20VC：OpenAI与AMD达成数十亿美元级交易｜Polymarket、Vercel与Supabase获超大额融资｜风投里的“造王者”真的有效吗：Harvey对决Legora｜Chamath归来：SPAC重回舞台

Rory

Paul Graham was right. Sam Altman understands power. He has more power than AMD, so he took 10% of the company for the privilege of selling stuff to him. The interesting thing is the leverage that OpenAI has, even though they're losing a shit ton of money, precisely because they have the users.

Jason

NVIDIA's making so much money, it's almost incomprehensible. So I think Jensen knows he's got to give up some of it.

Rory

The more you do this, the more you just say to yourself, you just need to do big, exciting deals in trends that are absolutely obvious. Every time you try to make it harder than that, you lose money.

I did laugh when I was putting this together with Jason's brilliant suggestions, thinking, "This could also just be called This Week in OpenAI." That could be a relevant name. Obviously, we had DevDay yesterday, but I want to start with the AMD deal.

1. The AMD Deal Leverage

Setting the scene, OpenAI announced a major chip supply partnership with AMD. OpenAI will buy AMD's upcoming Instinct chips, up to 6 gigawatts. As part of the deal, they get warrants to purchase up to 10% of AMD. Big news. If we start there, what the fuck does this mean a week after NVIDIA invested $100 billion in them?

Rory

It means a lot. There's a ton in this, and first of all, the odd thing is, whoever does corporate development at OpenAI gets a bonus this year. Whoever does corporate development at AMD and NVIDIA also gets bonuses this year, because so far, this has, oddly enough—and I'll come back to that—been a win-win.

We start right down in the weeds with the AMD deal, contrasting it with NVIDIA. NVIDIA is strong, so they get equity in OpenAI in return for giving OpenAI chips, and OpenAI uses that money to buy those chips. AMD, because it's weaker, has to give its own equity to OpenAI for the privilege of having OpenAI buy its chips.

It speaks to OpenAI's power clearly, and this is why Paul Graham was right: Sam Altman understands power. He has more power than AMD, so he took 10% of the company for the privilege of selling stuff to him. He probably has less power than NVIDIA, so he let them get equity for the privilege of selling him chips. Dominance has clearly been established. That's the first thing out of the gate.

Well, I just want to understand. He got warrants to purchase.

Rory O'Driscoll

Yes.

That is different from him purchasing.

Rory O'Driscoll

It is, and it isn't. What did they get? OpenAI got warrants to purchase 10% of AMD at a penny. In other words, they're free warrants. We'll come to the accounting of that in a second, but only if they buy the chips and the AMD stock price goes up.

I can imagine the discussion. OpenAI comes in and says, "Hey, AMD, we're gonna buy some shit from you, and that's gonna be so good for your stock price that we want warrants to do this deal." And the AMD guys say, "No way. We're selling you chips. We're getting money. What the hell do you mean you're gonna get warrants as well?"

And OpenAI says, "I bet you your stock will go up just 'cause you're doing business with us, 'cause you're kind of a no-hoper, and now we're saving you, and we wanna get some of that upside. So therefore—and I repeat—we want the warrants." AMD eventually says, "Here's the warrants."

Remember, OpenAI's gotta buy the chips, step 1, and step 2, the stock price's gotta be high. The interesting thing is that we'll see if that lasts when those chips get shipped. But as of right now, the stock price went up 30-something percent. So if they were shipping the chips today, they'd be getting the warrants today.

OpenAI was correct when they looked AMD in the eye and said, "Dude, we're gonna get 10% of this company. I think that's worth $30 or $40 billion, 'cause it's a $300-billion company, and your stock price went up $60 billion, so you're up."

Jason

My initial sense, which I think may be wrong now that you said that, Rory, was that AMD's getting the better end of the stick here, right? We need to diversify away from NVIDIA. OpenAI, it is. But we're gonna do much more for them in the short term than they're gonna do for us, and then you're gonna turn around and monetize it with our competition. You're gonna sell them all to Elon. That's how I read it. So we don't want egg on our face. Maybe they just want the money.

It reminded me at first of Shopify and Stripe, and Tobi Lütke was so angry in his mind that he put Stripe on the board. Then he went to Klaviyo and said, "Listen, I'm gonna do the same thing for email that I did with payments on Shopify, but you gotta give me 10% of your company." It felt like not getting egg on your face.

Rory O'Driscoll

Yeah, it's all together. They came with a kingmaker package, and they made them an offer they couldn't refuse. As I say, as of today, it would work, but remember, they don't get those penny warrants until they ship the chips and until OpenAI buys them up. Whenever you do these vendor deals, you're worried: are they really gonna buy the shit?

2. OpenAI Replays Windows Intel

2 years from now, OpenAI still has to need whatever vast sum of chips they said. But if you zoom out a level and go a little historical here, what you're seeing here is uncanny. What you're seeing here is the Windows–Intel game beginning again.

If you zoom back 30 years, Microsoft was the software company that took control of the PC monopoly. Their adjacent partner was Intel. IBM was the old-school company that set them up by doing that famous DOS licensing deal. AMD was the little player that got dealt into a 10% market share because IBM said, "Dude, we're not gonna just rely on Intel anymore. We need a second supplier."

That's 30 years ago, and the way it unfolded is Intel did well, Microsoft did better, AMD got a little bit of money, and IBM faded away.

Fast-forward to today, the company that's dominating everything is OpenAI. They're the Microsoft of today. They have the consumers. They have the eyeballs. They're building this new monopoly, and the equivalent of Intel is now NVIDIA.

In other words, the only other company that OpenAI needs to make all this shit happen is the chip guys. If you've got chips and you've got these guys, you're golden—and obviously, capital. So NVIDIA occupies the role of the dominant other part of the duopoly, the two-armed people running the thing. In other words, you've got OpenAI and NVIDIA.

But bizarrely enough, you still need the second source. In this case, OpenAI is driving that agenda, but up comes AMD again, 30 years later, with exactly the same shtick: “We're not as good as Intel, we're not as good as NVIDIA, but we're here. We're the second source. Give us some money.” And history repeats itself.

And, just to say it, the role of IBM has been played by Microsoft. They set this viper in motion, and they've allowed it to exist. In one sense, for a while, it looked like Microsoft got a good deal because they got access to OpenAI's technology early on, and they got a little bit of buzz.

Brutal commentary, just like IBM got a buzz when they shipped the first PC because they got a product out the door, but they let this competitor emerge in their midst. And I think OpenAI, going back to DevDay, it's uncanny how similar it is. If you're sitting there now and you're Microsoft, did we just create a monster?

Did IBM own a large chunk of the monster they created?

Rory O'Driscoll

No, and no. Look, exactly. As someone wise once said, “History doesn't repeat; it rhymes.” IBM does not own a big slug of OpenAI, but as we've discussed, you don't get points for venture capital when you're a dominant monopoly. You've got to just stay a monopoly.

So, yes, it's better to own 10% or 30% of it than nothing. As we said, great corporate development deal for Microsoft. Far better corporate development deal for Microsoft than IBM did 30 years ago, when it didn't take any ownership. So, as we said, the corp dev guy at Microsoft also gets a bonus this year.

But from a business perspective, we're going to talk in a second about DevDay. What you saw is OpenAI basically saying, “Here's the place in which you should run your other apps.” Now, I'm not sure that vision sticks, but if you're Microsoft, you're like, “What the—WTF? We're the place where you should run your other apps. That's what we do. Who the hell are you?”

So you're right, Harry. It's not a complete parallel, but there's a lot going on here that feels uncannily similar, and you kind of go, “Think about it.” Can we just stay on the deal itself before we move to DevDay? If you're NVIDIA, are you not thinking, “Hang on a minute. I thought we had this trusted relationship, this wonderful partnership. We just gave you a ton of money. We just invested, built a strategic relationship, and now you're turning and biting the hand that feeds you.” How does NVIDIA feel?

3. NVIDIA Plays Defense

Jason Calacanis

Again, we've said it a million times: I learn a lot watching what Sam says because he is thoughtful and direct. He was very careful to be complimentary to NVIDIA and be clear that they were his number-one vendor.

Here's my view. I don't know what you guys think. Rory's made the point: the only person making any money in AI is NVIDIA. Even Oracle isn't making any money. OpenAI certainly isn't making any money. NVIDIA is making so much money it's almost incomprehensible.

So I think Jensen knows he's got to give up some of it, and I think there's this elaborate dance of chipping away. He's got to give a little market share. He's got to be a little polite in these deals. They're all playing it very carefully so that, at the end of the day, he can minimize his price erosion, which he has to deal with, and maximize his market share without creating a huge conflagration.

But I think it was very carefully orchestrated. You can't—this may end up being very little. If AMD isn't fully competitive, no one may end up using these chips except at the minimum they need to maintain competition.

So I thought it was very thoughtful about everybody, and I thought it was sequenced in the right order. AMD didn't come before NVIDIA, did it? It certainly wasn't announced first. And everyone showed up to pay homage to Jensen, and he referenced it when he did the NVIDIA-AMD deal.

What we can see from Elon is that being impolite has consequences in this space. I mean, that Elon guy, he hates Sam, doesn't he? I don't know if xAI would exist if it wasn't for his bone to pick with Sam Altman. He might not have bothered. He might have just gone to Mars faster.

Rory O'Driscoll

Staying with the dynamics of the deal and what it reveals, on the chip side it reveals, you're right: they're a wildly powerful company. They can shed a little. They're going to have a lot of other issues awaiting them. No one is going to see a $4.5 trillion market cap, $200 billion in revenue, and a 50% operating margin company and do anything other than say, “Get me some of that.”

You're right. He's brilliant at playing out his hand. I mean, the interesting thing is not the perception of leverage that NVIDIA has, because the leverage is real and obvious. They allocate the chips. The interesting thing is the leverage that OpenAI has, even though they're losing a shit ton of money, precisely because they have the users.

When you have the users, even if you're burning cash, there's no place NVIDIA can put chips other than to a customer who themselves has enough users to use all those damn chips. And therefore, the stunning thing here is the asset: you can be sitting there losing money hand over fist and still get credit for committing hundreds of billions of dollars you don't have.

You can bestow market cap on your vendors, for God's sake, simply because you're willing to buy from them, because the whole world right now believes, rightly or wrongly, that the $12 billion revenue line is going to get to $200 billion, and it's going to take $100 billion a year in chips to do it. Therefore, selling shit to OpenAI is a business so good that you're willing to give up 10% of your company for free for the privilege.

Jason Calacanis

But look, here's the weird thing, because in my first startup, I sold components. NVIDIA is selling components at the end of the day. It's a crappy place to be on the stack.

You know what everyone does when you're selling components? Everyone's nice to you because they need you, and they bring you into the conference room and they bring you coffee. And you know what they all say? “Harry, cost plus 20%.”

Now, you can laugh about that, but when you look at NVIDIA with 50% margins and you're buying from them, you can't help but feel that's the number-one place I'd like to attack if I could. I'm fine if NVIDIA makes 20 cents on a dollar, 15 cents, but 50 cents? I mean, F me.

And there used to be competition in the GPU market. There just isn't today. So it is this weird dynamic where normally you'd be beating up on your vendor. Your vendor would have lower margins than the software provider. Here it's highly inverted.

Rory O'Driscoll

To play it out, because I thought I was going to disagree with you, but in the end, I'm in sync, because what you're saying is this: Normally, components businesses are hard because everyone understands the cost structure.

You typically only have a few customers. It's like selling telco equipment to the telcos. There are only 20 big telcos. They know they have you over a barrel, and therefore those businesses become pretty tough, right? Because you're right, they just calculate costs and work back in.

But 2 comments. One is the only thing that defeats that is an architectural lock-in where you have a monopoly, and what you're seeing is a monopoly competing against an oligopoly, with the monopoly provider being NVIDIA.

And as long as they're a monopoly, a buyer from OpenAI, or Microsoft, can sit there and go, “You bastards, you're only paying $50 a chip to TSMC and you're charging me $300. I hate you. I'd like to do it for less.” And NVIDIA sits there and goes, “Well, we won't,” and you've got no other choices.

Jason Calacanis

We will, but we're sold out, Rory. We're sold out.

Rory O'Driscoll

So, well, but yeah.

I mean, the fun thing about this semiconductor business is that, about 20 years ago, venture capital effectively walked away—with 1 or 2 exceptions—from semiconductors, and they were probably correct because, from a startup perspective, it got really hard around 2003 or 2004.

There have been a few since then. One of my colleagues did the deal, not me, but we had one of the last, Monolithic Power Systems, which was a success around 2007 and 2008. Since then, there have been almost no venture exits in venture land.

At the same time, in the public markets, it's been wildly profitable. You've got NVIDIA, you've got Broadcom, Avago; you've got a bunch of others. They've basically consolidated, to your point, Jason, so that the remaining providers have significant leverage.

If you're going to have only 6 or 8 customers, you'd better be sure you have only 0 or 1 competitor. Memory, for example, is a chip market where there are 3 or 4 competitors. It tends to be wildly cyclical, and prices go to shit in the downturn.

If the GPU market ever turned into the memory market—which I'm not saying it will, because of the complexity—then that business looks very sad. Just take a look at how Samsung and Micron trade versus how NVIDIA trades. Everyone left them alone for 30 years, and they built a monopoly, and now he's picking up the check from it.

4. DevDay Opens The App Layer

So if we progress this forward to DevDay, which we touched on slightly there, one of the major announcements was the opening up of apps into ChatGPT, so you can essentially use Figma, Canva, and Spotify easily and natively within ChatGPT. I'd love to understand from your perspective. Jason, why don't we start with you? We touched on it a little bit beforehand, but you left me with the cliffhanger of, “We'll save it for the show.” Jason, were you impressed by this?

Jason Calacanis

I was underwhelmed. First of all, let me step back. We had Marc Benioff on this show a few weeks back, and I told him, “This is what I wanted. I wanted to talk to my apps.” Remember? Marc at the time was—I mean, we love Marc, right? He was like, “You don't want to—That doesn't make sense, and you don't want to do vibe coding.” Now they're doing vibe coding at Dreamforce. The world changed in the 4 weeks since he's been on the show. I'm like, “I want this.”

I don't want to log into Salesforce. I want to go to ChatGPT or Claude and say, “Tell me how Harry and Rory are doing this month.” I've literally been a Salesforce customer for 20 years and haven't logged in in a decade. I want my Salesforce in ChatGPT.

But I had 2 thoughts watching this. One, this—Canva, Spotify—I didn't see an aha moment. I didn't see magic. I didn't see something that was so great my jaw dropped and I would copy it. The second thing I thought, as B2B guys, is this is like Slack 2.0. Slack was our ChatGPT until 20–24 months ago. This is why Marc Benioff bought it for $27 billion.

It was our OS, right? We didn't know how to communicate. We didn't know how to work async, and everyone's in Slack all day long. Even today, we still use it. It's just not like it was. ChatGPT took a lot of that mindshare, and we'd be sharing in Slack, and every app has a Slack integration. It's actually—Harry, I don't know if you know, I've been vibe coding lately.

I will tell you, of all the things that are easy—some stuff is hard to do, some stuff is easy to do—OpenAI is really easy. Zapier is real easy. But Slack is super easy. It is still the easiest software to push updates and work bidirectionally. But where are all the apps in Slack? The connectors are there. How often in Slack are you creating a Spotify playlist or creating a Canva image or even pulling up a CRM record, which you can do? How often do you do it? I bet never. Do you track deals in Slack? You probably could.

So I thought, this is great, it's like Slack, but what do we do in Slack? I was hoping for this aha moment where Sam would show 1 or 2 use cases where my jaw dropped. I'm like, “Holy crap, this is integrating my memory, my data, my learnings.” It's combining apps in ways you can't without an API or without a Zap. I just didn't see the great use case, right?

I'm hoping it comes, because someone's going to figure it out and build a huge business out of it, but I don't know if there'll be 1,000. I'm also not sure we need another app marketplace for the other side of the announcement. I'm not sure we need the 10th app marketplace. Maybe we do. We'll find out. I didn't fall out of my seat for a magic moment, and maybe that's because they built it in 8 weeks.

My question was especially around AgentKit, which you mentioned—the ability for people to build pretty good-quality agents very, very quickly. They did it in 8 minutes in a demo. Does that kill a litany of companies like your n8n, which promise the same in terms of customer delivery?

Rory O'Driscoll

That's a harder one to assess. I don't know. I can envisage that the kind of agents you're going to be building for enterprises are probably going to require a lot of orchestration and management. There's a lot of product surface area that a software company focused just on that has to deal with. If it's a trivial problem and it's easily integrated with OpenAI, maybe they do kill some of these companies. But my guess is there's more complexity involved and, over the next 2 years, will OpenAI spend the time on that because they've got bigger fish to fry? Or will they just make it easy to connect and move on?

5. Mega Rounds Break Venture Math

I think the thing that worries me—I do want to make sure we move away from just OpenAI—is I saw these crazy rounds, and 2 that stood out to me. Naveen Rao, who was VP of AI at Databricks, raising $1 billion at a $5 billion pre-money valuation. Does this just break venture, though? A billion at $5 billion. For me to get a 10x, it needs to be a $100 billion company with dilution.

Rory

No, I meant $50 billion—well, with dilution. I was worried you were unclear on 10x math, Harry. That was a bad moment.

No, no, no, no. I was accounting for dilution, thinking 50%, given the stage and the company style, would be 50%. Does this just break venture math?

Rory

These deals are unusual. If you think about what kind of deals get this sort of treatment, most early-stage startups—definitely consumer apps in particular—are a little bit of a voyage of discovery. You don't know if the market's there. You're trying to get product-market fit. Even if the executive, the CEO, is really good, you don't get that automatic right to win.

Where you do get it is in these hard infrastructure markets. The number of people who can credibly say, “I can solve this level of technical problem that we're now facing,” is much smaller. So you do have that kind of star effect in raising. You're seeing it in Thinking Machines Lab, you saw it in Safe Superintelligence, and you're seeing the same kind of thing there. The number of proven people who have the magic in this space is low.

We should add that Naveen has successfully built 2 companies. One of them was, from my recollection, a hardware company back in the day that was sold to Intel. And then the second one obviously was sold to Databricks, another clever infrastructure company around LLMs. This is someone who has twice built a successful deep-tech company in precisely the hottest space on the planet today, knows everyone, and has a proven record of success. I can totally see why he gets that money.

What you can do is stipulate that he'll probably pick the right problem, and he'll probably get the answer right. So really, you've kind of compressed a bunch of the venture questions, and then you're only left with the third one, which is: does it make economic sense?

In other words, if he picks the right problem, if he solves that problem, is the market big enough to justify, as you say, at least a $50 billion outcome from your—what is it?—$5 billion, whatever it was, pre-money? The answer is clearly that, right now, people believe these infrastructure markets are having those kinds of outcomes. We'll see if there's room for everyone. I, at the margin, may be skeptical, but I can totally see each step of the logic train that gets you there: proven person, hard problem. Hard problems are getting rewarded.

Would I prefer to back him versus 2 computer science graduates out of a really good school who might figure it out? A priori, hell yes, I'd prefer to back him. Now, once the 2 computer science graduates actually get the work done, you can go, “Ooh, that might be a far more attractive bet,” and that's most of what we would do.

But I can totally see the proven person saying, “You can deploy capital at scale with me.” Remember, especially for these bigger funds: “I'll probably solve the problem. I'll probably pick the right problem. You'll be in a good deal.” So I can totally see how it happens. I can totally see why, especially with folks who've backed him before, they know they have the relationship.

I think Lux Capital—give them credit—I think they've backed him twice. If you'd backed someone twice in a row to build complex technical companies, and one took a long time and you showed grit, and then the second one took a short time and you made them a ton of money, when he comes in to you and offers a third time, believe me, he gets a nice coffee and a nice seat, and you're like, “What do you need?” Quick decisions in all those final meetings.

Jason

You know, I think some of it—I had 2 thoughts. One is, it is a confidence game. Venture has changed—to Harry's point, that was the question, right?

If you're Naveen, you're at Databricks, you've seen $100 billion and more going up, right? So $5 billion to $100 billion seems plausible. I'm not as great a founder as any of these guys are. But back in the day, when I met Rory, it was really hard to see north of a $1 billion outcome for a lot of these startups. It was just hard to see it.

And so my whole life—and the reason I sold—was probability. It's like, “Wow, man, I own 30%, but if I get to an IPO at a billion, I just can't make more money.” You couldn't see it, right? And then quickly you could see $10 billion. And now it's very easy, if you are a Databricks alum, to see $100 billion or more, because you were just there last week, and that round wasn't hard to close, was it? I mean, everyone and their uncle and aunt wanted to get in at $100 billion.

Venture's always been a game, but for founders, man, it's a super game today, right? Walk out of YC Demo Day, and as an investor, you feel gamed.

So, if the game is $100 billion and you've already played it once, going to Rory's point, when you start off as a VC, it really helps if you have a few hits in your first few deals because then you have the confidence. I wouldn't have the confidence to raise it at $5 billion in my seed round, but if I was the CTO of Databricks, I probably would, right?

Harry

I just interviewed Mike Cannon-Brookes from Atlassian, and he said, “Listen, the trouble is there'll be a load of shit that will lose money, but there will still be some Amazons in this AI wave.” Yes, but Amazon was priced as Amazon was, and that generated Amazon-level returns. These are not priced in any universe of Amazon-level returns. So, actually, even if you have Amazon-level-plus-plus-plus outcomes, they're still not venture-star returns.

Jason

The IRR could be tolerable if you put enough money to work, right? Put half a billion into the round.

Rory O'Driscoll

If your time to value is much quicker, then sure.

Yeah.

Rory

Yes. I mean, let's state the banal: a lot more has to go right. Watch this, then—but you can laugh.

Jason

A lot more.

Rory

A $5 billion pre and an $8 billion post, right?

Jason

Exactly.

Jason Green

Exactly. Did I really say that and think I'm gonna get value from that? But, yeah, no, totally.

Look, I can give a bunch of examples. You look at the Stripe seed round that Elad and others did—it was dirt cheap. The Airbnb round that Sequoia did was compellingly cheap. I look back, and we have very successful 2009 and 2013–14 funds, and you can see it when I'm talking to the younger partners.

The thing in their eyes is, “Dude, you were able to buy so cheap, even a moron like you could make money,” right? “You should try making money today, big guy,” right? Entry price has an impact. It's not the only thing. The wonderful thing about venture is, as a positive comment, it is the most forgiving equity business when you get the price wrong.

PE, if you get the price wrong, there are low-variance assets. If you overpay by 50%, you're toast, because they're 3x assets and they're not gonna ever be 7x, right? You have fewer degrees of freedom as well. Same thing in the public markets. The great thing about venture is that it has maximum variance, which means that it is the most forgiving of getting the price wrong because you have exponential growth on your side.

Now, I think we all rely on that, and sometimes we rely on it too much. We find that just because you're maximally forgiving on overpaying doesn't mean you're entirely forgiving on overpaying. And to your point, Harry, you can push a theory to destruction. What you're saying is, if you pay for everything where you've got a 5x return, if you do something wildly amazing and only 1 in 3 of the companies or 1 in 5 of the companies does something wildly amazing—because that's just the way wildly amazing runs in this world—you don't have much of a return. That's a fair comment.

Harry

I think it's another clear example, though, of Alexandr Wang changing venture mindsets on entry-price acceptance. Because we all go, “Well, if Alex is worth $14.8 billion, Jesus, Ilya's worth $30 billion in M&A,” and it justifies these prices on acquisition talent.

Rory

And you're right. And, by the way, that's why whenever anyone uses comps to discuss what we should pay for a deal, I want to bludgeon them to death. Because the problem with comps is that they tell you what Company A is worth relative to what Companies B and C are worth today, in the public markets and the private markets too.

If Scale AI is worth $14 billion, and then you're like, “You're worth $15 billion, so you can pay $15 billion,” it's a logical way for a banker to relatively rank things today. But it turns out, as investors, we're trying to answer a slightly different question, which is: What are they gonna be worth in 7 years?

The problem with comps is, if you use the comps, you would buy in 2021 a whole bunch of assets that were only priced at 50 times revenue because the other shit was priced at 80, and you're getting a good deal, and that turns out to be a very bad way to invest. You can't rely on nearest-neighbor comps-type analysis to do investing, and we all do to some extent because it's easy to be a comparison shopper.

But you're exactly right, Harry: you have to have a view that says not only is Scale AI worth $14 billion today, to take your example, but that you believe on a sustaining basis that companies who are doing 500, 600, 700 million in this kind of business can trade at 20 times revenues over an extended period of time that includes the next decade. That's a lot harder story to believe.

Jason

Slight variant question here is: let's assume your LPs will support you—you can do these deals, right? Like this deal. You have to deploy the capital. Let's assume you have access to a lot of capital like Andreessen or others, right? How fast are people trying to deploy these funds? 18 months or something like that, right? How many candidates are there like these? How many of these generational founders, even if you have to hold your nose when you make the investment, even if you have to hope and pray, even if you see Rory's math—it's like 80% of these have to work out for the math to work? There always is pressure; for 90% of VCs, there's pressure to deploy it, right?

Harry

Let's actually take that drill-down because I think that's really important. Let's look at Andreessen's new fund: $6 billion, now expanded to $7.5 billion, reportedly. $7.5 billion. Say you're putting in $300 million, $400 million of this $1 billion raise. Gosh, you gotta find 15 of these in, let's say, a 2-year period.

Rory

20, but that's okay. Depends. Yeah, $300 million times 20 is $6 billion. Keep rolling.

Jason

Yeah. You gotta find them, right?

Rory O'Driscoll

You got fees, my friend.

Rory

And reserves.

Rory O'Driscoll

Yeah.

Rory

Anyway, 15 to 20.

Jason

How many are there, right?

Jason Green

Yeah.

Keep going here.

Rory O'Driscoll

Yeah.

How many of these candidates are there out there?

Harry

Is there 8 a year? 7.5 a year, to be precise. If I'm being really precise, Rory, we can cut Naveen in half, and then you have 7.5.

Rory

Yes. But you've also gotta say—I mean, look, we're all Pavlovian. We do the things that feel good. Once they start feeling good, you keep doing until something hurts, right? And based on the leaked Andreessen numbers, you gotta say they're excellent. They've earned the right to throw $7 billion on the table. And, you know, the truth is we're human. We'll just keep doing this until Mr. Market delivers a sad lesson that says, “You've overreached.” And so far, that hasn't happened.

Harry

But I don't think it will. I don't think it will happen. They're about to get the payday of paydays in venture land, with a minimum of $40 billion back from Databricks.

Rory

Totally. Look, at some point, what it takes to change is externally driven.

6. LPs Demand More Liquidity

Harry

We're jumping around here, but the people who determine whether it's allowed to continue or not are the LPs, the people who put us in business. Yeah, I thought it was a really interesting one, Jason, that you highlighted: Brown and Northwestern selling VC stakes. We saw Yale and Harvard sell VC stakes earlier this year. Will this be the new normal? Is this a new wave of LP liquidity that we just will continue to see more and more of?

Rory

We can talk about illiquid assets and whether they're getting an adequate premium over liquid assets. That's one discussion, and that's a good discussion. And then on top of that, you have the extra phenomenon of university endowments under particular pressure because of the political pressure and the push on universities for a whole bunch of changes that means they feel the need to be more liquid.

I think for those guys, it's not gonna be the new normal in the sense that it's not gonna persist for a long time. Because by definition, if you're selling a lot of venture assets, you're probably not gonna buy a whole load more. So it will tail off. I mean, I think it's a readjustment. What you're probably seeing is some reassessment of the Yale endowment model and exactly how much illiquidity do you wanna have in your portfolio.

Jason

I just went through—hopefully for the first and last time—having an LP sell a position. It's the first time. I only have so many LPs. I don't have as much money as either of you do. It was interesting to watch, and Evercore managed it.

But even though the process was handled very poorly and frictionfully, what I thought at the end of it was: There should be a lot more of this, because what I didn't know—I had never read the LPAC—was that my LPs have no rights to sell at all, literally nothing. There are no exceptions if you're struggling. It's just—I'm shocked, because a lot of this stuff is LP-friendly. This one is absolute: you have no rights to sell.

And so I thought, in today's world, where it could be 20 years until even good funds wind down, when founders wanna go longer and longer and longer, some LPs don't care, right? But if the Harvards of the world care, and everyone who says to me, “It would be nice if there was more LP liquidity in a way that wasn't bad for GPs...”

Jason Lemkin

I think it would be a positive outcome. What I saw is a pretty broken, frictionful, weird corner of the market, right? They need my permission, so they’re trying to manipulate me, and then these guys claim they had the rights to do it, but they were lying because they didn’t have the balls to ask for my consent. It was very interesting from a game theory perspective.

Believe it or not, I tried to be a nice guy. I’m like, “Well, if you have the rights, do whatever you want.” And then they said, “We didn’t mean to say we have the rights. What we mean to say is we have the moral authority to sell your position.” I’m like, “What? What?”

Rory

But you might be oversharing here, dude.

Jason Lemkin

I love it. I’ll keep sharing. I’ll share everything except the name of the LP.

Rory

Okay, great.

Jason Lemkin

I’m happy to share.

Rory

I do think that, stepping back, better liquidity is an advantage to both sides, especially as these funds drag on. So yes, we’ve been supportive of some of our very good LPs who’ve continued to re-up in new funds. After 10 or 12 years, if you’ve got a tail-end residual with 1 company left, does it make sense for them to clean up their books and sell to a secondary? There’s going to be a lot of this kind of process happening because it just makes sense.

Jason Lemkin

Yeah.

Chamath Palihapitiya

It’s just like companies staying private longer. The consequence of that is that you end up having to facilitate secondary shares for employees. When your time period of being private is longer than half your working life, you probably want to get some equity money.

In the same way, for any of these companies, even if they have a long-term perspective—which obviously LPs should have if you’re entering venture, given the thing—sometimes you thought long-term was 8 years and it turns out to be 12 years. I think it’s just healthy to be able to conduct those sales.

Even if they were efficient, and it sounds like you weren’t, the truth is that no matter how efficient they are, there’s still a drag to it. There’s still a price discount, and therefore it’s not going to be the new norm in the sense that people aren’t going to run into it saying, “I love to do this,” but either because you need capital or you want to close out an old fund. It’s just going to be a part of the world.

I mean, there’s already a substantial secondary business with big players. There’s always going to be secondary, and it’s probably going to increase over time. Quick summary.

Jason Lemkin

We’re acting like there’s infinite liquidity. It appears there is for OpenAI and these secondaries, but this is a world of scarce liquidity outside of a few names, right? My learning from this process is that everything would be better if there were more liquidity down the stack. Everything. No matter what the discount—who cares? The market can decide the discount.

Everything would be better in an age where companies take longer to exit. So it would be better to have more liquidity for all players.

Chamath Palihapitiya

Agreed, and that’s also true, I think—implicitly, you’re saying—for companies, which, of course, is why they should go public. You’re exactly right. I always say to people, when people say there’ll always be liquidity because there’s lots of money, I’m just going to say it so I can remember it in a year or 2 when it happens: Liquidity doesn’t evaporate because people run out of money. Liquidity evaporates because people get scared and want to keep their money, and at some point, when that happens, you’ll go, “Oh, that’s what the public markets were for,” so you have a little more opportunity than this.

People should just IPO, right, Rory? Yeah?

Chamath Palihapitiya

They probably should.

And then you’ve got a company like Snyk, which has slowed down growth to 26%. I think it’s about $300 million in ARR. It’s down from 150% in 2022, so a big growth hit.

Rory

First of all, I would actually go with the more conventional English: “has slowed down,” rather than “has slowen down.” I’m just sticking with the Queen’s English.

Jason Lemkin

We be slowen down.

Chamath Palihapitiya

It’s slowen down.

Jason Lemkin

In Ireland, I think.

Chamath Palihapitiya

But that was just me being mean, Harry. Sorry. You know I have to do it once per show.

Dude, you corrected me on every fucking sentence.

Jason Lemkin

Hold on. Harry may have this weird accent, but he’s one of the most well-spoken people I know.

Chamath Palihapitiya

Yes, he is. He’s wonderful.

Every malapropism—

Jason Lemkin

He’s pretty good. Harry’s pretty precise.

—which I’ve given, right?

Chamath Palihapitiya

Okay. You’re all good.

Jason Lemkin

I’m full of malapropisms in every paragraph, and Harry just nails it in every question. I don’t know how he does it.

Chamath Palihapitiya

Yes. It’s all good.

I don’t know. Unbelievable, dude.

Chamath Palihapitiya

Look, I was just being snark. Let’s focus on Snyk.

I think he is. That’s why he’s beating me up.

Chamath Palihapitiya

Yeah. I will admit, you can calibrate everything by coffee consumption before a show, and this is a 3-coffee day, so it’s just going to be tough. I’m sorry about that. Normally, on a 1-coffee day, it’s easy, but I’ve got a lot going on. So sorry about that.

What are you saying about Snyk? Let’s go back to the task at hand. At 26%—

Well, what I’m saying about Snyk is, has growth slowed down to the extent that they are now no longer able to IPO? There are rumors now of growth down to 26%, revenues at $300 million, PE buyers circling, and PE being the option. Are they at a stage now where they’re looking for a PE buyer and an IPO is off the table?

Rory

The interesting thing is that $300 million in ARR and 26% is about the low bar. We were just looking at this now. There have been 15 IPOs year to date, and the median IPO this year was a stunning—get ready for this—$931 million revenue run rate. $931 million. So the median blew me away, right?

Rory

At the cutoff, there were a couple at $200 or $300 million, growing at around 30%. The first comment, just to put it out there, is that it’s not like they’re miles away from it, if those are in fact the numbers. But if it’s just below that line, then yes, you’ve got to do something.

There are 3 routes, and we discussed 1 of them last time. You have PE, you have, if you’re lucky, a strategic buyer, but if you’re not in the AI world, I don’t think people are buying strategic stuff at this point, or you have to consolidate like dbt and Fivetran to get to scale.

What price does that go for? They raised it at 7.2 last time.

Rory O'Driscoll

That’s the tough thing, because PE buyers are 6 to 8, plus or minus. So you multiply $300 million by 8, and you just end up with a different number.

Jason Lemkin

I’d say in the 2s, based on—I’m using Netskope as a rough comp, right? Netskope’s at 8. It was at $700 million, growing 33% at IPO. So this is $300 million, growing 25%.

I’m using the roughest VC math, but if that’s worth 8, this is worth in the mid-2s. Two-something, if it IPOs, if there’s appetite for an iconic company, right? Just not a Wiz, right? An iconic company.

I’m using a security comp. I know it’s not the same application. It’s the last security IPO, Netskope, which is S-tier, but it’s not quite Rubrik. Then the problem is we start to see this triage, right? Snyk—or Sync, or whatever—it’s great, but it’s not Netskope, which isn’t Rubrik.

You can just look at the comps. I don’t have your skills, Rory, but I can just pull up the valuations and the numbers and spitball it at 2-something billion. That would be its IPO valuation, right?

Rory O'Driscoll

So the question, to play it out, is this: There are 2. One is, does that fall just below or just above the line? Can you get a public deal done at that size? And if you can’t, are you in private land?

Then, obviously, instead of all the preferred converting to common and cleaning up the cap table, you have the whole preferred stack. The next question is, how much have you raised, and what does that mean for all the folks? So you’ve got all that drama to do. Now—

Jason

And do you even—

Rory O'Driscoll

Yeah.

Jason Lemkin

If you can’t—let’s say you can’t IPO because you’re at the edge, right? It’s at the low edge. Do you want to? Do you want to deal with that crap and be ignored by Wall Street if you’re a rung and a half below Netskope? Is it worth it to be 1 of these invisible public companies?

Rory O'Driscoll

Remember, I really don’t like the “Oh, these companies are no good because they’re not worth $7 billion” argument. Stepping back, the other alternative you have is to compound for a couple more years at 30%, right? If you’ve got the stomach for the holding period, try and do some acquisitions, build the thing up, because at $400 million at 30%, it’s a little more compelling. You’re well above the threshold line.

So that is 1 option, and then you’ve got to assess, obviously, whether you have obsolescence in your future. The point I’m making is this: Every single one of our, quote, “successful companies,” other than the most successful, are dealing with this reality.

I can think of plus or minus 8 or 9 companies in our much smaller portfolio where we’re all at this kind of stage and having these dynamics, right? I think I said it. There’s just a whole bunch of cutting and wood to chop to figure out what these companies become over the next 2 to 3 years and how do you get liquidity.

Jason Lemkin

Is it private to private? So there's just a ton here. So I suppose what I'm saying is we're, quote-unquote, “picking on Snyk,” but it's a high-class company.

300 million is the high end of great. 30 is the high end of pre-IPO critical mass. I mean, we see lots of companies at 150 going 10 or 15, right?

Is the crime not just a crime of price, which is overly exuberant capital markets stuffing cash down a company?

Jason Lemkin

I think it's worse than that, though. Rory, I'm curious to see what you see in your portfolio, but I have only 3 companies I would say are at different ARRs but are in the same bucket that you're talking about. Okay? What I'm worried about is that zero have had PE offers. Zero of these 3.

Now, if this was 2021, your phone would be ringing off the hook. Now, the valuations might have gone down into early 2023, but none of these—I can think of 1 basically at Snyk's scale, 1 about a third, and 1 about a tenth—but they all should have gotten PE offers, right?

They all have the right Rule of 40 numbers, the right NRRs, right? Why not buy them? They're not going to IPO, but they're good companies. Crickets. Crickets from the PEs. Crickets. Is your phone ringing off the hook from these PE firms? Are they out there? Can I see them over there? Are they banging the door to get in this morning? You gotta get off the podcast to sell a few portfolio companies at 8x?

Rory O'Driscoll

I think you're spot on, Jason, which is why, if I was sitting on that board, as I always say to people, when you're private, the liquidity window opens only rarely. Whenever it opens, you should pay attention. You can decide no, but you should pay attention, and you're exactly right. I would say the same.

You're not seeing infinite demand. It's not like PE is dying to do this. They've got lots of capital, but they're not in any rush to buy subscale assets that aren't defensible market niches. The number 1 thing I'd say to these companies, including ours, is you gotta take control of your destiny. What does that mean? It means a couple of things. Probably 3 things, maybe 4.

One, and probably the most important thing, is you gotta make sure the management and founding team are excited and have something to play for. If the team doesn't think that they can build value here, then you know what to do, right? And you should incent them to build value, and we've done a fair number of these.

For these kinds of companies, I call them EFGs: equity for growth, right? You say to someone, “You're fully vested. You've long since been fully vested, but you're the founder. You own 7 or 8%.” Conventional wisdom says, “That's it. Let's just all keep working.” But he's like, “I'm not getting any more for more time, and I've done significant equity grants that are linked to delivering growth.” So they have something to fight for again, because these guys are fighters. And that's what you want them to do.

I want the founder to say, “I thought I was on an 8-year journey. I'm on a 15-year journey, but fuck it, I've got another 7 years of equity ahead of me, and so I take 3 or 4% dilution.” But the guy who's in the trenches is incented, and so is his team. That's the first thing.

Jason Lemkin

Yeah.

Rory O'Driscoll

Make sure the team are excited to keep going. The second thing is make sure you have control of your destiny by being profitable. And then probably the third thing is figure out a second act. Typically, it should be a second product or something that links to the AI trend.

And we're saying this to our companies: You should link to the zeitgeist, right, if at all possible. If you're somewhere like financial services or fintech, it's not really that relevant. You'll use it for the back office, but it's not going to change your product. But a lot of these software companies, you have to assume you need a second act.

You have to assume it gives you 7 more years of growth. It's almost certainly going to be related to what's going on in AI and how workflows become agents. So I think if you do those things, then play out being in the company.

If you have those things in hand, then as a board member, you feel a lot more secure because you know, “I have a plan. I have a plan that doesn't rely on the kindness of Thoma Bravo,” or the kindness of anyone, right? “I'm building my independent company here, and everyone's aligned.” So that, to me, is the job of the board right now, and we've done that in a couple of companies. Sorry, that was a lot—again, too much coffee.

Jason Lemkin

It's good. And what's the first one you called it—an EFG? What's the EFG?

Rory O'Driscoll

EFG

equity for growth.

Jason Lemkin

Yeah, no, you inspired me. I just proactively did one of these for that reason. You learn a lot from the process. But you gotta do it. It's not enough, but you gotta do it, right? You gotta do it, right? Especially because a lot of folks won't ask.

Some founders are very aggressive in asking, “Where's my next 10%, Rory?” But a lot of folks just won't ask. I think I learned it's good to be proactive.

Rory O'Driscoll

And in return, it's the only time you get the right to say, “In return for this, you gotta dream big again.” But if we're going to be at 20, going to 15, going to 10, then with dilution, you're way below my cost of capital. Let's admit that, and let's go for a sale, and then you get what you get, and you don't make a fuss.

But if you think you can keep it at 20 and walk it up to 25 or 30 and keep going for 3 more years, hey, that's value-creating at a very different level.

7. Founders Face The Long Journey

The astonishing thing for me about your Aaron Levie or your Drew Houston or your Mike Cannon-Brookes is the longevity. We mentioned Snyk there, but how few actually really do the 15-year journey.

Rory O'Driscoll

Because it's hard.

Can I ask you both? You've seen more than I have. When the founder leaves and there's a CEO brought in, what percentage of the time does growth reaccelerate? Do positive outcomes come?

Rory O'Driscoll

Break it up into 2 categories. If you have product-market fit and you have a CEO who's very entrepreneurial but just not a great manager, then it can work because they've done the entrepreneurial act, but they're not great at management. And maybe they're so bad at management that a competent manager stepping into a post-product-market-fit company can give it a lift.

It's not ideal. I'd much prefer to err on the side of making that founder work by surrounding them with good people, but it's not crazy. If, on the other hand, you don't have product-market fit, the founder's not working out, and you think you're going to hire someone to get the product-market fit, you're deluding yourself because it's just too hard and too unlikely.

You are what's called wrong, and you should sell for what you get and move on. That's not an act that a professional manager does. Because if they were capable of doing that, they'd be founders. The answer is zero in that case.

Jason Lemkin

I think it's bad in all cases, but the first one, I just think back to when Andreessen wrote these handcrafted blog posts themselves. Their point was, “We always bet on the founder.” Sometimes the founder doesn't stay. And we have good outcomes there, but the best outcomes are when they stay.

So we do everything we can to surround the founders with other executives to help them, but if they can't finish the journey, we'll support them either way. That's my answer, right? I never want the CEO to leave. Good God, right?

But if they raise their hand and you've given them the EFG thing, or whatever you call it—the re-up—and you've had the conversations, and you've begged them to stay, and they still just don't want to do it, there's no point, right? Most humans should take the millions and relax, right?

Rory O'Driscoll

So—

Ridiculous.

Rory O'Driscoll

Well, I gotta say, to be clear, I never ask that question. I think it's a stupid question on its face, on multiple dimensions. Let me give you just 2 ways in which it's a stupid question.

The first thing is—and I know I've said this before—people's opinion on what they'll do if they're offered $500 million at a point in time when they haven't been offered $500 million is meaningless because it's a purely theoretical discussion. I've seen people go both ways.

I've seen “Hell, I'll never sell” people, when they're offered the money, say, “Shit, I'm out of here,” and I've seen people who I thought were mercenary say, “No, we can keep going.” So I literally don't ask that question because there is zero information content to it.

And the idea that you wouldn't back a “really good founder” just because you're afraid they might sell in a good outcome that doesn't become great, that's just so low down the list of things that you're worried about when you're doing a deal. You want to know: Is the market good? Does the founder want to build a big company?

If they start on the journey to doing that and someone gets interested, it's a high-class problem. There are a couple who I look back and go, “I wish we'd run that longer.” But in the list of things that will reduce the return on my venture career versus backing B-level people who don't even make it happen, it's a concern, but it's also not actionable.

I also think that you can tell your best and your worst within the first 60 days. The messy middle, you don't know; there's a TBD. But the ones where you're like, “Shit, we regret that one,” you can tell pretty quickly. And the same with, “God, they're on it.” That first update, the first board meeting—yeah.

Rory O'Driscoll

I do agree at the 70% level. On all my best deals, there's been a moment somewhere in the first year when I remember sitting around the board table going, “Oh, Rory, you clever boy. You're going to make money here.” And all I have to do now is cheer them on and not have to do a lot, because this is just humming. You're exactly right. That's always a good feeling.

8. Vercel And Supabase Surge

Speaking of those moments where you go, “Wow, well done, I'm in a great company,” there are a couple of standout raises that I wanted to talk about. One is Vercel raising $300 million at $9.3 billion. Jason again highlighted this. It was announced pretty quickly after the post from Guillermo, the founder, which we're not getting into because we don't do politics, but the timing's interesting to bring up.

One, I want to hear your thoughts on the timing, and then two, I've heard these described before as suicide rounds, just because it's a super-high price with actually not such a huge amount going in—$300 million. And so it sets a huge expectation with not massive capital injection. How do we feel about those two: the timing and the suicide-round status?

Jason

The suicide one is an interesting one. The Vercel thing, I don't claim to be a total expert, but I am 200 hours into my vibe-coding journey. I think Vercel and Supabase are actually tied in a sense: these are not the most profound bets. The world of software development has completely changed, and everyone that's going to build a web app going forward is going to build on Supabase.

It's the default choice for how to host and manage Postgres in this world. And when folks want to host apps live, they're going to use Vercel. It's super easy to use. People do love Vercel, and you've got to host this app and you need a database. These are 2 structural components, and the number of apps is also exploding, which it is.

So if this is the future of hosting and managing databases and it's exploding, these are good bets to make. These are the leaders. These are 2 leaders. You could debate the valuation, whether it's a suicide round, but in terms of valuation aside, these are actually Captain Obvious bets.

I think they're both Captain Obvious bets because this is where developers are going. That's how you make money. Michael Cannon-Brookes would probably reiterate that from a few years back: follow where the developers are going. If you become the leader, bet there; you're going to make money, because those markets are pretty damn large if they're growing.

Beyond the suicide round, I think these are good bets. Vercel was at $9 billion. It's still a lot of money. Hopefully, you have more than 1 of those bets at $9 billion, to Rory's point.

Rory

First of all, I agree with what you're saying, Jason. I was talking to one of my partners yesterday, and we were just saying: the more you do this, the more you say to yourself, you just need to do big, exciting deals in trends that are absolutely obvious. Every time you try and make it harder than that, you lose money, right?

Both of these things are exactly right. They are on trend, Captain Obvious. There's a new wave of people building apps, and these are 2 parts of the infrastructure that people will use to build those apps. Both of these companies have done a brilliant job. Just as a reminder, Vercel and Supabase were infrastructure components that existed pre-OpenAI, pre-the AI trend, pre-vibe coding, but have just inserted themselves into relevance as components to build these next generation of apps and are just riding the train.

Because of that, they have momentum, they have growth on their side, and yes, the price might have doubled in 6 or so months. It may also be that the company doubled in 6 months. So the revenue multiple's the same, which is actually a super-interesting discussion.

What you're effectively saying is, normally you would figure you start with high revenue multiples because, by definition, your revenue multiple is infinity on the seed round, and your multiple is 6X when you get to 30% growth. The idea is your revenue multiple is coming down as the rounds go up.

But what you're seeing in some of these AI companies is people are effectively saying, “When they were doing $100 million, I paid 20 times or 50 times. When they're doing $1 billion, I'm going to pay 20 or 50 times,” because the growth is still the same, right? And it's logically correct. I mean, there was a market-size question hanging at the end of it.

But from a growth-rate perspective, I'm willing to bet that you look at those 2 rounds and they're not wildly different in terms of—

Is that logical? Because actually it depends where you intersect with it on the growth curve. You can have the same growth rate, but actually you only believe they've got 20% left of the market to go.

Rory O'Driscoll

It does. You said it correctly, Harry, and you're agreeing with me exactly. It applies even to Anthropic. The growth rate's remaining the same, and normally you expect growth rates to decline, so you can have this mental model—and we talked about growth persistence—but they're not declining here.

So when you do these rounds at the same multiple but with an order of magnitude more in the valuation, the thing that can go wrong is you hit a market-size wall or some kind of wall and they decelerate rapidly, and then you're wildly wrong at scale. Well, that's the risk.

If the Vercel market or Supabase market is finite and can support a $10 billion or $20 billion valuation, even if you have a 100% share of vibe coding, then you could see very abrupt valuation changes. I'm not discounting that. I'm simply saying, I know how to get to doing these quick rounds because the underlying growth's so quick.

We've been looking at some markets where we've seen 2 and maybe even 3 rounds within the year, and part of me goes, “That's crazy.” And part of me then goes, “Hmm, the B was at the same multiple as the A. Maybe we need to update our priors to the world as we see it now and accept that if you're getting the growth rate”—and these growth rates are...

Jason, you called the discussion a while back: well beyond a triple, triple, double, double, double. Maybe you can lean in, and maybe it does make sense to have these rounds, but I definitely wouldn't call them suicide rounds, Harry, because the growth might justify it.

And, B, the other part of what you said is: are they raising enough? Yeah, they are. Because if you think about it, take Supabase, where they did 2 rounds. Someone—a firm that sounds like Accel—looked at the $2 billion and said, “You need, whatever, $300 million.” And then 6 months later, they pick up another $100 million. They still have the $300 million.

It's only a suicide round if 2 things happen. One, you decelerate quickly, and two, you start losing money such that you're forced back into the market in the next period of time where you would have to take a down round. So I don't think it's wildly, outrageously, stupidly risky.

I mean, if you want to talk about risk, there's a lot riskier things going on in infrastructure land than Vercel raising $300 million at $9.3 billion. I don't think that will be the problem that brings the whole thing to its knees.

9. Venture Makes New Kings

I totally get you. I think an interesting lesson for me is king-making: when you obviously have very quick rounds and a lot of money going into categories, king-making does absolutely exist in this space.

Rory O'Driscoll

Yes, it does.

But it doesn't in large enough categories, is what I'm seeing. And what I mean by that is, in law, for example, there are many that have got a lot of funding and a lot of traction. Same in healthcare, same in customer service, same in coding. But then as you go to smaller markets, king-making really becomes more prevalent. The smaller the TAM, the more prominent the king-maker ability is.

Rory O'Driscoll

I'm not sure I buy that at all. It's obviously easier to be a king-maker in a small market because it takes less money, and more people have small money than big money. It's the Julius Caesar quote, “I'd rather be first in a village than second in Rome,” which indicated he was a psychopath, by the way, but we can come back to that.

But I disagree, because I think king-making is going on in the biggest markets. I think, to some extent, everything OpenAI has done has been both technically brilliant and financially king-making. I think in many of the markets you—

Oh, just pause on that. What do you mean by that? They have not been king-made, so to speak. They have many competitors. It's by no means a monopoly.

Rory O'Driscoll

I think it's a duopoly. I think their capital strategy has been to the point where it's going to be very hard for anyone else to attract that kind of capital. I mean, if you take someone like xAI—if they really do need $100 billion and they've locked it up, I can't remember how much xAI has already raised, but there's a lot more to be raised to do that. So I think that is a king-making strategy.

Don't you think that Anthropic could and Grok couldn't? I think they both—

Rory O'Driscoll

I think it falls away very quickly. I don't think it's a monopoly, but I think it's definitely an oligopoly.

So I think that, yes, number 2, Anthropic clearly can. It's a differentiated number 2 with an overlapping strategy. One is winning in consumer, one is winning in business. Do I think all of the other recent, very high-profile startups are going to be able to attract the kind of capital it takes? No, I don't, because there's not that much capital out there. So that's an example, I would say, of large-market king-making.

Jason

There is so much more capital in venture, but it's so stratified, right, into 20—however we define it—20 companies, 50, 100. We could go down a lot. It was one thing back in the day when you would king-make with a $20 million round or a $50 million round, right, or king-make very late-stage. But now, even though there's more venture than imaginable, you can really exhaust the capital in a category—the 9 figures or more.

How many of these categories can support $200 million, $300 million, $400 million rounds? If it is capital-intensive, it's tough to compete. I mean, it's crazy. If Base44 has 10% of the vibe-coding market as part of Wix, if that's accurate—

Rory O'Driscoll

Yeah.

Jason Lemkin

It's crazy. But how would they have afforded those tokens? I mean, if Replit and Lovable are losing some money, where would this poor guy in Israel with 8 developers get $50 million of tokens? I don't know. There is king-making happening here, right?

Rory

I've been thinking about it too, and I'm actually going to change some of what I said, Jason. Actually, listening to what you said, I think I don't like the word “king-making.” I've decided that it imputes way too much value to venture, right? As if we're making the difference.

There are often mild versions of that. You see something where, “Oh, my God, Sequoia led this round.” Maybe people back off the other competitors. But in general, the entrepreneur is the king, and the entrepreneur makes the good company. Then, with so much capital available, they can get into this virtuous circle of getting the prestige names, prestige amounts, and significant amounts of capital that help build barriers to entry and deter invaders. So the fundamental act of creation that allows that to happen is the entrepreneur and the revenue success.

But that's just not true. I'm sorry. I mean it in the nicest way. A, the cash enables that execution, and the execution wouldn't happen without cash. And, 2, what you've seen is king-making pre-revenue, which is companies that are at $3 million, $4 million, $5 million in revenue—which is great, but, bluntly, not a huge scale. Getting $50 million to $200 million successive rounds on the back of a tier 1, with an ICONIQ or, you name your multistage fund, coming in very quickly afterwards. At that point, it actually is the venture investor that is doing the king-making.

Rory O'Driscoll

But the thing is, first of all, I agree that what you're describing is a phenomenon. We've seen it in a bunch of markets. We've looked at those markets. We've struggled to find a way to compete in those markets and figure out what to do to be where they are, right?

Yeah, but this is my point, and everyone knows them and goes, “Oh, fuck, we don't want to go in after Sequoia and ICONIQ into a company that competes with Replit or the world.”

Rory O'Driscoll

That's exactly it. But I think that, going back to king-making, in every one of those cases, we may just be arguing semantics, but it's an important comment. You start with the company doing an excellent job. You're right. They get to $2 million or $3 million in revenue. In other words, the moment of gestation is the company doing a really great job and having a small early lead.

Then you're right: the wall of money allows you to build on that lead and defend it. The brand-name firm allows you to raise a follow-on round very quickly. Arguably, the growth allows you to do it. So there is this self-reinforcing thing going on. I think we're describing the same phenomenon.

I'm just saying it's earlier and earlier, because I don't even think—

Rory O'Driscoll

I agree.

In some cases, literally, Rory, it is pre-execution. Its founder has unique insight on GTM, on product insight, on—you name it—and that is enough to catalyze the fire.

Rory O'Driscoll

Yes. But in most cases, I think you'd agree, you describe it more correctly: it's a couple of million dollars in run-rate revenue with prestige customers, a strong founder growing quickly who has done one seed, raises a good A from a top-tier firm, and gets a B 6 weeks later. Now you've got perceived momentum.

We struggle with those, and frankly, boards struggle to know: should we compete? And, secondly, they struggle to compete because once you have the top-tier firm, you get a whole bunch of people willing to pay up.

I'm meeting a lot of founders who are going, “My God, I did not realize quite how powerful king-making is,” because everyone is just saying, “Whoa, we don't want to compete against that.”

Rory O'Driscoll

Well, I always remind people it's a long way from here to $300 million in ARR in a public offering. I don't know if it's the right attitude to say, “I just can't compete.” I mean, you've just got to stay in there.

Harvey looked like they'd been king-made, if that indeed is the past tense of it, right? And then LawGora came in from Sweden, for God's sake, and killed it. They did really well. They shipped that product. They took what looked like a monopoly and turned it into a duo. There are 2 companies playing aggressively in the legal space.

So there's an example where they were second to market. Harvey had established a lot of mindshare plus capital. They had Sequoia. They had conviction. They had really strong people. And give Legora credit: they shipped a good product, a very good product. They got Benchmark in. They've just done a third follow-on round with, I want to say, Bessemer after taking Redpoint.

So there was room for a second person to be king-maker. By definition, if you have 2 people being kings, there can't be a king.

Which goes to my original statement that the size of the market does impact the ability to king-make. Law, health—difficult to king-make. Smaller markets, absolutely more plausible to king-make. Validating my original statement, Mr. Driscoll.

Rory O'Driscoll

My dear.

Thank you.

Rory O'Driscoll

I'm not sure I agree, but you said that so confidently, I'm just going to give it to you. The question is: would you do a third in that market, in the law software for corporate law firms? I think it's hard. I think there are other markets in law that are equally interesting that we'd like to play in, but you're right. At some point, it gets kind of cooked.

Jason

I remember when Michael Cannon-Brookes came to SaaStr, which was a long time ago—SaaStr Annual—and we had the CEO of Trello interview him right after he got acquired. It was like a board-meeting kind of thing at SaaStr Annual, and he asked him, “Could you do Atlassian today?”

It's like, “No way I could do Atlassian the same way today, because I had 5 years to be left alone.”

Rory O'Driscoll

Correct.

Jason Lemkin

That's why bootstrapping worked: everything was so slow for the first 5 years. The flip side today, I think, is that if a lot of the AI startups we're seeing start off with very low capital demands—2 or 3 folks, some free tokens, some free Google Cloud—it costs nothing, but then they consume a lot of capital.

The question is: if you could be a new entrant to the market and numbers 3 and 4 choose to be capital-light, that's great. But if the space requires capital to win, or the founders believe it does, then king-making becomes a prophecy because you just bow out. If I believe I need $100 million to scale Base44 to compete with Replit and Lovable, then I'm going to bow out and sell to Wix because there's no option.

That's what's a little bit different from classic 80%-gross-margin software: if you were lucky, there was a third path. If you were lucky, someone out of left field that you hadn't heard of got to $100 million. It took 5 years longer in the early days, but they caught up. We used to catch up around $10 million or $20 million ARR, and actually, in some cases in SaaS, you would lose your capital advantage around $20 million ARR because you would catch up, right? Like in Atlassian or Qualtrics.

I'm not sure that's true in the age of AI. I'm not sure that you lose the capital. I think it's often inverted, where that capital is more helpful in the age of AI. That's what makes it harder to invest in number 3 or number 4, and you might be like, “Listen, yeah, but those guys only need $10 million, and we'll see how it goes.” If they're going to need $200 million, it's not as fun to invest in the number 3 or number 4 player, is it?

Rory O'Driscoll

I agree with that. I think what you're saying is exactly right, which is that you could do Atlassian and bootstrap it for 5 years because no one was going at it, and you had an uninterrupted run. Today, I think the direction is obvious and the capital is available, and therefore, even if you don't want to do it, someone else will do it, so you have to do it.

It's like, you know, nukes in the cities. I didn't want to do it, but I knew they were going to do it, so I had to do it, and pretty soon everyone's launched $50 million Series Hs at each other.

That's what's happening because that money can either go because you need it to build a product or deliver the product at scale if you have a token cost. It can go because you need distribution, or it can go just because the other side has it and you feel the need for credibility. I know in some of these wars, having looked at some of these deals in the ERP space and some of the other spaces where you're dealing with enterprise customers, the balance sheet becomes a criterion for qualification. There's a whole bunch of reasons to say this is the way the game's being played now, and I'll admit I've taken a while to process and internalize that.

Rory, Jason, you're in a portfolio company. You get one of the big funds trying to king-make with one of your companies. Do you say, “Take the money. Fantastic. When the money's on the table, take it at a high price”? Or do you go, “This is a good company. That's a lot of money that could distract them and defocus the plan”?

Rory O'Driscoll

Pragmatically in this market, I think if you have something that's working and, even if you don't know where you're going to put the money, if it's on attractive terms, you probably err on the side of taking it because if you're in a reasonably big market, you're going to have to grow and it's going to take capital. So I think you err on the side of aggression precisely because you have to play the game theory. It's not just what do you think, but what are they going to do, where “they” is your competitor. And you can say you're going to be careful and slow and rational, but if they're not careful, slow, and rational, then you just end up outclassed.

As I say, I've resisted the king-maker word, but I think where you are correct, Harry, is that capital has a consequence. It has a consequence for customers. It has a consequence for hiring. I think one of the biggest drivers of when you take capital and when you don't is, unfortunately, you have to look at the competitive dynamic, which I don't love because you want to steer your own ship. But if you're in a competitive market, it's hard to.

Take the money, Jason?

Jason

I think what I've learned is that it has changed over the years. There's so much more information. There are so many more founders. There are so many more quickly growing companies. Founders have already made their own decision now. I haven't had these conversations in a while, Harry.

I think of 2 of my best current portfolio companies. One will consume an infinite amount of capital; the other has 60 years of runway. It's their DNA. I could argue one is overspending, and I could argue the other is underspending. That would be a very easy argument to make, right? It doesn't matter what I think. Their DNA is different. Their customer is different. The market is different. All of it. But especially their DNA is different.

Some folks want it and they understand the downside, or they don't, but they get it. They get that there's some risk, but they're effing going for it, or it's what their friends are doing. It is one of many topics where it no longer matters what I think. I can't influence it, so the best I can do is, if someone asks me, tell them at the last minute and the first minute and try to influence it, but I can't change how they're going for it.

Chaps, any other topics before we do a quick-fire that you would like to cover or think we should cover?

10. SPACs And Prediction Markets

Rory O'Driscoll

I'm just going to say it here: Chamath's terms are almost legit. There you go. It's like the new SPAC.

I will say the new SPAC terms are more rational. SPACs were an alternative mechanism for going public in 2021. They've been around for a long time, but exploded in 2021. The subsequent returns on those investments were miserable. It became obvious that one of the primary reasons for that was that the incentives between the person sponsoring the SPAC and the investors in the SPAC were misaligned, and the sponsor made money simply by getting a deal done.

It's like a venture capitalist getting paid 2 and 20 just for investing money in the ground. It turns out that if you do that, money gets invested. Now, the terms are still not cheap, but you only make it if the stock makes at least a 50% uptick. So it is a more rational structure. I still think there are issues with it around incentives and uncertainty. I still am skeptical it'll be an amazing replacement for IPOs, but it definitely is less egregious and less misaligned than the last time.

Does it prevent Chamath from having the ability to pump and dump, like he is accused of doing?

Rory O'Driscoll

That's nothing to do with that. You used the wrong word: “prevent.” There are 2 words used: “pump” and then “dump.”

Pump is interesting in the context of SPACs. Separately, the SEC has really tight laws about what you can say about an IPO. They're really, really tight, and you can't make any forward-looking statements at all. But bizarrely enough, SPACs are exempt from that because it's a merger from a legal perspective, so you're allowed to articulate any forward-looking story you like.

Anyone—let's not pick on poor Chamath—can pump all they want. You have one company going public in an S-1, and you can say nothing about the future. Then you have the other one going public in a SPAC, where you can say, “It's going to be freaking amazing. The next 10 years are going to be enormous. I'm tweeting like crazy.” So the pumping takes place because of the regulatory thing.

But you're right: the dumping—here, now, you can still dump, but at least you have to get the stock up before you can dump it. Before, literally, you had the odd circumstance where the investor could come in at $10, the stock could go to $5, but the sponsor got their stock at a penny. So even at $5, they could dump, and the investors lost half their money while the sponsors made money.

That's not a thing anymore. Now, the investor comes in at $10. Until the stock gets to $15, the sponsor gets nothing. But once it gets to $15, they get a 30% promote. So it's not cheap, but it's a little better than before. This probably makes SPACs a marginally more attractive competitor to the IPO, but I still think a well-run IPO beats it by a head.

Jason Lemkin

Can I just add one last point on the crazy deals? The reason it comes up is that SPACs are back, right? It's really a sign of the times. We're running out of time.

Related to that, good God: the New York Stock Exchange invests $2 billion in Polymarket, which was essentially illegal last year. It was essentially illegal. The Biden administration decided this was gambling, offshore gambling, and was going to, as I understand it, shut down Polymarket.

Trump—and listen, no politics here, okay?—but it is interesting. The world changed. Trump comes in, his son joins the board and invests in the company. David Sacks, who I am a fan of as a SaaS founder—we go back—is trying to remove all the regulations from crypto and all this, and now you go from something that was essentially illegal last year in the US to something that Trump's son owns a significant share of, and now the New York Stock Exchange is investing $2 billion at a $9 billion valuation.

If that isn't a sign—like SPACs being back—if that isn't a sign of the times, that is such a change. AI isn't the only thing in the world. Just removing all this regulation, and now that Polymarket's on the inside and the New York Stock Exchange is investing, to me, that's quietly the craziest story, and they legitimize self-dealing in it. It's just a different world, right? I don't know if it's better or worse—no politics—but it sure is different.

Rory O'Driscoll

I think deregulation's great, to be clear. I think the fact that the Biden administration chose that hill to die on was both probably wrong and definitely stupid, and it goes a long way to explaining their terrible polling numbers among the 20-to-30-year-old male demographic.

I actually give them credit. I think deregulation is one of the few joyous parts of what's coming out of the current administration. I think it's great. Go team. I'm not going to comment on what interpersonal relationship it takes to get something done, and I don't think it impacts the deregulation, but that's a morass that I have no doubt will be unpicked another day by someone other than us with judicial powers.

I think the interesting thing about those businesses is that, if you look at the volume—and I didn't check Polymarket; I think I checked Kalshi—it's still 70% to 80% sports betting. But the real question is whether you can build prediction markets for other things, and you're seeing that. To the extent that you can do predictions for other things, like the questions we're going to be asked, I just saw a market running on who was going to be the next prime minister of Japan because of the election.

Whether or not that's a quote-unquote “legitimate” non-sports gambling business is TBD. It was the NYSE, which is really Intercontinental Exchange—that Atlanta company is the core owner of it. I think it's super interesting. I think those are 2 really interesting companies, and credit to the venture investors who stuck with it through the regulatory period. I think you've got a really nice asset now.

I totally agree. The thing that I did find a little bit confusing is that $2 billion is a huge amount of money.

Again, comparing that to Vercel's $300 million, I don't know, but there isn't a compute or infrastructure spend. I guess there's a rights spend in a lot of cases, but $2 billion? I mean, did you need $2 billion?

Jason Lemkin

I think it's implicit. We have to see the details of the deals. I think there's some level of implicit exclusivity here. There's data sharing, right? You invest $2 billion for it to be, in essence, an affiliate of the company, right?

There may be some vague similarities to the beginning with OpenAI and AMD. This is a bonding investment, right? This is buying a quarter of the company, or 20-some-odd percent, and someone's putting something in here that's more than money. In return, they want to own a lot, right?

Rory

These guys are strategic investors. They're not doing it for a 2X return. They're doing it because they own—I can never remember, is it the NYSE or the Nasdaq? They own a bunch of market-making companies.

Jason

Yeah, I did confuse them. Intercontinental—

Roy Bahat

Yeah.

Jason Lemkin

Intercontinental Exchange, owner of the New York Stock Exchange.

Rory

Yes, and they are called ICE, and I was going to say ICE, but of course, that would be confusing to the average—

Jason Lemkin

Yeah.

Roy Bahat

Listener, right? Intercontinental Exchange. They bought the London International Financial Futures and Options Exchange like 20 years ago. They're like, “If there's an exciting and interesting financial market where people buy and sell electronically really interesting shit, we like to own some of that.” So it totally makes sense strategically. Good for them.

We're going to do a quick-fire. Good addition there, Jason, by the way. I totally agree with you. Fucking—

Jason Lemkin

Right.

Nuts deal. Nuts. Okay, number 1: This is a prediction-market question. Tim Cook leaves Apple this year. Yes, $100 turns into $879. No, $100 turns into $107. I mean, is he already confirmed? Those odds are terrible.

Rory

Agreed. But “leaves” is the word, right? Again, I hate these things because I'm riffing, but Jason can do it in real time and look things up. Wasn't there some kind of succession-planning announcement? I can't remember, that the VP of engineering would, in time—

So there's clearly a succession plan here, as one would expect if you're a competent board and you've got a chief executive over 60. But leaving—I think leaving this year is a very tight bet. The only way that would happen would be if you thought things were failing. So I actually know why it's a very modest payout, because it's very unlikely.

That's different from saying, as a separate comment, that the board is starting to think about what the skills required are for the next leader. I think—and again, I could be just imagining this; I've been so crazy this week—but I think it was the SVP of engineering, so it's very much a—

Jason Lemkin

Yeah, that was a leaked rumor that he was a successor. He's 50 and Tim Cook's turning 65, so it's their job. But there's no way it's this year. Unless it's a health issue, there's no way it's going to be this year.

Roy Bahat

You're exactly right, Jason. I think both sides of that are crazy. But it's exactly their job. If you're on the board of the second- or third-most-valuable company on the planet, and your CEO is hitting 65 and you're not thinking about succession, then just call yourself the Disney board and give up.

Roy, are you still a holder?

Rory

I'm still a holder. I trimmed a little when Warren did. I got in before him, but I'm paying attention to—

Trimmed a little, 99%.

Roy Bahat

No, no, no. Not a whole lot. I continue to worry about the growth rate and the AI story, but fundamentally, you need instantiated physical products to consume all this stuff, and they're the platform of choice for middle-class consumers and up worldwide.

So it's still been good, and it's bounced back nicely from where it was. I mean, there was a little low there, and I'm like, “Ooh, maybe I was wrong.”

Jason Lemkin

I don't get these VCs that invest in the public markets. But it's good content.

Roy Bahat

I honestly—

Jason Lemkin

It's good content.

Roy Bahat

It's not what I do.

You all—

Roy Bahat

I feel the need to defend myself. I have almost no individual public stocks other than companies that distribute shares to me. But I also wisely bought in 2009, and my basis is so low now that I just can't bring myself to pay the 37% tax.

Jason Lemkin

Yeah, don't sell it. Don't sell it—

Roy Bahat

And, you know—

Jason Lemkin

Until you move to Puerto Rico or whatever.

Rory

No, I'm not going to move out of California, but I just can't bear to give it up. But maybe I'm just stupid.

Okay, next one. Replit and Lovable: over or under $250 million ARR by the end of the year? They're both in the $160 million range now—$160 million, $170 million.

Jason

Is there a Cowsey[?], or are you just—is this a binary question?

This is a binary question. This is a Harry.

Jason

I'll tell you the only interesting thing. I would say over—over $250 million, but barely. There was an interesting report this week. It wasn't Bloomberg; it was someone at Barclays. Barclays tracked what they believed the web traffic was to all the categories.

What was interesting was that it looked very accurate, in the sense that it had Base44 hitting the numbers that tied to what Wix publicly disclosed, so we can assume that's accurate, right? And it had Replit tying to when they launched v3, which was a big boost. Then they had Bolt's numbers, which roughly tie to what I think they are.

So what it said is, look, traffic has flattened—flattened to down, okay? Initially, you might say, “Oh my God, sell your stock,” but I actually think it's a good thing because the looky-loos aren't going to renew.

The problem with these products is you have to segment churn. There are folks like me—I’ll never churn off Replit, okay? I'm 200 hours in. I've got 8 apps in production. It's impossible to leave. The odds are that I'm going to spend between $300 and $3,000 a month for a long, long time, okay?

But Abigail, who wanted to build her own CRM and was told you could do it in 60 seconds and it didn't work, she's going to churn, right? Or he's going to churn. So it's good to get rid of the looky-loos, because even though they got these guys to $100 million, they aren't going to get them to $1 billion.

We've all had companies where this is the case, where we had a segment of customers that were very high-churn and a segment that's very sticky. So I think it's okay that interest is flat because it'll be higher value, but it is something to reflect on.

It looked right to me that we've seen at least a temporary plateau in interest in these platforms, and it makes sense to me because a lot of use cases aren't viable. I love Replit to death, but all of this is at the edge of marketing misrepresentation. So, rambly answer: I think they'll hit it, but I do think there's deceleration. It's not like ChatGPT. There's going to be deceleration in lay users wanting to use these platforms.

Rory

For the record, there's deceleration in ChatGPT, too. It goes back to what I said earlier. How much deceleration can you do at $12 billion to make sure you still hit $100 billion? That's my question, but we don't have time for that today. I'm thinking about it.

I don't have anything to add on Lovable and Replit. I defer to Jason entirely.

Jason

But I will tell you just one thing. I don't want to spend all this time. They're getting better. I'm almost 100 days into vibe coding. The platforms are so much better than they were 100 days ago.

So, like a lot of things in venture or startups, you have to be careful how you predict. This is not SaaS of 2016. The rate of improvement is so high—that's why I feel pretty good about the ARR numbers, even if I think the prosumers may fade.

Let's wrap it. Guys, thank you so much. This has been awesome.

Jason Lemkin

All right, rock on, Harry. Thank you for the time. Thanks for doing this for us.

Roy Bahat

Totally.