I think, is a great idea, right? Take 2 companies at $200 million, growing 20%. Take it public at 20% at $500 million, and you’ve got a game. Everyone should look at that deal.

But I’m just stunned. I used to see PE hunting everything in the portfolio, right? I used to come to SaaStr Annual, and every year I’d talk to some founder and be like, “Well, we’re here. Has a PE firm talked to you?” “Yes, 20,” right? Folks in this sort of mediocre-growth level, they’re getting no tire-kicking. Are you seeing lots of tire-kicking? It’s not happening because I ain’t seeing it.

Rory

We’re not seeing a huge amount. And you’re exactly right. It’s quite a shrewd comment, Harry, and I think the reason is this: PE guys, ironically, love the things that we don’t love. Let me tell you what I mean by that. They love a boring-ass software company in a teeny-tiny vertical with 40% market share, where they can screw the customers for the next 5 years by raising prices because there’s nowhere else to go.

Venture deals—SaaS deals—love broad horizontal markets where you can compete and maybe get a billion-dollar outcome. So those are the companies that our industry has funded. The problem is, when you fail to get the billion-dollar outcome, when you discover your market is tinier, or when you discover that an adjacent company is competitive, you’re left with this subscale company that doesn’t have the same pricing power, right?

You’re in a perfectly good big market, but there’s a bigger company out there that can grind. There’s no pricing power. There’s no pricing power. And PE guys just hate that. I mean, they can look at it and go, “I get it. You’re doing $100 million now. You can grind it, but you can’t take 30% of the cost out, raise the prices, and get the same thing.”

So, I agree. I think that not every deal at $100 million would be interesting, but if they have an adjacency in the same space, then they might buy it because they can load it on. But there are a lot of them. I mean, when you look at the things they love and you look at the things we make in venture, they’re not the same deal.

It’s very clear when you list the kind of companies they do. It’s like, “Oh, obscure vertical accounting software for an obscure vertical, massive market dominance, and no one’s ever going to fund a competitor.” They just run that math. They cut, they fire all the salespeople, double the prices, cut the engineering down, and kick off 40% cash flow.

In some of the broad horizontal markets—in a CRM company, or let’s just say a first-generation customer-support company from 2016—if you cut off the R&D and the sales and marketing, your gross dollar retention will be 80%. You won’t be selling any new shit. You’ll be declining, and your product will become irrelevant in 2 years. But other than that, have a great day. Right?

Those companies, you’re right. And where do you put those companies? You have to find—I mean, one of the things you said earlier is that you probably have to find a way to fund new growth while, at the same time, building a new product. It’s a much harder play than just selling it to PE.

As I say, it’s all the other things we talked about. Do they get let off for Coupa, Anaplan, and Zendesk—a load of super-high-risk deals that were done in 2021–22, where you’re really struggling to see them do real numbers back on them? I mean, not that they’re let off. The first rule of investing is, once you buy something, you can’t just make it go away, right? It’s on their track record. They’ve lost their money, right?

But do you mean that they would be forgiven because they’ve made so much money before?

Rory

Yeah, they probably will. I don’t think someone’s going to say, “You are an idiot forevermore because you did that dumb thing,” right? They’re probably not. They’re going to say, “Oh, that fund sucked.”

Now, you put 2 funds back-to-back—prior conversation—you put 2 funds back-to-back full of idiot deals, and you’ll get sent off, right? But, yeah, they’re going to get away with it. It won’t bring them down. But you’re right, it’s a lot of earning your way back from a mistake, and no one likes to do that.

You know, I’m sure if you give them a chance to unwind, now they’ve hit the bid. But, yeah, the thing about the PE playbook now—I mean, I think about the last investment I made that was bought by PE. It was almost $300 million. It was a legal-tech company, and I’m shocked all the sales team and engineering team’s gone, right? But the revenue is durable, right? At least for a while, right?

Yeah.

And I just didn’t really think about that. I thought PE would bail out a lot of these deals, right? Going to your points, this revenue is not durable. You can barely keep up with the AI competition. You fire half the engineering team, blend the sales team into someone selling something else, right? And leave the product frozen in time. In 2 years, you’ve lost 30–40% of your revenue, right?

I suspect that Zendesk, Coupa, and Anaplan are doing okay. Probably growing in the teens, right? But a lot of the stuff we invest in will decelerate almost instantly, won’t it? In quarters.

Rory

You’re exactly right. And those guys had scale on their side. And even then, I’m willing to bet that all those PE shops have a, “Let’s acquire some new AI pixie dust to put on top of Zendesk, to put on top of Anaplan, so we can tart up the story with acquisitions.”

But you’re exactly right. You know, if you’re not doing $400 million, it’s a lot harder.

Rich, you said there’s kind of a difference between what venture likes and what PE likes, and, hey, if we do this and this, we can see the billion-dollar outcome in venture. Kind of relating it to the news, Andreessen Horowitz announced a $20 billion fund and the plans around it. General Catalyst has $8 billion. Lightspeed—I don’t know how many billion dollars they have. It’s so confusing with all their different vehicles, but billions and billions.

Billion-dollar exit. Thanks for paying for the Christmas party. I’m being serious: if you have 8%, it’s $80 million back. I want to see what the metrics look like in the funds, just to learn. How do we think about this?

I mean, to state the banal, they’re obviously not focused on billion-dollar exits. They’re focused on a much smaller number of much larger exits, right? And that’s the bet in a nutshell.

If you’re going to make those kinds of numbers work, you either have to do lots of—I mean, you have to get vast numbers of $1 billion-to-$5 billion exits, or, as I say, you’re playing for the $10 billion or the $100 billion exit. And the question is, how many of those are there, right?

Typically, anyone who raises one of these funds has proven they can already find at least 1. I mean, look, at least they found Databricks, and they’ve done amazingly well. They own a huge slug of that. It’s a fund returner. It’s a multifund returner, right?

No one gets given $10 billion or $20 billion because they’re idiots. They got given $20 billion because they earned it by 10 or 15 years of track record with no bad funds. By the way, back to that comment you made about another partner earlier: you demonstrate your judgment. And then, typically, most things in finance go wrong when people lean into a trend just a bit too far. The judgment here is: is this that point, right? And that’s really what you’re asking. I don’t know.

I think the biggest thing they have in their favor is the fact that so many companies are staying private for longer, right? Which, by definition, means more need for capital, right? Which, by definition, means if you have that capital, you should be able to make an acceptable return, right?

So, look, the venture market that I knew 20 years ago couldn’t digest $20 billion. It wouldn’t even be close. There would be no possibility of return, because typically IPOs were $1 billion to maybe $5 billion, and there was 1 bigger than that every year at most.

In a world where things are staying private for 15-plus years, where there are massive secondaries to deal with employee issues, it may well be that there’s a place to put all that money. The returns mightn’t be 3× venture returns, but the competition is the small-cap return of 11%. You know, if you’re delivering mid-to-high teens, it may be that the LPs think that’s great, and that’s the bet they’re taking.

Jason, how did you analyze that?

Jason

Well, look, there was an LP on Twitter that made this tweet literally this last week. I’m a little slow. When Harry made the old “1 to 10 and 5 less” point, this one opened my eyes too.

The size of these funds seems crazy, and they are crazy, but the size of the fund should be tied to the amount of winners you can deploy X amount of capital into. So, if you’re Andreessen Horowitz at this point—and it’s certainly been true of Sequoia since we started—they see every deal. Andreessen sees every deal.

And so they can put this on a spreadsheet, and they’re like, “Databricks was $27 billion in 2021. What if we’d done the whole round? Forget about that—they were in the A, right? What if they just put in $3 billion in 2021? They would have already 2.5× their money, right?”

And they put it on a spreadsheet and they’re like, “Yeah, we can deploy $20 billion in 24 months.” I think that’s the way it works.

I think it's that simple. And there's so much capital, to Rich's point, especially in these later-stage deals and AI deals. They can easily deploy the $20 billion on that spreadsheet if you see every deal, right? I do think there's a sensitivity analysis and the model supports it, right? That's what you want to underwrite.

When you raise too much for the fees or whatever, you run out of deals. Most folks run out of great deals to see. If you see every S-tier deal, here would be my Andreessen math: What if we see every S-tier deal there is in venture? We see 100% of all the best deals. We've seen them all, and we passed on 90%.

Then you could go back in time and just do an analysis, right? This is what we should have done when we passed on all the decacorns, because you're in every one, and maybe it solves to $20 billion. I think it probably does. That's what they should have done. I would push back hard that they see every deal—hard pushback.

But folks get fired. My limited experience with Andreessen is that if you're not Marc or Ben, you get fired if you didn't bring in every deal, don't you, Rich?

Rory

You can stipulate they see most, right? I don't think I have a genuine comment on all the things that could go wrong with a $20 billion fund strategy, but not seeing every deal is not a top-three issue, right?

I think the 2 issues with deploying $20 billion are, first of all, yes, you see every good deal. But remember the next sentence: You see every deal, which means you see every bad deal. And there are 99 shit deals for every 1 good deal. So the more deal flow you see, the more important picking is.

Relative picking is easier than absolute picking. In other words, we are comparison shoppers at heart. Sometimes, in the abstract, when I look at a deal, I get caught up in it. Maybe it's good, maybe it's not. But most of the time, if I see a good deal and 5 bad deals, my little IQ can go, “I think that one's better than the other 5. I should do that one,” right?

Seeing all the deals is a huge advantage, but you still have to piece through them. That's issue 1. You're going to see every good deal if you're around every good deal, but you're also going to see every bad deal. So picking still matters, right? I think they can figure that out because they're wildly smart dudes.

I think the real question in the end is: Is there just room in the privates for all that money? If there is, this will continue. And if there's not, then at some point it won't stop because the venture guys will mature, it won't stop because the founders will be more careful with capital, and it won't even stop because the LPs will stop it. It will stop because the LPs' bosses, the overall CIOs, will stop allocating capital to venture. Until that happens, this game goes on.

By the way, if it happens the day after they close $20 billion, they win the best, because they have $20 billion and no one else has any. I think this whole little ecosystem in venture is going to keep going as long as there are enough new LPs to fund it and keep it fueled up, almost clearly independent of the wider market. It's been stunning that the 2022 crash didn't cause much more than a pause for breath.

I think it was a pause, right? It was just a pause for breath. But when you look at OpenAI raising $30 billion and Anthropic's multibillion-dollar fundraiser, I don't think there's any question whether this ecosystem can actually absorb it. I think the subsequent question is: Is it fundamentally a venture game?

Rory

I know, and we both know many investors in some of the model providers who came in at $4 billion. It's now $60 billion, and they're 3.5x up because employee stock dilution was so heavy and the funding rounds coming in were so heavy.

Yeah, the multiples are shit even with great returns.

Rory O’Driscoll

“Shit” is a bit of an interesting word. One of the things—my observation in my own thinking—is that I'm sometimes too conservative, so I push against myself. I think one of the big advantages some of these newer entrants had was that they weren't in the business a long time. When you've been in a long time, I remember 1999 to 2002. I remember the crash after and all the capital getting withdrawn, so it made me naturally cautious.

You're right: The idea of writing a check at $4 billion—I had this instinctive, “Well, that's not really venture,” right? But the truth is, this venture was made to make money, right? And some of those rounds have made decent money. Perhaps not as much money as they thought because of the dilution, right?

6. Why Josh Kushner and Thrive Capital are Masters of the World

If you look at one of the common characteristics of the folks who entered this market and have been successful, it's been newer entrants, like founders unencumbered by, quote, “What is venture capital?” and who have just said to themselves, “How do I make the most amount of money and hack the system?” And they've made it. Thrive, I think, is a great example—the best proof, by the way—and I'll tell you why Thrive worked.

A real estate investor knows only 1 thing: Buy the best damn house on every block. So he bought the best damn house on the fintech block: Stripe. Tick. He bought the best damn house on the OpenAI block. Tick. And then he bought the best damn house on the infrastructure block: Databricks. Tick. Then you just go home when you're done and wait for the checks to fall in.

It's genius, right? Every little fiber of my being would have said, “Don't do that. That's not venture.” But I'm not living in 3 houses in Miami. He wins, right? I've learned to say to myself, “Don't just say it's not venture. Just say, is that the right strategy for this game?” And it clearly is the right strategy for this market at this point in time.

Will it be the right strategy across the cycle when there's an equity downturn? Maybe not, because the only risk you're taking is price risk. But that's a typically correlated risk. So if it does go wrong, maybe there's only a 1-in-3 chance it will go wrong on everything, because your equity values will tumble. But absent that, the Thrive strategy was brilliant.

Buy the best property on every block. It's like Monopoly: You've got all the little blue ones; people are going to land on them, and you're going to make a lot of money. I'm profoundly jealous of that insight. If someone had given me $5 billion, I probably hope I would have been smart enough to do that myself.

The criterion is not, “Is it venture or not venture?” There's only 1 criterion: Is it going to make you money? And is it going to make you money across the cycle? The answer to the first part of that question looks like it's yes. The answer to the second part of the question, across a cycle, is: Call me in a year or 10 years.

Why struggle to pretend you can do 8x over 20 years on a seed fund when you can just write 1 big check into a winner, call it a day, and achieve liquidity in a quarter of the time? The multiple will be lower, but the absolute return will be higher.

Totally. The carry will be higher.

Why would you do the stupid seed investing and wait 20 years so that everyone on Twitter can say you had an 8x or 10x fund? Hooray. You split it with 4 partners on your tiny little fund after 20 years, making nothing. Just write the big fucking check and call it a day. It's so stupid.

When outcomes are $1 billion, seed is great. When outcomes are north of $2 billion, seed is for suckers, Harry. Seed is for suckers.

I love that. That, by the way, is about to be—I’m going to steal that. I’m not even going to give you credit. I love it. Right? Seed is for suckers.

But no, all joking aside, you're exactly right, Harry. We're saying the same thing: This was a compellingly great way to make a lot of money, provided someone was willing to give you that kind of capital for that kind of risk.

What I don't know is—there's a part of me that sometimes thinks it's a really good risk and you should do it. It makes sense to do it. And part of me thinks it's a very risky strategy in terms of correlations, and if it goes wrong, it'll be horrible. It's not what we do, so I don't spend a lot of time thinking about it. But right now, it looks pretty good.

What could go wrong when you talk about that correlated risk? They feel relatively uncorrelated.

Exactly. They're uncorrelated in terms of individual financial performance. You're picking the best asset in 3 diverse markets. You're right, they're not correlated that way. What is correlated is fundamentally equity values.

We live in a world where high-tech companies get 30–35 PEs. Hypothetically, if a president were to destroy the economy like in the 1970s, just saying, and PEs went to 9, 10 or 11, and even growth stocks went to 12 or 13—look what happened to the Nifty 50 between 1968 and 1982. In a world where the growth-stock premium goes away, all those assets—if you start valuing all those assets at 6 or 7 times revenues, which is still pretty healthy—you’re just in a very different place.

That's the only risk. You've bought the best assets; the only risk is that the world decides equity isn't worth as much. To be clear, my strategy—a small, kind of a strategy that would get a 3x—will get a 1.5x because you haven't taken a ton of valuation risk if you're doing the kind of things we do. A strategy that's entirely predicated on buying marquee assets at high prices could get a 0.5x or 7x. So that's how—and what you are there is time-sensitive, because you don't want to have to liquidate at a time when you have that compression of multiples.

Which is why, if you have $20 billion, ka-ching, I can pay that price, buy the best house on the block, and if I want to sell that house and there's a market crash, kaboom, I can put in even more money at a reduced price and wait for the multiples to expand again. Again, there's one implicit assumption in that, which is that the company will continue to compound.

The problem here we're dealing with is ex post facto vision. There are 5 or 6 technology companies worth $1 trillion, so it's clearly doable. You can clearly compound from $300 billion, which is where OpenAI is today, to $1 trillion because 5 other companies did it, right? What you forget is that most tech companies don't. Every time you hold for longer, think of it as a process of distillation: Your best ones get better and your worst ones go down.

So, provided you've got the right ones, yes, you can tough it out forever, right? But it would be a bit of a bummer to discover you'd invested in BlackBerry while it was still private, they just launched the iPhone, and you decided, “Screw it, we can take these guys. I'll put in another billion,” and then you just march the thing down.

The hard truth is that most tech companies in the end get acquired, rolled up, or aren't successful. So the longer you push a strategy, the more premium there is on being absolutely right about your stock-picking and having a winner. It's not a crazy bet. I'm just saying that typically, any financial bet has an embedded risk somewhere in it. There's no such thing as free money, and when stuff looks like there's free money, it typically just means that the risk isn't fully recognized.

This has been a great business. It's ultra-late-stage. I mean, you sent a tweet, Jason, and I saw it there about that. It looks like the easiest way to make money imaginable, which makes you go, “A, I wish I could do that.” But then, B, you yourself: what's the buried risk?

Jason

Well, look, Harry, I don't want to discuss the company, okay? Don't push. You can push me on anything except this one thing. But I have a company that's just become a unicorn, and a late-stage fund just put in almost 9 figures, okay? And they own as much as me.

Now listen, I'm lucky to be a part of the company, but if the company's only sold for the basis, they make nothing, right? But they're underwriting a $10 billion outcome, right? They, for all intents and purposes, will make just as much money as me, right? In fact, they can support the company more. They skip years of work and stress, right?

And, yeah, it has to be a big outcome. But if it does, why would you do this seed stuff? It's the same ownership. Skip all the years, right? And, yeah, if it doesn't, you've got your 1x worst case, your wonderful 1x.

Rory O’Driscoll

But there is an argument against it. I understand it because I go through the same angst and ruminations, right? But I have good deals in my portfolio where we've made good money and our later-stage investors haven't, right?

Jason Calacanis

And that's just the nature of it. And remember, if it's really good money, you make the same.

7. Why is Seed Investing for Suckers

Yes, agreed. And if this is an outlier game, who cares about those little $800 million outcomes? Who cares? Rory, can you talk about 1 way you've made money that others haven't, and just what you learned? You don't have to name it.

Rory

Look, the higher the price you pay going in, the higher the price you have to get on the exit to make money. It's just as simple as that, because we've gone on both sides of that. We had a sale recently where we got a 1x and the early investors got a 3x.

It all comes back to this idea of access to capital. If you have access to capital that's large and forgiving, which is what these mega-funds have, then you should play the big-balls game, because you're exactly right: you don't do it, you have to do less work. If it works, great, you make out the same as Jason, who did the seed for suckers, and Rory, who did the A. And if it doesn't work out, you're going to get a 1x. But you get forgiven and start again. If you have access to that kind of money, that's the game you should play.

Remember, Jason, the reason you and I don't play a different game is that I was wandering around in 2009, and no one offered me a billion dollars and said, “Hey, have a go, and if it doesn't work, we'll give you another billion in 2013,” right?

When you have a smaller fund, you basically want to have a higher probability of the upside. Logically, even though you don't want to hear this, the higher your going-in price is, the less likely it is that you're in the 1 deal that can transcend price and be not the billion-dollar outcome, but the $10 billion outcome, right? You're just raising the bar on getting it exactly right.

That's the argument for it: if I had $1 billion and could get $20 billion, I'd play what Mark Suster does, too.

I get that, Rory, but you have a pretty great track record. You've proven yourself to be a phenomenal investor across cycles. With respect, you could probably get a lot more now. Why do you not?

Rory O’Driscoll

I think, actually, we're all products of our experience. I think I'm a very conservative, somewhat conservative investor. I think I'm branded a little bit by remembering surviving 1999 to 2010. And I don't want to take a lot of money at the end of my career, manage it badly, and then fail, right? I don't want to make that bet, because I've seen what it looks like when it goes wrong.

I remember what 1999 to 2005 was like, and it was miserable, right? It's kind of you to say about my track record. I'd say it's solidly good rather than spectacularly amazing, right? I'm a solid, good investor.

I would say this: I am most proud of the fact that I made small amounts of money from 2000 to 2010 than I am about much larger returns from 2010 on. I've lived through a downturn and survived when 70% of the people I knew in 1999–2000 were out of the business 4 years later.

So, probably the way I run the business and the way we run our investment strategies, I've always wanted to survive that downturn. That probably constrains your upside a little bit, but it increases the probability of not going horribly wrong. I remember how horribly wrong things can go.

You even saw it. The 2 biggest momentum players of the last decade, Tiger and SoftBank, are already out of the game. Huge credit to someone like Insight, who were putting out a lot of money but managed to survive because they were savvy, right? But the bigger the dollars you're playing with, the more risk there is of just getting crunched at the top, when the tide goes out.

What did Insight do to survive more than Tiger?

Rory

I think they had a much broader strategy. They were doing deals at much earlier, lower prices. I named them only because, logically, if you just rank the dollars raised, they were 3rd on the list, right? And, you know, SoftBank is gone, and Tiger is effectively gone. I think they were just better investors.

Jason

Doing a few Wiz investments is going to help, isn't it, Harry?

Absolutely. No, exactly. That's my point. I need to do the last round.

Rory

Yes and no, Jason. If you actually looked at the returns, I mean, yes, 100% amazing, but it was a $2.6 billion reported return to them in an $8.5 billion fund, which is—math still is hard.

Yeah. You did 1 of the best investments of all time, and it returns a 3rd of the fund. A 3rd of the fund. That would drive me nuts. I would probably quit venture if I did Wiz and it was only a 3rd of the fund.

Jason Calacanis

I would probably tell him to go talk to Harry and Rory.

Rory

If you were pulling down the fees on an $8 billion fund, I don't think you'd quit.

Jason

I might quit, because the game wouldn't be fun enough.

The game would be fun enough.

Rory

No, but I do think—remember again, the bigger you are, the more you're undertaking to be competent and find not just 1 of those, but multiple goals.

It's the same point over and over again. You've embarked on a strategy that only works if you have a really strong level of execution and get into large, significant numbers of the very best deals. And all credit to Insight—it looks like they've done that without paying over the odds.

Less credit to Vision Fund and Tiger. They went over the top of the curve and just kept going a little too long. Like, you know, Rory, your degrees of freedom and reason will wrestle with the same thing. I think they're wildly savvy investors, but when you've got $20 billion, the risk is—you know, the impetus on being disciplined. The degrees of freedom you have are tight.

Jason

Can I ask a different, related question, Harry? For the old school, Emergence just raised $1 billion, okay? They were 1 of my investors. I didn't ask them, right? But I think I know why they raised $1 billion. I think there's probably 2 reasons they raised $1 billion, right?

1 is because there's a new generation who's maybe less risk-averse and doesn't have those scars, right? But I think the 2nd reason is because the checks are bigger. Agreed, Emergence just did, like, $50 million or $60 million into Bolt or something like that, right? And back in the day, that'd be a $15 million check. So what about funds like yours having to have a fund size to play the game today?

Rory

I agree, because I know and respect those guys enormously. One of the things people don't realize is that we've done roughly the same thing. Over 5 or 6 funds, we've probably gone from $300 million to $600 million and then $900 million, and the number of deals in the fund hasn't changed all that much because the average check size has gone up.

Let's talk about that for a second. Nominal GDP growth—in other words, the paper value of money—it's 3x from 1999. GDP in 1999 was $10 trillion, and it's $30 trillion today. So, in other words, if your fund size was $100 million in 1999, you've got to be at $300 million to $400 million today just to be the same thing, right?

In particular, in the last 4 or 5 years, nominal GDP growth in the COVID period has been huge, right? If you grew 50%, you're falling behind. I think some element of fund expansion is almost inevitable because the check size has gone up.

Then, on top of that, there's probably some extra increase in the check size that maybe isn't appropriate—might not be the right word—but it's less driven by pure economics, just inflation, and more driven by people playing to win, right? And what you see in that is, if you don't grow the fund size—we were finding that deals that we would have thought were a scale sweet spot just weren't relevant.

You'd come into a deal with your little $20 million check, and they'd laugh at you. You'd go up to $25 million, and you'd call an LP and they'd get you $5 million, and then you'd be up to $30 million, right? And you've got to size the fund for the strategy because fund size is the strategy, right?

And I think for the kind of A/B stage where those guys play—we play A/B—you probably are writing $20 million initial checks. You're probably writing $30 million total checks, including reserves, without even accounting for those late-stage rounds. And you probably want more than 20 deals per fund because, as we discussed half an hour ago, with product-market-fit variance, you need more to replicate the same overall fund return.

I think this is where I do disagree with your point. I want to make sure I have enough deals in every fund that the fund has a good probability of success. Say you're closer to 25 deals per fund. You know, you're at $700 million to $800 million before you break.

8. Why Are $50 Million Seed Funds Useless

But this is why $50 million seed funds drive me nuts, because actually, when you take away fees, you've got $40 million of investable capital. And when you think about the average seed round today being $3 million to $5 million, if you want to lead it and take real ownership, like they say they do, there's no way that you're getting even 20 companies. You're taking concentration. That's what I've always said: you're taking risk. Yeah, but pre-seed or seed—I mean, Rich, this is nuts.

9. Founders Fund Raises $4.6BN: Analysis

Well, it's the math. If you want to play that game and you don't want to raise a massive fund, you've got to take concentration risk, right?

So, Founders Fund raised $4.6 billion, $1.6 billion oversubscribed. I have so many LPs calling me asking which funds I like, referencing the show. I've never had such institutional demand for any single fund asset as I have had for Founders Fund. Every single LP wanted Founders Fund and wanted Founders Fund Growth, which is even rarer.

Will we have more and more money go into the asset class? Will we have more and more money concentrate into just the top players, and will it be shit for everyone else? How do we think about that?

I'm trying to relate the facts to the question, right? Because it wasn't obvious how you got to the question from the facts. The correct response to the facts you outlined about Founders Fund is that they may be, to a rounding error, the best fund. So, no surprise they get the most money.

I mean, it was great to see the leak. No, they're astonishingly good. I don't like this conclusion, but I've realized that my Bayesian prior on financial matters and venture should be checking on what Peter Thiel does right, because he's been right on a lot of things. They've played—I mean, they have—a very clever, high-IQ strategy that they've made work, and you can see it in what they've done and how they've done it. We can come back to that in a second, right?

So, it's kind of like we're all playing this game, and they're just playing it really, really well and cleverly. So, they should get the most money, right? You shouldn't, just because you give the money to the smart guy, from an LP perspective, do it to 10 other people, right? You could argue that's why I said I couldn't connect the facts to the question.

You could argue that this is an idiosynatically brilliant performance track record because it obviously leaked, and what you saw is exactly what they advertised: long holding periods and strong IRRs—not amazingly, stupidly stellar, but holding periods of 10 to 15 years. They bought SpaceX, I think, in 2007 or 2008, so they have compounding power. It turns out that if you compound at 30% to 40% growth, not for 8 years but for 15 years, because you don't give a damn about giving the LPs money back early, you're just going to compound the thing to make money. Then you end up with an 8x or 10x fund.

They did exactly what they said they'd do. The 2 things they did were, first, they held for long periods of time in highly differentiated companies. And then the second thing they did was, to your earlier point, they were absolutely willing to take on massive concentration in their winners. Again, they were armed by the 1 fact that they could overcome: they didn't have to give a damn about anyone being afraid of the risk, because their perspective was, “If you don't like the risk, take your money and go home,” right? They were able to push.

So, you take those 2 facts and add to the fact that they're very good pickers. It's the best deal ever, right? It's the best. It's a money-making machine, and they're the best.

Brian Singerman said to me on the show once, “The enemy of great venture returns is capital concentration limits on a per-fund basis. We have 30% of a fund in certain assets. We know what great companies look like.” I always remember that.

Yes, and he's exactly right. But, again, to take both sides of that, it is the enemy of greatness and it is the protector of massive wipeouts, right? It just boils down to the personal choice of where in that dimension you want to be, right?

And, for example, Brian—I've heard him speak once. I thought he was very articulate, with a very clear strategy. They had that big win. They had the stones to put $300 million into a biotech company. I can't remember the name, but I should.

Stemcentrx.

Stemcentrx. You're exactly right. It got a 5x, and they took money off the table. Then, 3 years later, the acquirer canceled the program. A huge amount of risk. I mean, they made it work, but never forget the risk was there.

Those guys built a product that said, “We're comfortable with the risk because we like risk, and we think we're smart enough to underwrite risk.” It worked, right? It's a very high-IQ, high-conviction strategy.

I think an LP saying, “I'll do Founders Fund because they got these returns,” and then having 10 other funds called that will be just like Founders Fund—that sentence doesn't make sense. They won't be just like Founders Fund because they're not the same people with the same approach.

You're right. But I have 2 LPs a week, managing between $350 million and $500 million, who come into our offices in London and say, “Harry, you've got all the data from the shows. Walk me through how I should do this. I've got $100 million going into Index, Accel, Founders Fund, and Sequoia—$25 million each.”

10. a16z’s $20BN Fund: Seriously?

Now I've got $250 million left. Let's take the low end of the budget: $350 million. $100 million is going to the best assets, like Founders Fund, as we said there. Now I've got $250 million left. Where do I put that? It's my annual budget for venture, Harry. I need to spend that. Let's go to Lightspeed. Let's go to GC. Let's go to Redpoint.

You have to accept the fact that you're probably going to do deals that won't be as good as the best deal you do, but they still can pass your IRR threshold, right? At the end of the day, let's assume there's a force ranking, and let's agree, for arbitrary sake, that we put Founders Fund—I don't know, I haven't seen the number, so I can't comment quite based on observed data at scale—in other words, not including seed funds—but in terms of turning an industrial quantity of money into 8x and 9x, let's put Founders Fund at the top.

You put what you can in there, and then you've got 2 choices. You can stop and go home, but the problem is that any money not allocated to that has to go into small-cap public companies and gets 11%. Or you can decide—you just have to pick a portfolio of funds and go down the list, and probably hope that they all perform as well.

But you're just looking at building a portfolio of companies whose strategy says not that they can replicate the best number, but that they can comfortably outperform the public markets with a strategy that's repeatable and differentiable. Many of the names that you just cited have that.

11. How Will LPs Change Their Approach to Venture in the Next Five Years

Can I ask 1 question about Founders Fund? Not to interrupt, Rich, but before we go on, just because of the start of this conversation: what do you think about the fact that Founders Fund doesn't do B2B intentionally? They make exceptions, but they don't believe in B2B. They don't believe the outcomes justify it. It's explicit: they don't do it.

Yeah. I think that actually makes the point, which is there's a lot of different ways to make money, right? Their way—and one of the things I admire them for—is the intellectual conviction of wanting singular deals. It's wanting deals that are one-of-one, where there's typically a high technological component to winning, but then, once you have that done, you have low competition and you get the prize. It's a totally realistic way of playing the game, right?

The interesting thing is that there aren't as many of those deals. This actually goes back to the point. Conversely, on B2B, they are right, which is that very few companies in B2B have the same level of unassailable competitive free space that something like SpaceX does. That's the negative on B2B.

But the positive on B2B is there have been 200 to 300 SaaS winners. There's a lot of different ways to make money in B2B, right? So, it's a different strategy.

I'm sitting here going, would I prefer to have put $20 million into SpaceX, gone home, and compounded it to $360 million? Yeah, of course. That's 1 way to make money. But I'm pretty damn happy about the way we chose to make money in a whole bunch of B2B software companies, each 1 of which doesn't have the same investment multiple as you might get on a SpaceX 10x return, but nonetheless provides a very attractive risk-adjusted return profile.

Right. What I admire them for is the way they look at the world.

They've basically said, “We are smart enough to look at a whole series of wholly different markets and have the raw IQ to recognize greatness in biotech, space, et cetera.” That's all, and we can do that. We can see those deals and pick them, right?

Conversely, by focusing on B2B, little old us, we're saying we're just going to focus in the space. We're going to try and see all the deals. The competitive set in each one won't be as compelling in terms of white space as doing rockets, but there's going to be a lot of winners. We can pick by market, have a nuanced way of picking the winners, and make it work. It's a different gig. Good luck to them. They're amazing.

I would also just say that 2 companies they're most excited by are Rippling and Ramp. That's true.

Well, but I don't think it's limiting, Harry, because I talked with Sam Blond, who was at Founders Fund for a while. He's a good friend. They told me they don't do B2B investing; they viewed Ramp as a fintech. That's how they think.

Now listen, I just thought you could do it, but I'm saying, from the inside—and this is not a criticism—I found it eye-opening, right?

Rippling's good, but they did that deal with Sam; it's only so large. And it's the same—it's minor, right? I think even if one is a fintech and one is an exception, it doesn't mean the point isn't true: they don't generally do B2B. It just doesn't work for their model, right?

I think the refined version of that statement is, “Look, we're not going to focus on an industry and do 50 B2B software companies like you're doing, Rich, or you're doing, Jason. We don't believe that's the way to greatness. We're going to do everything, and if some percentage of them—3, 5, 10—turn out to be B2B, that's fine. But we didn't back into it with a thematic market focus.”

Yeah. We backed into it saying, “I only want to do greatness. Amazing greatness.” If I run into a B2B guy who has amazing greatness, I'll do it. If I don't, oh well.

Do you think the fact that it's like a 50% capital commitment and run by rich people informs that, too?

I certainly hope so, because I have a pretty large capital commitment myself. If I had that much, I wouldn't want to be going for triples either. I'd want to hold for 20 years because I'm plenty rich, and I'm certainly not in it for the fees if my capital commitment exceeds anything in the fund.

Exactly. It's exactly what they should be doing. As I say, what I admire most about it is that the practical steps they take are in sync with a stated strategy, which is ambitious, hard to do, and nonetheless they've been able to do it. Go team.

Will we have more or less LP money going into venture in the next 3 to 5 years? There's a lot of macro uncertainty. We have endowment funds facing large fines and more uncertainty there. We've got the denominator effect impacting their public books. But then venture is powered by AI again, and now's the best time ever. Will there be more money going in or less over the next 3 to 5 years?

It boils down to this: my gut would say that at some point you'll see less, because of this whole private-for-longer trend. The tricky thing is that there's an optimum amount of money relative to the opportunity set. The opportunity set has massively expanded because of this whole stay-private-for-longer trend, which consumes vast amounts of capital in the later stage. So it makes sense that the amount of money going in has also expanded.

You can make a modestly optimistic scenario that says the capital has only expanded proportionate to the opportunity, right? But on the other hand, the cynic in me says that in financial markets, things tend to overshoot, especially when the indicators of success are lagging, and venture is the most lagging market.

What's probably going to happen, in my view, is that LPs are going to steer based on trailing 10-year returns and overshoot on capital going in. At some point, those returns will go the other way. Then it'll take a while for the shoe to drop, and they'll start withdrawing capital, probably just at the point when they should be investing.

If I was to guess, sometime in the next 5 years you'll see a significant change in the availability of capital. I remember in 2010 people saying—literally, what I tell people is this—it would not be a great time to invest in venture until people spit at you when you mention the word. In 2009–10, they were literally like, “Get out of my office. None of you have done anything for me for 10 years. The last good fund you have was a ’96. Why the hell would I even do venture?” And it turns out that was the time you should have done nothing but venture.

So if that's true, and it is, the inverse is probably true. When it's obvious to do venture, when everyone wants to do venture, it's probably a tough time to do venture. When does that turn back? Hard to tell, but intuitively, at some point, I think it will overshoot and then start to pivot back. It'll be a better time to invest and a tougher time to raise.

Rich, let me ask you this heuristic. I made this up. I don't even know if it's remotely true, but if you take a window of time and maybe elongate it to 7 years, the amount of exits in IPOs and M&A, roughly speaking, should equal how much new venture comes in, right? Roughly, right?

I think LPs are pretty smart. They get scared and smart, but if those exits keep going, it should happen, right? It's been a while for IPOs. It's been a hot minute for IPOs, right? Maybe the window's 7 years. I don't know how long it is.

At some point, the money has to come back because, in general, my observation is that people don't stop doing stupid shit because they intellectually figure out they should stop. They generally stop doing stupid shit when there's no more money to do stupid shit, right? And the answer is, if the money doesn't come back, then eventually the money won't be given to us, right?

That's simplistic, but there's a famous Herbert Stein quote: “If something in economics can't go on forever, it will stop.” I think the corollary is also true: until idiocy has to stop, it will go on, right?

The real question is, does a Stripe, a Databricks, or an OpenAI IPO mean the cavalry comes back quickly enough to keep the money flowing at roughly the same level? That would be an indicator that the amount of money in the system was roughly about right. Individual funds might do better or worse, but the system was about right.

If, on the other hand, those keep pushing out, then at some point it becomes really hard to have all this money in private, illiquid assets when you have pressures on your endowment and all that. At that point, you would see the money go down. So I don't know.

12. When Will IPOs Comeback?

On that, we've seen your Clari, which was going to go out, pushed back. You've seen several others pushed back in the wake of macro uncertainty. StubHub, you've seen. Stripe doesn't want to go out for a long time, Rich. The Collisons are like, “Why would I do that? I don't need to.” They said on a show recently, “Why do I need some analyst at a bank to tell me about my margins?”

If you step back from that, they're first of all correct, and it's a massive public policy failure. What's happened here is that it is more attractive for companies to stay private and access capital from GPs who are paid 2 and 20+ to make those investments than it is for those same companies to go public and access capital from Fidelity Growth Fund, where Fidelity only gets 70 bps to make the same investment.

If you think about it, we have defaulted to the higher-priced capital alternative, which is absurd, right? So you have to say to yourself, why has that happened? Remember, one of the rules is the company doesn't care if it's public or private. Stripe is going to be an amazing company, all other things being equal, public or private.

The only thing that's changed is that instead of being public and compounding nicely and, as I say, getting funded by low-cost public mutual funds, it's private and getting funded by high-cost venture funds. That's a weird outcome. Why is it?

You would also say that it's not high cost, like venture funds, in a lot of the latest rounds. These are very, very large pension funds. I think you actually agree with me—I'm not disagreeing.

I didn't say high cost to the investor. It's the other way around. It's not high cost for the company. And you're exactly right. That's one of the key points.

To the investor, if I was a pension fund in New York and 10 or 20 years ago I gave my money to Fidelity Growth and got Stripe at 70 bps, now I have to give my money to Thrive and get Stripe at 2 and 20. That's why I said it's a public policy failure. The ordinary investors of America are either not getting the good assets or are getting the good assets at massively higher fees, right?

If I owned it in Fidelity Growth as an investor, I got a 15% gross return, 70 bps—14.3% net IRR. If I own the same asset in a private venture fund, it's 15% gross, 10% net after fees and carry.

So my return as an investor, an ordinary American who's trying to put money aside for their future, has been reduced massively because all these companies are staying private instead of being public. And that's a monstrously stupid outcome.

So why is it happening? That's the question, right? I think it's a combination of things. I think being public is a pain in the ass, which is something you need to fix. And I think being private is cheap and easy money, which my gut says is something that would eventually be fixed. Those 2 things together have to change for it to be rational for late-stage, big private companies to want to go public.

I was with one of the most successful founders of our time the other day, and he said, "Literally, there is no really significant reason for any great company to go public today."

For the not-so-great but still very good, yes. But if you can raise endless money at great prices with private investors with no scrutiny, there's not much incentive.

Rory O’Driscoll

Agreed. And that sentence is why it will eventually stop. It only stops if the private companies—because, go back to the thing—those poor investors, let's just say now they have 2 choices: there are public companies where they can get 15% gross, 14.7% net, or there are private companies where they can get 15% gross, 10% net. At some point, they will reallocate capital away from those private investments to those public investments, and then what will happen is private companies will not be able to access effectively free capital.

It's absurd that free capital is at a higher cost in terms of the total cost to provide the capital. It's absurd that it is cheaper to get money as a private company from a provider who has a 500-basis-point cost structure than to get money from a public mutual fund that has a 70-basis-point cost structure. It's intellectual madness. But it's where we are now.

And intuitively, when you say it like that, you say to yourself, at some point what logically will happen is late-stage private investments will underperform equivalent public investments by the amount of the fees, and then it'll switch. I guess that's the efficient-market thesis, and it'll take a while, right?

Can I throw one out there? We were talking about the enormous funding rounds: Safe Superintelligence at $32 billion, raising $2 billion with supposedly no product. What did we think?

Rory O’Driscoll

I have some thoughts.

I'm intrigued. I think, look, there are compelling arguments in favor. I mean, OpenAI invented all this, and you as an investor can say to yourself, "I either do OpenAI, or I can do 1 of 6 or 7 other foundation model companies." If you fast-forward 3 years, all the foundation model companies that weren't populated by people who were at OpenAI haven't done great. And Anthropic, which was populated by people who came from OpenAI, has done pretty well.

So what it says to me is, "Hmm, they cracked the magic code in OpenAI. They have the secret recipe, right? Fund people who have the secret recipe and it works. Fund anyone else and you kind of get a me-too outcome, right?"

Rory O’Driscoll

That was it. In retrospect, that was the logic for doing Anthropic. They have the secret recipe. They snuck away from the Magic Kingdom with the secret recipe back then. Don't back all these other dudes who are trying to figure it out.

Using the same logic, you've got the guy who invented the secret recipe. Why not, right? At least you know he'll probably crack it. So your risk level of not being able to figure it out is pretty low. And remember, the risk level for people who didn't have the secret recipe and weren't able to figure it out—with the exception of Groq, which is astonishing—is quite high.

So it makes sense because you can buy something that can crack the code. Now, what that model is worth once the code's been cracked is a totally separate discussion. I don't have an insight on that, but I totally get why they're making the play.

I cannot see why one would not do this deal. I think people looked at this and went, "What? Nuts. Nuts with a liquidation preference." It's Ilya. So Microsoft will buy him for $10 billion tomorrow, provided the government lets them buy.

But yes, agreed. You're exactly right, Rich. Look, more marginal foundation-model outcomes have yielded returns beyond 1x with exactly that mechanism. So yes, I mean, you're exactly right, Rich.

Can we really count on the liquidation preference in these types of deals? Can we really count on it being honored, or that we're going to get our money back? Is that really a given?

That's a brutal comment, and you're quite correct. It's always stunning when you get down into the arcana of Delaware law and what can actually happen on the day of a transaction. If someone decided to actively not honor the pref, there's a bunch of ways you can do it. So yes, I hear you. That's the risk.

Or if you acqui-hire most of the team for $10 billion and you leave the liquidation preference over in a C-corp, doesn't that work?

Rory

Yeah. Yes, that works too. Listen, my limited visibility recently in M&A is that every acquirer is looking for ways to get around all the VC preference stacks. It's aggressive. It was always true, but now it's super aggressive.

It's like, we just don't even give a rat's ass in corp dev how the certificate of incorporation is structured or what the documents say. We'll do side deals, back deals. We just want nothing going to the VCs in bigger, 9-figure deals, right? So why would you honor this liquidation preference when I want that going to the engineers? Why would I want it going to the VCs? And why does Ilya even care about them? I think founders care less about their VCs today than they used to. I think they care less.

I would love to have been in the room on some of these marginal sales. Google did one, Amazon did one, where in fact they did take care of the VCs to some extent and the founders, because you're right, Jason. I'm not going to comment on those smaller deals that we're in, both when we're a seller and when we're a buyer, and you're exactly right.

Anyone buying the company says, especially if it's a business where you want the customers, you pay down the cap table because you want the whole damn thing. If it's an acqui-hire, every dollar you give to the venture guys is wasted. So you're exactly right. You do a small headline deal and then large earn-out contracts, and you sit there and you know I can pretend that I'm appalled by it, but perfectly honestly, when I'm on the other side of the table and my late-stage companies are trying to buy early-stage companies, I do exactly the same thing. I don't give a shit about Jason and his bloody preference. I want to hire those 5 great engineers. Let's just give them a contract.

So the question, Rich, respectfully, is that not a bit shortsighted? Maybe I have a grudge, but if you did that to me, I'd be pretty pissed off, and I wouldn't be that willing to give you my next great deal.

Rory

That happens every day. I think if I'm a corporate acquirer—and let's leave these big deals out—if I'm a corporate acquirer and I come up against Rory and Jason this time, I don't sit there thinking I'm going to come up against them next time. I push as hard as I can.

And if I don't push totally brutally, it's not because I'm worried about a multi-period game. It's just that, at some point, I'm not paid enough as the VP of corporate development to waste enough time and take the litigation risk of screwing over Rory and Jason. It's just easy to give them $30 million and call it a day.

Right now, as Jason points out, when it's $2 billion, who knows? But so far, the observed fact is that even in these transactions, investors have made money in a sideways sale and have been able to rely on their preference. Whether this happens in the future, I can't speak to. I don't know. But that's all you know.

13. Why Does it Not Make Sense for the Best Companies to IPO

In the meantime, you're getting an at-bat with the guy who figured it out and made the magic recipe at OpenAI. So that's what they're doing. Again, one of the things that every one of these discussions today has in common is that, in almost every item, we're realizing we're all taking a lot more risk than 10 or 15 years ago.

We're all playing a high-stakes game. I mean, it can be the price—a high-stakes game. It can be the pre-money $2 billion round—a high-stakes game. It can be concentrating the fund in a smaller number of investments. But the one thing all this stuff has in common is we're way out there on the risk curve.

14. Lost Ethics and Morals in Founder Secondaries and Term Sheets

Except for 1 thing, which is we're seeing this increased trend again of founders taking secondaries more and more early in the journey. I saw a tweet yesterday where it was like, "Hey, you know, founder secondaries at Series A again is completely the new norm."

Are you finding founder secondaries at Series A really back in vogue? And have we just shifted risk to founders taking money off the table earlier, which may or may not be a good thing?

Well, I can tell you what I've seen, for what it's worth. In all of my hotter companies over the last whatever months, I've seen the later-stage investors put everything into the term sheet possible to win. There's no more waiting for rev. The maximum secondary, the maximum refresh, even the maximum cram-down of the prior investors, because they don't care. They just don't care, as long as the founders get their post-money, their equity, and their secondary.

So what I'm seeing is, straight out of the gate, all the boxes you can check in hot rounds, they're all checked. There's no more games. There's no more, "Is it too much secondary?" Don't care. "Is it too much?" Just don't care. I just want to win the deal. So I'm not going to—and someone else is going to do it.

Rory

So, I see it all: every box checked in the term sheet today in the hot deals. Every box checked to the maximum, right? I haven’t seen it in Series A rounds. I’ve only seen someone do it in Series A, but after that, every deal is, “I just want to win it. I don’t care.”

I want you to be capital-efficient. I want you to be stingy, but here’s an extra $100 million, $30 million of secondary, and extra stock. I like capital-efficient companies, but I have to win the deal, right? To make this big money in growth, you just have to win it, right?

Yes. No, I hear you. There’s only one thing worse than this. I can go both ways on the secondary. I really don’t like the, “Here’s a secondary for 5% of your position, and here is a pre-approved increase to your equity ownership for 7%.” That’s the play in growth today: sell 5%, and we’ll give you 7%. That way it’s not even a dividend; you come out ahead, right? Well, with a dividend, you might come out ahead. You don’t have to sell, right?

Rory

Yeah, the refresher always exceeds the sale. I’ve lost a deal through not doing that. I’m going to be sympathetic to the investor now: I’ve lost a deal through not doing that because, again, it sticks back to my comment.

I tend to be perhaps stuck in the mud on history. I think that’s just nauseating because you’re effectively replacing the comp committee of the company you’re investing in. But you’re right, Harry. You see it especially in later-stage rounds, not at the Series A, but later. If you’re going to lose the deal, you know, bad money drives out good, and bad habits drive out good habits. If you’ve got to win the deal, maybe you do it. I’m not even saying it’s bad, but I do think Harry’s point is just different. When all the boxes are checked going into the deal, it’s just different rather than having a discussion, analyzing, or talking about it.

Jason

It’s literally—I mean, I’ve had 2 deals that were done in 1 day, like hot deals. How do you get a deal done in 1 day? How do you guarantee you win? You check all the boxes. If you check so many boxes, there’s even an argument that the valuation doesn’t even matter, right? At some level, because you’ve checked all the other boxes.

This is what worries me so much, though, with growth funds today: they assume that the outcomes are equiprobable in size. What I mean by that is they’re going, “Okay, I know X company is great and only worth $2 billion, but if I pay $3 billion and I put in $200 million, I know it’s a $10 billion company, so I’ll get a little bit of compression on my outcome size in terms of multiple, but it’s a $10 billion company.”

What they don’t understand is that if I stuff Rory with $200 million before Rory’s ready for $200 million, that $10 billion outcome size will be a $4 billion outcome size.

Rory

I want to point out that I’m always ready for you to stuff me with $200 million, just so there’s no ambiguity around that story. But, yes, it’s the same thing.

I want to throw out one final one before we wrap. One that is, like we said there about playing the long game and maybe being nice, something that is getting more and more Hollywood-movie-popcorn-salivating is Deel and Rippling. Jason, you and I were messaging about it last night: “They can’t find Alex at Deel. Is this just going to turn into a shit show? What happens from here? Can you be nice and win? What happens?”

Rory

There’s a big gap between being nice and committing what is at least some level of civil issues and potentially criminal issues, right? You can be pretty driven without actually planting spies. If, in planting those spies, you actually steal secrets—I’m winging it here; my wife was a criminal lawyer, so she hit me on the head for practicing law without a license—but there is a point at which this is industrial espionage, and you get caught and there are criminal proceedings. No CEO and no company can survive that.

I think it is possible to go too far, right? You can be aggressive, you can be driven, and I’m not talking about the facts of the specific case. A, because I have to use the word “alleged,” and I don’t know; and B, I have a company broadly in the same space, so I’m not unbiased. But if what’s alleged is true, it’s very troubling, and you would be struggling as a board member to figure out what to do.

Even more importantly than that, as a customer of this company, if you’re relying on them to manage your payroll and move money on your behalf, you possibly can tolerate them having some kind of civil liability. But if it trends over into criminal liability, you probably have to find a new payroll provider, right? That was way beyond the norm if the allegations are true, which obviously I can’t speak to, but we’re only entertaining the complaint.

The growth rounds we discussed are part of it in general because they encourage there to be fewer and fewer boundaries in these massive growth rounds, with no diligence and all the tertiary, quaternary, and secondary you want, and all the deals at $8 billion, $10 billion, and $12 billion. There are no boundaries. You don’t ever have to go public, Harry and Rory. It’s cool. Take our money in whatever terms you want. Just get us our target and anything goes.

I think whatever exactly happened here, some of the stuff is hard to argue with.

Jason

Okay, clearly this guy went into the toilet, flushed his phone, and was paid around $5,000 a month. We can’t argue with that.

Rory O’Driscoll

You can’t get an intern for $5,000 a month these days.

Jason

I know, but I think you’re going to hear 100 of these in this environment. It’s going to get revealed when the tide goes out.

Rory O’Driscoll

John Kenneth Galbraith wrote The Great Crash, 1929. It’s just a great, small book about financial euphoria, and it’s worth rereading every couple of years. One of the things he has is this concept of the bezzle, which is that at every point in time, there is an amount of embezzlement that’s taken place. In boom times, the bezzle just increases because nobody knows, and the minute the tide goes out, all the shit comes to the surface, right?

I think you’re exactly right. In a boom time, you see erosion of quote-unquote good behavior, erosion of standards, and erosion of due care and due diligence. Then things turn bad, and everyone starts focusing real fast. Everyone looks at the numbers real fast.

You had one other thing in your pre-show prep. You made a comment on ARR versus GAAP. We’ve started really focusing on GAAP revenue now, because ARR is a made-up number and GAAP revenue is a fact. When the tide goes out, there’ll be a whole bunch of this kind of stuff surfacing, and people will go, “How did we miss that?”

Sorry, for anyone who doesn’t know, why is ARR not so important and GAAP more important?

Rory O’Driscoll

ARR is a really good leading indicator, and I used to lean on it because it’s better than GAAP because it’s a forward-looking metric. But the beauty of GAAP is that there are rules on how it’s produced, and if you break them, you’ve lied. There’s no ambiguity around it.

ARR is more loosey-goosey, right? You’re trading a better forward-looking metric—with more signal about the future, but more variance about its correctness—for GAAP, which is a trailing indicator but is pretty damn accurate, usually.

In today’s market, where there’s a lot of experimental ARR, leaning into that ARR gets us back to where we started this conversation: thinking that it’s repeatable, scalable, forever ARR, like a SaaS multiyear contract from Salesforce. It’s just not the same thing.

Most of the A and the R in ARR aren’t real. It’s not really annual recurring revenue. What’s the third one?

Rory O’Driscoll

Revenue. It may or may not be revenue. It definitely doesn’t recur. In no way is it annual if everyone can get out after a month or 2. So it’s neither A nor R.

Jason Lemkin

Hey, Harry, can I share one number just for fun? I was just pulling up a SaaS survey. I asked 2,000 people in SaaS how many folks lie in deals to win deals. Ninety-three percent said they lied, out of 2,000, to win deals.

If 93% of 2,000 B2B folks are lying to win deals—lying about features, lying about feature gaps—and they’ve just been handed billions, how much would you get? Would you throw someone into your competitor to get in?

You really think that, of those 2,000 people, if they could get someone working at a competitor and feeding them information—forget this happening at the CEO level; what if just VPs of sales could do it? Ninety-three percent say they lie in deals. Ninety-three percent. This is why I’m not so shocked. I’m only shocked about the crazy stories.

I think there’s a big difference between lying about a product roadmap and when a feature is going to come versus orchestrating a spy in Rory because he wasn’t paid $200 million. Sorry, buddy, but I’m going to plant him in.

Rory O’Driscoll

Dude, that’s—

Listen, I like to think of myself as fairly ethical. I’m not sure the line is as black and white as you think. If 93% of folks are lying in deals, how many sales reps have gone to a competitor’s sales pitch and wasted a rep’s time for an hour to learn their thing? Does that cross a line?

How many of them, if they could make $1 million a year as an AE, wouldn’t have their buddies sending them information? How many reps have taken their Rolodex with them? How many folks take their Rolodex with them when they leave, which violates many laws?

Jason

All of them.

Yeah. I remember in 2003, a company that shall remain nameless did something like this. The only difference is that the FBI pulled up at the company the next day. They were accused of stealing trade secrets, and they basically emptied out every desk. The process grinds on. I think a lot of this stuff, people will experiment and figure out where the line is, and they'll discover it by going over it and getting caught.

Just one thing: is it a little bit coincidental that Rippling are going to go out and raise money now at $18 billion?

Look, if only for his cunning and acumen, you'd want to give him money.

That was pretty clever. I don't think it was intentional, but it was pretty smart, catching that. Not, by the way, the timing. I don't think there's anything in the timing. I just want to say that was very clever of the Rippling team to figure out what was going on and trap the person involved.

I looked at it and thought, “You win, dude. That was good.” It was good. And then the way you reported it through Parker—it was very smart. These people, you know: John Laware, double agent. Now we've got a double agent. They probably could have run him as a double agent for a while, feeding false information. I mean, it's just great.

Rory

Well, the best part is the story got worse, like most good stories. Act 2 was worse. At first, when Parker's first tweets went out, I remember someone asking me, “It can't be this bad, can it?” And I was like, “No, no, I guarantee you. I don't know him well, but I've known Parker for years. It's got to be worse.”

Given fundraising and other things, he would not do this. There's no way he would waste his time. He has a complicated company. It has to be much worse than the first set. Otherwise, you can't do it. It's too—

This stuff is so distracting, isn't it? You've seen it on boards. It's so distracting, right? Okay, question for you: is this a case where it can take down the company? Or actually, news cycles are so fast these days—I honestly believe that Trump does something crazy, Elon does something crazy, we move on, no one cares. Do B2B customers really give a shit?

Rory

Probably not, because in the end, you can always make a change. You can do that.

What would happen in a public company?

Yeah, the rest of the board would do the “I'm shocked and appalled” routine. The attorneys would come in and explain their fiduciary obligations, and they would basically say, “You sack this guy right now. You can burn this liability off. You stay in this thing, you go down with the ship, and you're going to get sued by everyone.”

They would be drawing up the for-cause termination before the attorney stopped speaking. The person in question would be out. They'd hire an interim CEO or crisis PR manager, and they'd say, “Shocked to discover this is going on. New day, fresh start”—boom, pick your cliché. Hire Skadden, some ex-SEC lawyer to go on the board and do the whitewash and power through. You'd lose a year. That's what you do at a public company.

Maybe if these guys have board control, they don't do that. But if I was on the board, that'd be where I'd come in from. Companies are bigger than any one person. Sacrifice them and move on.

I don't think many customers are going to care. Where it might hurt you is at the margin. It's going to hurt you for new customers.

Yeah, because it's a weapon for the sales team to use against you. I'd say 2%. Even just churn—you know how much work it is to change payroll providers? It ain't worth it. I'm not outraged—well, not that outraged—to do any work.

Rory

Yeah, unless criminal liability attaches to the company, which is why it won't. You know, it's like if you look at things like Arthur Andersen, and actually even Paul Weiss—when it gets company-endangering, you fold. But you're right, I don't think it will be, because there's a lot you can do.

Okay, so we're going to play a game and then we're going to wrap up. The game is called “Buy or Sell.” I'm going to say an asset, I'm going to say a price, and you can say whether you buy it or not—not sell, because it's not a negative. That's a really important addition. It's not a negative; it's just, “I wouldn't invest at that price.”

OpenAI at $300 billion. Buy or not buy?

Rory

Not buy. Sorry, is this going public at $300 billion, you said, or do I get my liquidation?

No, no, no. Would you invest at $300 billion?

Rory O’Driscoll

I recently took a look at my investments. I just can't make any decision. Well, north of $100 billion, so I'm out. All my decisions are bad.

Yeah, north of $100 billion. They're just all bad for a variety of reasons. Hell, I'm the opposite of you, too. I would buy the shit out of this. Escape velocity reached.

Cursor at $10 billion.

Rory

The irony is, the ARR multiples for some of these are pretty low, relatively speaking. If Cursor—I mean, if you're really paying 10x forward revenue on some of these deals, we've all done worse. Dude, by the time I did Lovable, it was like 10x revenue.

The whole reason this business is awesome is that there are singularly amazing companies in every generation, and maybe these are they. When you do those companies, everything works, and you're just so glad you bought it at any price, right? That's why this game is fun. All things being equal, you should be doing private equity. The reason it works is because you have those singularities. I just don't know enough about the data to know if this price gets to that point.

You know, the thing is, I know you want a 1-word answer, but going back to the beginning, if you want to tie a bow on it, the problem is, if it's a SaaS company with highly durable revenue, then Cursor anywhere at $10 billion is a good deal. It's not a great deal, right? But it's a good deal.

If this is a classic high-NRR company coming up on a billion ARR, it's probably got 140% or 200% NRR on paper, right? So if you treat this as a B2B company with a massive moat that has destroyed its competitors, it's a pretty good deal.

Right now, if you look at everyone I talked to who switched in a week, they're like, “Oh, Windsurf is cool.” My portfolio companies switched back and forth. They're trying—they're switching IDEs, which seems crazy to me. My son is switching, right?

It's like, then, the durability—this is the question of the ages for us: is this revenue durable? Because if it's SaaS, then take my money, Cursor, right? I just wish I had $500 million. But if it's not, this is the risk, to Rich's point, right?

As a SaaS company, they don't get any better. There's nothing better than those metrics. And you can, back to the OpenAI comment, say it's Google: it takes the entire market cap. That gives you, plus or minus, a little over $1 trillion, so 3–4x from here if you replace all of Google in 3 or 4 years. You know, is that the best 3–4x you can do? I don't know.

Guys, listen. I've loved doing this. Rich, it has been so fantastic to have you with us. Thank you for joining us. This has been amazing, and I really appreciate it.

I think you need a $4 billion fund for the next one. That's my big takeaway from your bet. The way you like to bet, $5.5 billion—I would start there, but I would do a hard cap around $5 billion or $6 billion because it's going to be hard to deploy in 24 months. But I'd do $4.5 billion for the next one.

Rory

Just remember, we like to stay small. We're small funds. We're a small handful of partners, and we all work on all deals together.

I think everyone remembers, right at the end, that we've got to stay on message.

Rory O’Driscoll

That was really touching, Harry.

Right. And now, of course, you have editorial control, so he can just nuke all his crazy shit, leave ours in, and at the end, Harry Stebbings says, “I really think we need to stay focused and keep our AUM small.”

No wonder you're a fundraising genius, Harry. I'm wise to you.