DPI 是唯一重要的指标吗？——与 Sam Lessin、Jason Lemkin 和 Rory O’Driscoll 对谈

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1. TVPI Is Bullshit?

Guys, I am so excited for this. We had so many interesting things that we want to dive into this week. I just want to start by diving in at the deep end on a series of Chamath tweets. Chamath basically said, “Hey, TVPI’s a vanity metric. You can’t eat IRR; you can only eat net DPI.” When you read this, and when you read his quite opinionated stance, how did we feel? I mean, I hate agreeing with Chamath on principle, but I agree with him.

Sam Lessin

Well, you know what’s interesting? If you read the Wall Street Journal article on Thoma Bravo, they just raised a $34 billion fund, right, Harry? Your buddy. The Wall Street Journal said that’s a record fund for private equity: $34 billion. It’s a record, but Q1 was a low point. No one raised a $5 billion private-equity fund because of a lack of liquidity, right?

So it kind of ties to Chamath’s point: if you have the liquidity in today’s world, you’re going to get the capital, right? Thoma Bravo had $30 billion in distributions last year. $30 billion. I think that exceeds most funds, right? $30 billion in distributions—not paper markups, but distributions.

Look, from my perspective, this is simple. There are 2 very different games that are called venture capital, or even private capital in general. One game is actually making people money: finding companies early, making the right bets, paying the right prices, and selling. That is a DPI game, and all that matters is DPI. That’s the game I like to play. That’s the game I value and respect.

There’s also an asset-gathering game. The asset-gathering game does exist. Here’s the thing: I say this as a seed investor, with full transparency, as a business. The asset-gathering game is actually a better business. If you’re just in it to make money, and that’s what you’re in it for, then you’re an asset gatherer. That’s what the market wants. We can talk about why, and the whole nine yards. The public market wants that; they care about fees, et cetera.

The problem is, I’m just an intellectual snob, and I have no respect for asset gatherers. I think it’s a stupid game. For me, I think they’re 2 very different things that are called the same thing, and you should just be really sober about what game you’re in and what you’re trying to do.

I think it’s really fun that we had this conversation and ended up thinking Chamath’s on the side of good. Nice job, Sam.

Sam Lessin

I’m the first to say I think it’s wild that I agree with him. My default instinct is to completely disagree with him on whatever he says, but in this case, I happen to agree with him. I’m comfortable disagreeing with him. I honestly thought it was kind of a trite comment. It’s a very typical Chamath comment. On first glance, it sounds smart, but on deeper analysis, it’s vaguely right but not useful.

Obviously, for him, he cited his 2013 and 2015 vintage funds. At that point, DPI is the only thing that counts. If you’re 10 years in and you’re still selling promises, then you’re in trouble. That’s a trivially obvious comment.

But at the end of the day, to say TVPI doesn’t count—the truth is, venture investors are investing in illiquid assets for 5 to 7 years with the expectation of making a greater return. That means that for 5 to 7 years, you don’t have DPI. You’ve consciously made yourself illiquid. You’ve taken money and put it in the ground.

So, in that period of time, you have 2 choices as an investor gauging these guys. You can say TVPI means nothing: “I’ll stick my head up my ass, and I’ll look in 7 years. I’ll see how they’re doing.” Or you can use TVPI for what it is: a proxy, a loose proxy for performance.

Here’s the upshot: you have to understand that LPs are just incentive-driven. From an LP perspective, what you should do as a rational human being, if it were me investing in the fund, is say, “Yeah, the money’s in the ground for 5 years, and after that we’ll see where we’re at. That’s all that matters: what you deliver.”

I know full well—I know this as an investor—that the marks that you made up, or the marks of SoftBank listed somewhere, are completely irrelevant. In fact, they’re a negative signal in a lot of cases. Now, here’s the reality: institutional LPs are people too, right?

There’s some junior guy who wrote the check, right? He wants to get promoted, and he exists in an organization that’s trying to deliver something. He doesn’t want to wait 7 years to get promoted for making a good call or a bad call. So it really is just a marketing thing where you’re saying, “Hey, I’m going to give the person who wrote me the check some marketing thing they can then use for their own internal purposes,” because everything in life is about get laid or get paid.

I think there’s no doubt that part of having a positive TVPI is all that marketing. But I think at some level—look, let me ask a question here. If you had 2 funds 3 years in, and 1 of them had no markups and 1 of them was at a 2x TVPI, would you regard those 2 funds as exactly identical?

Sam Lessin

No. What I would regard them as, though—and this is how I actually do regard them when I look at my own portfolio or things like that—is very simple: how many credible things do you have that are going to be fund returners? That’s it. Just give me the list of 4 things. I don’t care where they’re marked. You either have a set of legitimate shots on goal for important companies and important outcomes, or you don’t.

If a company is marked at 2x where it went in because SoftBank or some crazy person marked it up in some crazy way, my point about the Chamath comment is to say it means nothing.

To say it means nothing is a gross exaggeration. There almost certainly is some signal in that data. Let’s take it. Let’s go right down into “TVPI means nothing.” I’m willing to bet that if you got some kind of machine-learning algorithm and looked at all the funds that, 3 or 4 years in, had a TVPI of 2x, and all the funds that 4 years in had a TVPI of 8x, and then correlated that to the ultimate outcomes, I bet there would be data in that signal that says it has some value.

Therefore, to state that it has no value is incorrect. It’s not the only source of data. You’re right: there are better sources of data if you’re in a position to evaluate better data. But as an LP, in the absence of anything better, there is signal in the data, which means the comment is wrong.

Sam Lessin

It would be fun to look at. I actually bet that firms that hold positions at 0 or cost, or are even willing to mark down positions, are more honest about it in reality and might actually outperform. I don’t know; we can look at it.

But the reality is, I think there’s this incentive. As an LP in many funds, you have funds, you get their statements, and you laugh because they hold everything at the ridiculous high-water mark they can possibly come up with. These are numbers that make no sense, and you look at them and you’re like, “This is kind of funny.” The numbers look good, but you’re like, “This is not real,” right?

I just think it’s because everyone has methodologies all over the board. It’s all marketing, right? And I, unfortunately, hate being with Chamath. I’ve known Chamath a long time—not well, but casually—and I have to say it drives me nuts that I have to be with him.

But with him, all I care about early is: give me 5 names that matter. All I care about after you’ve had enough time is: did you make me money or not?

Okay, but I get your point. Zero is an extreme statement, but we live in an age of memes. We’re living in this kind of dichotomous, or binary, world of venture. SVB did this great analysis, and they were saying that the middle of VC funds is getting really hollowed out. In other words, mid-tier firms in terms of size are really falling apart.

What happens to them? Is it a game of the very small and the very large, do we think, when we look at this report?

Sam Lessin

Yes. There’s no middle. You can’t be a $1 billion venture fund.

Is $1 billion middle?

Sam Lessin

Well, I’d say this: we try to raise $200 million early-stage funds. That’s what we do every few years. I’m very confident we know how to deploy that. I believe there’s a market where you can, from a DPI perspective, make money on that. It’s not a great fee business, but it’s a great DPI business.

I don’t know how you make multiples on a billion dollars consistently in VC. I think once you’re doing $10 billion, you’re playing a completely different game of asset gathering and asset deployment, where you no longer have the same goals. So I personally think that the billion-dollar zone is the death zone.

Gotcha. Good to know as a $900 million fund.

Sam Lessin

Yeah, actually, I did look at the SVB analysis. First of all, I was thinking, “Are they throwing me under the bus too?” I checked the data, and they were actually saying the $200 million to $500 million range was the middle zone.

Rory O’Driscoll

So then I felt even more depressed. Now I’m a behemoth. Now I’m a small behemoth, which is even more degrading. I’m kind of a low-rent conglomerate, but I saw this stuff. I don’t buy it.

I mean, I think your statement is—I think, in the end, you have to be sized for the stage you’re playing at and to achieve the portfolio construction you want to achieve. I’m pretty confident that our typical check size is $20 million to $30 million in your $30 million to $40 million rounds. We want to get 30 checks. The math works, right? Thirty deals total. So I think you have to be sized for the game you’re at, right? It still doesn’t mean you can’t get it wrong.

And I do think, to your point, one of the things Jason and I have been batting around over the last 8 weeks is that I do believe the impact of the conglomerates has made everything harder, including making it harder for us to make money. I totally buy that. The existence of people with $10 billion to spend makes it very hard for people with $900 million or $500 million or $600 million to spend to do that rationally, in a way that—and I’d love to hear from Jason on this—if you’re putting out $100 million or $200 million, you’re probably a little more inured to it.

Maybe the more interesting question is for founders, right? I think the SVB report, which I wrote up, wasn’t really saying $800 million to $1 billion was the hollowed-out middle, but I guess it is part of the analysis, right? They’re not raising funds. If that is true, then every founder wants to raise $20 million or $30 million in their Series A. Now, no one wants to raise an $8 million Series A. The $8 million Series A is now 3 SAFE notes, right?

Does that mean in a couple of years your companies, outside of some scales, are going to be limited to mega-funds? Are they the only people that are going to be able to write Series A checks? Because $20 million to $30 million isn’t even a large Series A today, right? It’s a normal one. So if there is no one in the middle, then we’re all stuck with mega-funds to fund the seed companies, right?

I mean, I guess it’s an obvious point, but founders better get to know folks with $5 billion or $10 billion funds before demo day, or they’re all going bankrupt—and these are all bad companies. I think that’s the other way to look at this. I know a lot of people are pulling out of Series A entirely because they’re like, “These are completely mispriced, and these make no sense.”

I think the other possibility, right, is that we’re in an era where there are good companies to be built and there are places to make money. If you are going into corners of the economy or funding things that other people won’t, and so you’re an N of 1 or an N of a few looking at spaces that are really novel, there are places to make lots of money.

But I think we also have to look at it the other way, which is that there’s just a massive amount of capital being massively misallocated right now. It’s always funny when people simultaneously have the worldview that the big funds are going to win everything, but all the money is being wasted. I mean, at some point—well, I think the thing with the human mind is that I don’t even know the big funds need to make that much money, right? Because they’re asset gatherers, right? They need to make enough money to generate more asset gathering, and they need to justify their own existence. It’s a good business, right? That’s different from saying you’re trying to make a lot of money in venture capital.

Broadly agreed. But I actually think, Jason, I want to go back to what you said because I thought it was spot on. It’s like, you think if there are only $200 million funds and billion-dollar funds, then you’re exactly right. Logically, those $20 million, $30 million, $40 million, $50 million checks are going to come from only 10 names who are writing 40 of them a year, not 8 like us, right? That’s possible, but it’s just a weird fund construction because those people are then going to be writing 40, 50, 60 checks of this size. You’re going to have a very spread-out partner base. I don’t know if they’ll be able to meet the founder needs where it is. So, I do believe.

Is that not what Insight has today, though? We’ve mentioned before the outcomes they have, with Hinge Health returning $400 million on a $6 billion fund, and them having hundreds of positions, and actually that being the construction they have.

Rory O’Driscoll

It might be the construct. Yes, it is the construction they have. But at some point it gets easier, when you’re running big sums, to put big money in a smaller number of companies than try and diversify away. If we’re trying with $900 million to have 30 A’s or B’s, someone who’s running $9 billion, if they were trying to do the same thing, would have 300 A’s and B’s in 3 years. It would be silly. So at some point it becomes a part of their business, but not all their business.

And I think Jason’s right there. It’s so funny—we’re going to talk in a few minutes about, and Sam mentioned earlier, this idea that a lot of A’s are struggling to be raised. The only way that worldview makes sense is actually what Sam said: that if you have a world where midsize funds, quote-unquote, can’t survive because of the big guys, and the big guys are, quote, stealing all the good deals, while at the same time we’re also saying many companies are struggling to get a Series A raised, those things are almost opposite to each other. One says capital is scarce, and one says capital is plentiful.

I would say the way you resolve that illogical-seeming statement is quite simple: every generation, there are only a few companies that matter.

2. The Impact of Mega Funds on Startups

Rory O’Driscoll

Yes, it’s very simple. So most of the money at Series A is completely wasted, right? They might want it in larger quantum; it’s kind of a war of attrition. It’s just more money being lit on fire. Now, the mega-funds can win because they can say, “Okay, look, I’m going to plow a gajillion dollars at almost any price in,” and because of AI or whatever argument they want to make, there’s no upper bound, right? So they say, “We make lots of money just on lots of money being deployed.” That can logically make sense.

Seed funds are fine because you still have to be in winners, right? But it’s just a multiples game, which is, if you’re in it at zero, then you can make a bunch of checks and make the math work from a DPI perspective. You also have a nice benefit, which I very much appreciate: I strongly believe private-to-private is an important future, and I love being early and small and first because I can sell into the private markets in a way that you can’t if you’ve written a $30 million to $40 million check into the Series A. Too big, right? So I think those 2 things survive.

But what do you think about selling early—selling in secondaries, unicorn secondaries? How do you think about the goals? Is the goal, as we talked about, 1x your fund, 2x your fund, half of it? Is it just risk allocation? Because this, I think, if you have a smaller fund, is really interesting. It is a debate because just the other day I had a 1x exit opportunity to return the fund once, and one of my anchors was—I also brought them in as part of the deal, and we talked about it, right? They followed me, so it was less for them, but for them it would have been a very high IRR and for me, a 1x. That sounds good on the internet, right? But then it’s gone.

Yeah, so look, it’s all gone. There are no more returns. At the end of the day, there are a few things that matter, right? The number-one rule as a fund, an allocator, is that you cannot sell the things that matter.

Rule 2 is: we were one of the first investors in Albert or Astra rockets, or plenty of things that got out and people were excited about, but the thesis broke, right? I think you have to be really honest with yourself, and you’re going to make mistakes. One of the things I always say is that, as an early-stage investor, you get hundreds of shots to buy. You get really good at buying; you have so few shots at learning to sell that it actually takes much longer to learn to sell well. But it’s still as important as learning to buy well.

You just have to be really honest with yourself, which is: is this an infinity shot, or is it not? The second the thesis is broken and it’s not, if there’s a buyer at a price that makes sense because someone else has different fund dynamics, there are opportunities that work for everyone. Maybe they already own a lot, and for them it’s about rounding down their average cost. Maybe they’re a capital allocator and they don’t care as much about the negative return. They have different goals.

Rory, can I ask you: if it’s not one of the companies that matter, is it lighting money on fire in the kind of binary way?

Rory O’Driscoll

No, I’m glad you came back to that because I would say, again respectfully, I disagree. It’s a matter of degree, but no, I don’t think that’s a correct statement, right? It is true that—and how do you express it? In every decade, you look back and you go, the vast bulk of the value is driven by 1 or 2 companies. It’s a power law; we all understand the math. To a rounding error, there was a decade where it was Google and then everything else, right?

You could say to yourself, “If I didn’t do Google, I must have lit the money on fire.” But then when you make that sentence a few times, you go and look at your Schwab account and go, “Oh, I have money in there, so I mustn’t have lit it on fire.”

Jason Lemkin

There are more wins than the biggest win. It is a power law. I would prefer to have done Google than whatever I made money on from 2000 to 2010, but I’m damn glad I did that one, too. The over-extrapolation that only 3 deals make money, and therefore everything else at Series A is burning money, is just—I mean, it’s true in that you’d prefer to be in Google, but it’s not the only way to make money.

Just in the last couple of weeks, we’ve had, as you mentioned, a couple of decent IPOs: Hinge Health, we’re going to have Chime, we had MNTN last week, and we have another one this week. Take Hinge: someone made $400 million for their investors. 20% of $400 million is $80 million.

I say this every time when someone at the office says, “Oh, it’s just a 3x.” Every single one of you will cash the fucking check. Every single one of you. If I left them on the counter there, you’d all take them home with you, right? $80 million is still real money in America.

And Rory, that’s almost my point. But just to put you on Chime, Chime’s a great example of this, right? If you’re an early-stage investor, you’re very sad you didn’t sell last round in Chime, right? I would argue that at $25 billion, or wherever the last round was done, when you look at that rationally, you’d say, “Look, it’s a good company.”

Is it an infinity company? Am I betting on this for infinity, or is this a really great place where I did my job, which was to fund it early, to find it early, to fund it when money was scarce? Now we have capital allocators who are making a different assessment. I think the answer is you clearly would have wanted to sell last round.

I think it’s incumbent on investors. I only know what’s in the S-1, but I didn’t see any of the early shareholders make the cut among the principal stockholders. When I look at the principal stockholders, there’s dilution, but I don’t see any of the seed guys on the table. So that says to me they probably sold in the $20-something-billion round, when I literally only see DST and Crosslink. They did their job.

Rory O'Driscoll

Well, not if it’s a $250 billion company. Two separate things are floating around, and I want to disaggregate them. First is, I’m going to fight in defense of the mid-tier, right? Did the mid-tier investors who didn’t do the seed but didn’t do the $25 billion round—are they happy they did that round?

The round that Menlo did—I think it was out of the B.C.—was a couple hundred million. I can’t remember what the pre-money valuation was. They’re damn happy they did that round, right? That’s a classic example of a midsize venture firm making a savvy bet, doing good stock-picking long after the seed but still making good coin.

So, to me, that’s the first point: the validation that you can, at that fund size—it was probably a $450–$500 million fund—make really good coin and move the needle at the fund level.

The second comment, to your point, Samir and Jason, you’re right. You look back and go, “I might have been marginally smarter if I had bought at $200 or $300 million and then sold at $25 billion, rather than holding and selling at $12 billion.” But the big advantage they have is they’ll still book probably 10x or 20x. Now, 40x is better than 20x, right? So they’ve made good coin in a situation where, as we discussed before, the kind of $25 billion round is going to lose money.

I think that’s proof. It goes back to the point that you can make perfectly shrewd Series A-to-C bets, sub-$1 billion pre-money, and make very good money in a non-“generational company.” Chime is an extremely good company. It’s not one of them.

I agree with all that, Rory. Again, I’m obviously trying to be provocative on purpose, but I think we directly—here are my points to bring it full circle to DPI, though.

When you think about how I relatively value DPI versus TVPI or any other metric, if I’m an early-stage funder—really, anyone—and you said, “Hey, I sold my Chime stock at $25 billion for American dollars, for cash, and I gave it to you years ago,” from an IR perspective and a cash perspective, that is a great move, right? Versus Hinge, yeah.

That’s the thing to keep in mind when we go back to all this. Again, we’re talking pretty deep cuts on the game of VC right now, as opposed to the game of company-building. But I do think, when you come back to this, this is why I believe the Chime argument, unfortunately—and it’s going to get clipped, and I’m going to be upset about it, but whatever—is that he’s right. At the end of the day, good investors, good capitalists make people money if that’s the game they’re playing, and they’re not asset gatherers.

Rory O'Driscoll

Yes. Of course, in the end, it’s true. Of course, my point is, in the end, it’s true: the checks in the bank count. Sometimes, as you correctly say, it’s even true that a smaller check earlier has more value than a bigger check later, just for a whole bunch of life reasons. That’s why we have interest rates; there’s a time value of money.

I remember a friend of mine. We saw this company, and I was giving him grief. Then, 5 or 6 years later, another company in the same space went public at 2 or 3 times the market cap, and I foolishly gave him shit about it. He called bullshit on me. He said, “Look, I’ve been at the thing for 10 years. I made a lot of money. I got married. I have a life. I have a lovely house in Spain, and I started another company. Yeah, I’d have more money if I’d held, but that was my life choice.”

I think he was exactly right, so I agree.

Rory O’Driscoll

I just thought about Menlo Ventures. Obviously, I don’t know what their basis is, Rory. Obviously, they’ll make a ton of money on Chime, right? A classic, great bet. They said they did the Series B, right? They win. So they did the Series B at $200 million or $300 million. Maybe we can figure it out on the fly. There’ll be some dilution, and they’ll 10x or 15x their money, right? That’ll be a fun returner, or more than a fund returner—probably just a little under.

I do like that team. Back in 2021, they wanted to invest in all of my companies. There was very high alignment, for better or worse, right? What’s interesting to me today, from the start of the conversation, is that all they talk about is Anthropic today. This is a smart team. They have an Anthropic fund. I follow all the guys on LinkedIn, and it’s nothing but their Anthropic posts.

They didn’t do the seed, and they’re going to make a lot of money off this, because Anthropic is at $1 billion to $3 billion in revenue in 5 months. But it’s a sign of the times, isn’t it? I don’t see them trumpeting their coming DPI from Chime, which is epic, but Anthropic is on their social media 11 times a day, as perhaps it should be. There’s no—I don’t think they’re taking any DPI. They’re marketing to entrepreneurs; they’re not marketing to LPs.

3. The War on Relevance: What Companies Truly Matter?

Rory O'Driscoll

I think in venture capital, it is unbelievably difficult to know what anything is worth, right? If you’re Menlo, or you’re anyone in the middle, my God, you have to price things properly, right?

If you’re plowing enormous amounts of money in and saying, “Late on the infinity dream, price doesn’t really matter,” which is how you get these ridiculous prices, the reason is very simple: What is OpenAI worth? Who the hell knows? People can dream, right? You can have a trillion-dollar dream, and that means there’s very little pricing discipline. It’s basically a game of pissing over who can pay more or who’s willing to go further.

At seed, nothing’s worth anything, right? You just have to have pricing discipline and remember that.

Rory O’Driscoll

The problem for me is, I don’t know how you know. I said this as someone who started my career at Bain & Company. I think with these private companies, catching the right price and the right dynamic and being right at Series A or B is the hardest game.

Rory O'Driscoll

I think some parts of that are true. Price—you’re right that the seed investor—I always say we tend to do A’s and B’s, and I always say we’re at the first point where you can start to do some analysis versus just people and market, which is what you have to live on, and broad directionality. You’ve got at least some pitiful facts to look at and try.

I have no facts. I exist in a fact-free zone.

Rory O’Driscoll

Yes, absolutely. We live in a fact-thin zone. I do agree that we have to be a little—yes, you have some data to bring, and it’s—

But I don’t agree that pricing for us is harder than pricing for the late stage. I think late stage, on average, is much harder to price, because on average you’ll be wrong. We’re seeing a whole bunch of down rounds where the last round loses money and every other round prior to that makes money. I actually think price discipline is even more important the closer you get to an exit.

Rory O'Driscoll

They don’t lose money. They just get their preference. We’ve thrashed that one to death.

In Chime’s case, they’re going to lose money because they don’t have protection. That’s a fair eye roll, Jason. But I think the more important thing is, we always say—and I think Menlo doing Anthropic was a genius move, right? So, come to that in a second.

Rory O'Driscoll

Genius move, too. Totally. I think, look, there are always some deals where it’s very surprising that even at that $2 billion, $3 billion, or $5 billion valuation level, there’s still another 10x from there. Now, there aren’t many of them. There’s literally 1 maybe every 2 years.

But if you do that 1, you’re right: you can price like it’s an A or a B, but deploy money like it’s an F and make a return.

A 10x-plus return as if it’s an A or a B—it’s an awesome deal. As I say, there’s 1 of them every couple of years. Anthropic was 1, OpenAI was 1, and probably Anduril was 1. But the average late-stage deal isn’t that, right? There are just fewer degrees of freedom on the average late-stage deal to compound.

So I think you have to be a little—when I look at the people who do it well, like Meritech and IVP, there’s a fair amount of shrewd price discipline in what they bring to the table, or what the product they’re selling is. It’s just a different product, right? The product they’re selling is access to this pool of late-stage companies for people with too much money, or who need private access, with a cherry on top of infinity, right?

I think that’s probably not as true for the names I cited, but I think you’re right. There are funds playing that game where, when all the cute, sexy stuff is private, there are eventually going to be entities whose sole goal in life is to put public investors in contact with those sexy private companies.

The 1 thing I will say on Chime and the $25 billion is that every single round in the billions for Revolut, everyone was saying, “How much more can it be? How much more can it be?” I think everyone is realizing now that Revolut will quite likely be at least a $100 billion company, and likely $150 billion. If you sold at $25 billion, you would be grossly underestimating it—missing $125 billion of gains in a European neobank.

But it also just depends what business you think you’re in, right? I don’t think there’s a very—aren’t you in the business of making as much money for your investors as possible?

Well, I think there’s another real debate, which is a tough one. I would argue that there’s a strong case to be made that, as a venture capitalist, you should not have an opinion about the public markets, right? You’re not paid to have an opinion about public markets. People have their own opinions about public markets. Your job is to manage the private markets and private pricing. Once things are public, it’s like, look, the game should be over.

There are all sorts of people who juice that, or decide they do have opinions about the public markets. But it’s something I’ve gone back and forth on, to be totally honest with you—whether VCs, just thematically, should be doing that, or whether you say, “Look, we can turn over shares. You guys figure out what to do.”

But I would probably sell Revolut and Chime right now. Right now, I’ll tell you why, and you can criticize it. I’m still learning. I’m going to be a student for too long. I’ll be out of this game while I’m still a student.

But both of them have about 15% market share.

True, Sam. If you’re trying to decide when to sell, or whether they have infinite runway, market share is a limiter. Revolut—there are folks that can get to 100% market share, but for a lot of apps, 15% is a little bit of a headwind. You start to see it, and a lot of times in B2B, when the market is smaller, it’s even before $100 million in revenue. You start to get to double-digit market share.

Just when it gets good, because everyone’s heard about you and all the leads come in, it’s like, “Ah, all the easy leads are gone.” Fifteen percent market share is a lot if you’re not a monopoly. If it’s not a monopoly, that’s a classic thing.

Everyone comes to me at an early stage and says, “The CAC is blank, but it’s going to go down.” No—CAC only goes up. People consistently get this wrong, right? It’s almost always up at scale. This is how the world works. The argument that you’re going to get good at something and all of a sudden it’s going to get cheaper is just wrong.

Chime is an interesting one. Their CAC has fallen a bit because they track brand awareness and virality. It took a while for Chime to be big enough to have enough viral propagation, or word of mouth. I don’t think it’s viral—word of mouth—but it’s interesting because it was only in 2022 that they said word of mouth was their number-one source of customers. That’s the only way you can scale, right? Otherwise, your CAC goes up, goes to infinity.

What’s that?

I say this with respect: I actually quite like the Chime team. I know a lot of them well. I think they’re good people. I don’t mean to be crapping on them. I think they’re good operators, and I’m excited for them.

But is Chime an important company? I just don’t see it, right. It’s a good company. They provided some banking products to unbanked or underbanked people. I get it. It’s not bad. They did a good job. They built a good app. But is it important? I just don’t know that it is.

If the $14 billion market cap was in my bank account, I would think it was a very important company indeed.

Right. If it put $14 billion in your bank account, I hear what you’re saying. It’s fine. It’s not a bad thing, right? I remember—I think it’s a good question, and I honestly like being challenged. If Chime is not an important company at all, then I’ve never done anything important in my life.

I’ve been a decent founder. I’ve seeded multiple companies. My team has gone on to help run multiple decacorns. I’ve had $5 billion in cash exits. But I really don’t matter, and I might not. It’s quite possible. I’ve helped thousands of founders build companies from scratch, but I probably don’t matter if Chime doesn’t matter.

I think the default is that most of us don’t matter, and most of the companies in the world don’t matter. But the things that matter really matter, right? I think the job is to find the things that really matter.

Do you think Salesforce or Oracle matter?

Yeah. I mean, they might not matter. Arthur Balfour, the prime minister of England in the early 1900s—a very languid, relaxed man—used to say, “Nothing matters a lot, and very little matters at all.”

That’s really what you’re saying, Sam, and it’s true. But of course, the correct response is, “What am I meant to do with that?”

I think Anduril can matter. I think you can tell it can. I’m not saying it will. I do think killing people matters. I think OpenAI could matter, right? I think Microsoft, Facebook, and Google are companies that matter. I think Bitcoin matters. I personally think Solana matters. I think Venmo might matter. We can go down the line of things that are actually paradigm-shifting and have an impact.

You’re not sure OpenAI will matter. You just think it’s possible it could matter.

It will matter. I think it might matter. I mean, that’s a pretty arrogant thing to say, isn’t it? The game is young, right? It’s not that they haven’t clearly pushed the ball forward, but will we look back in 20 years and say OpenAI was a fundamentally important company?

The truth is that most companies fail. Some companies compound to $1 billion in value. A few each year compound to $5 billion, 1 every year to $10 billion, and 1 every 1 or 2 decades to $100 billion. So, taking away that quote about mattering, I think market cap is a rough proxy for mattering. I say that pretty confidently because I believe the capitalist system works, and the things that matter the most are valued the most.

What I’m disconnecting with a little bit is—and I love what Jason said. I just want to come back to what you said. I’m at peace with the fact that, if the definition of mattering is $100 billion, I may well complete another 10 years in venture, do it for 40 years, and never matter. I’m actually okay with that. I’ll take it over with my therapist. I’ll be fine, right?

I know I’ll have invested in perfectly good companies that have built real value, that create perfectly good businesses, that in some cases are worth $5 billion or $10 billion, and that’s okay.

The problem with only doing the things that matter is that, in the end, it tends toward some kind of nihilism, which is that nothing else does matter. I do think people should wake up every day with the opinion that they want to do things that are going to matter in the world.

The most insulting thing you could ever call me is a market participant, right? I find that an incredibly insulting description. “Yeah, it’s a pretty efficient market. Capitalism is pretty efficient. You pay $150 billion, $120 million—who cares? It’s fine, right?”

You have a company that’s a billion-dollar company that does some stuff, and fine. I’m glad that happened. That’s capitalism working. But then you’re really just a cog in the system, right? I don’t think that’s a recipe for outsized returns. It is a recipe for doing fine, but it’s not my goal.

I am a cog in the system. I am—I mean, I might want to be more than that, but I think if you’re not—

Yeah, but I think—no, you’re a hollowed-out fund that doesn’t matter. Harry, you should have asked Aaron Levie when you interviewed him yesterday if he mattered. I don’t think he matters. I don’t think Box matters.

I'm confident. For what it's worth, I love Aaron. But his company doesn't matter. It's only $4 billion, $5 billion, $6 billion. It's irrelevant.

Rory O'Driscoll

I completely agree. His company doesn't matter. In fact, one of the things I told him when it went public was, “Should he just shut it down tomorrow, his $5.5 billion company?” Absolutely not. But it does leave the keys for some random person to come run it from some hedge fund.

Aaron is very excited about AI, if you didn't know, right? I think part of that is an opportunity for him and for Box to matter, right?

Rory O'Driscoll

Because Box is, again, he's done an incredible job. I'm very pro-Aaron Levie. What I said to him when the company went public was, “Look, one of the things I most respect about you is you just worked this to make it happen. This was not from first principles as an important company. This is not a sexy company, but you just ground it out, and I really respect that. I think that's an incredible thing to have done.”

Sam Lessin

But he's wasted his life. I mean, Aaron and I started together, so he was 20. If his company doesn't matter, when we started, he was the wonder kid. Now he's the greatest CEO I know. He's wasted his whole shit life, is basically what you're saying, because it doesn't matter.

He wasted his life. But he could have sold his company to Citrix—and Rory was there—and made $100 million with retention payments in, like, 2008. So, according to you, he wasted the last 16 years of his life.

Sam Lessin

Well, he flushed it down the toilet by doing a B2B company. The money at the IPO—flushed it down the toilet.

Rory O'Driscoll

For what it's worth, I think—I don't know, you probably know the math, but my sense is that he actually probably would have made more in that deal than ultimately going public. Now, I don't know where he is now, but from that cash in 2008, plus his shares in Stripe and Gusto and others, he probably would have made more.

Sam Lessin

Yeah, he should have just founded Allbirds instead of doing Box. He wasted his life since Citrix. He wasted his whole shit life—the poor guy.

Rory O'Driscoll

If he were a fund manager, he definitely should have sold then. He was not. He was a person, and he wants to run it. That's fine.

The second thing I say is that I do think there's a lot of exuberance about AI right now from a lot of people who are in these positions. This is a company that's kind of been meh, but maybe there's an angle to not be meh, right? And that's exciting to people. I think that's awesome for organizations to try, but I think the race to matter is what becomes interesting.

That's what I think the AI stuff is so interesting in so many cases: some of it's real, some of it's not, but there is this new opening where people are like, “Oh my God, does this now matter?” That's the big game to play.

Anyway, guys, with that, I'm actually holding up my partner meeting, so I'm going to drop. But that was fun. Talk more soon. I love this. As I say, I hope I have my therapy session set up for tomorrow. I don't matter. I'm hollowed out, but I'll get through it somehow.

4. Mary Meeker’s AI Report: What Everyone Missed

Sam Lessin

I'm sure you will. As my wife says sometimes, “Go get some Allbirds, Rory.” Go to the mall at Stanford and get a few pairs of Allbirds, and you'll feel like a winner. Bye, guys.

The thing that I do want to go to now is a phenomenal report that I thought Jason, you did brilliant work on, which was Mary Meeker's AI report. You posted an incredible thread with 10 fantastic takeaways. I want to hand over to you on which takeaways you found most striking and why, and just start there.

Sam Lessin

Look, some of it was obvious. The one I first started off with—which is obvious, but I'll tell you why I put it in there anyway—was that ChatGPT, even though Sam Altman said he's not sure it's important, had the fastest gain of users in the history of the world: 0 to 800 million in 17 months. It took Netflix 15 times longer. It took TikTok 5 times longer.

The rate of adoption—I talked to so many folks, especially in B2B, here. They're like, “I don't know. I don't know that AI can really replace a good, hardworking marketing manager or a good PR person.” You know what they say, Rory? There are too many hallucinations.

To me, it was a reminder of the rate of change. I don't think, as humans, we can process the rate of change of AI. That was my point. It's so fast that we don't understand almost how quickly it's changing. Whatever you think AI could do 3 months ago is super dated.

The second one—maybe, Rory, you could help me. This is the second one I'm struggling with. I've been struggling with this in AI for 3 years. The second Mary Meeker takeaway was showing that infrastructure spend is unprecedented in the history of the internet. The Big 6 spent $212 billion on capex. The top line's great, but the spend here is insane.

I'm still a little confused where it's going because it's early at the application level. Where is it going at the application level? Is this all going to coding and support? Is it all going to custom data analysis? Is it all going to subsidizing our ChatGPT at $20 a month? I just don't know where all this infrastructure is going. I think it's laying a foundation that is transformational, but it feels so far ahead of the application level.

5. 600B in AI CapEx - Where Is the Revenue?!

Rory O'Driscoll

I think you're right. The hyperscalers have taken very good, cash-efficient businesses, and they would break Mr. Buffett's heart because they've turned them into capex hogs. Microsoft, Amazon, Google, and Facebook have all had capex as a percentage of free cash flow go up significantly.

Now, as she pointed out, the good news is that in the last 4 or 5 years, free cash flow itself has grown. So your cash-flow hit hasn't been enormous. It's only been about a 10% decline in free cash flow, right? It hasn't been horrific.

In a less generous economic environment, the shareholders of Microsoft might well be screaming and saying, “You have $60 billion and nothing to show for it. Come on here.” So it's been perfect timing. It's a little like 1998 and 1999 in that respect. The overall economy has been favorable, and the performance of the hyperscalers' existing businesses—not their AI businesses—has been pretty damn amazing.

As a result, the market's been able to say, “Guys, knock yourself out. Spend $260 billion. I'm sure something will come of it soon.” The $600 billion question is, “Where are the apps?”

6. Mid-Tier VC Funds Are Getting Annihilated

It kind of implied, though they didn't say it, that there was going to be a correction. Obviously, since then, there hasn't been. Everyone is just plowing on. They're investing the capital, and the revenue is coming. But relative to the spend, if someone said to you, “You can finance a $600 billion capex business and, 4 or 5 years in, you'd have $10 billion to $15 billion in revenue and $400 billion to $585 billion in losses,” you'd probably say, “No, I don't need that right now.” That's where we're at.

Sam Lessin

We say that on the revenue side, but I think by the end of next year OpenAI is going to be at $25 billion to $30 billion. We saw Anthropic cross $3 billion in revenue, up from $1 billion just 5 months ago—3 times from $1 billion in 5 months.

Rory O'Driscoll

It always takes time when we're laying infrastructure. Revenue comes later. The variable that we're missing in this discussion, in my view, is time.

I totally believe that all the apps will come to fill the space available for them with all this capex. I believe the LLM companies will make amazing shit. It'll be impressive, and businesses will find a way to use it.

But to Jason's point, I think if businesses adopt in 2 years and then the revenue comes quickly, it'll all be fine. If businesses take 4 or 5 years to get there, it could be that you're looking at a more extended period of having the costs but not yet the revenues. I think that's the as-yet-unknown: how quickly will app revenue fill the gap?

When you look at capex as a percentage of free cash flow—you said it's 10%, and investors are actually okay with that—there's a ceiling to what they're okay with. If it's 5 years out and that is now 30% or 40%, is there a ceiling to what investors are okay with Satya, Larry, Sergey—you name it—spending?

Rory O'Driscoll

Yeah, I'm sure that—look, I mean, yes, there is, is the answer. It seems inconceivable today because everyone's like, “Rah, go for it,” but public-company investors are just mean VCs on steroids. We turn on a dime from, “I can't believe you're not spending more,” to, “What the freak do you mean you're spending so much money?”

We've lived in 1999, where you'd call the team in and say, “Double the burn,” and without blushing you'd call them in 6 months later and say, “Why are you spending so much money? Let's cut.” If the economy slows down, if your core growth rate starts to decline or slow down significantly, I think you'd see mild to reasonable pressure on all the hyperscalers.

An interesting example would be, in a different market, Meta changed its name and wanted to go all in on VR. They're 2 years in. There's no return. There was a little bit of pressure, and I think Zuckerberg heard the pressure and pivoted nicely. He's still spending a lot on virtual reality, but not as much. There was a little bit of belt-tightening there.

When the pressure comes on, I think CEOs respond.

You know, it's funny. I did say this when we chatted last time that, if you really listen, one of the things I admire about Sam Altman—there are some things I don't understand, but one thing I admire—is how he's telling you the future if you just listen.

And when he started talking about Stargate—that he alone needed $500 billion just to get going, and up to $5 trillion—I thought, “What’s Stargate? Wasn’t that a movie?” But he’s socializing the whole market, right? He’s socializing the market here because this isn’t Amazon. Not only is the size bigger than the classic Amazon investment losses, but you need everyone to go all in on this. You need all the big participants to say, “We’re going all in on this big bet.” It’s not just one company making a big bet; this is all the big companies making a massive bet.

I think the interesting question is, there was a time when Amazon stock was perilously low and a whole bunch of banking analysts were sneering and saying they’d go bust. Obviously, in retrospect, they didn’t, and all those banks did, and Jeff Bezos got to say, “Neener-neener.” But there will be bumps along the way. Intuitively, you just know that when you’re spending half a trillion dollars in advance of revenue, at some point in the next 2 or 3 years there’ll be at least 1 scary moment, right? That could actually be an interesting opportunity to invest, but it’s hard to believe it’s up and to the right from here.

What is a scary moment? Can you just help me visualize that?

Rory O'Driscoll

When we see the commoditization of models, them all becoming very efficient, them all becoming really bloody good. Maybe if OpenAI just misses its growth plan, right? If it’s just 30% or 40%, if they have 2 rough quarters for whatever reason, or some sort of saturation we’re not anticipating, that would set off a mini-panic, I think.

Agreed. I was just looking at their numbers. It’s interesting: they’re exactly 20 years apart, OpenAI’s numbers versus Google’s numbers from 20 years ago. So, literally, 2022 for OpenAI is the same as 2002 for Google. In 2023, I think—I’m doing this from memory—it’s about $1.3 billion for OpenAI and $1.4 billion for Google 20 years ago. This year—2025—2024, sorry—it’s $3 billion and $3 billion.

Now, what’s interesting is that the projections for OpenAI—as-yet-unrealized projections—start to pull way ahead of Google. In other words, OpenAI was the Google of its day up until now and is projecting to become twice the Google of its day for the next 4 years. Maybe it will, because I think it is a more impressive piece of technology when you use it, but maybe it won’t. If all OpenAI is is just as good as Google, then it’s going to miss its number next year by about 40%.

I’m simply saying that the expectations are so high that anything less than freaking amazing could feel like a fail, even though, in any logical terms, it isn’t. Just as Amazon wasn’t a fail in 2001 or 2002, it was, in retrospect, minor growing pains that a panicky market interpreted as, “Oh my God, they’re going bust.” No, they’re just building a business where it’s going to take $3 billion or $4 billion of losses to get to cash-flow breakeven, and then you’re going to make billions every year.

Jason Lemkin

Jason, just to be clear, we’re going to do a visual of Rory looking mean with OpenAI. No one else in the frame.

Rory O'Driscoll

No, no—no one else in the frame. You’re such a dick with your captions, Harry. I just want to say that. You get me into trouble, but I’ll give you that. You’ve got to do it.

Do you want to do the third point? It’s kind of interesting, the one that I brought up.

Rory O'Driscoll

Keep going.

No, keep going, because this is when we stop talking like Elon. You could have opinions on Elon Musk, right? But now that he’s out of government, man, the guy is direct. He was direct today. He said this spending bill is ridiculous for all parties, and he’s been talking about China and AI.

Mary Meeker’s third point was that we’re missing what’s happening in China, which is natural. We’re not even connected to them on the internet; we have different internets. Her point was that 6 months ago we thought DeepSeek was going to change the world. It didn’t, but it was performing at 93% of OpenAI’s o3-mini for a fraction of the cost. Alibaba, which we can’t even use here, outperforms both with Qwen. Ernie, which I don’t even know, is at 2% of the cost of GPT-4.5. I don’t know what to make of it, but people smarter than me are worried about China and AI. That was kind of her third point. We’ve stopped talking about safety, and I think we’ve stopped talking about China.

The simpler point is probably some version of: I think ChatGPT will be the Apple-level-quality product, but there’ll be a whole bunch of Android-type-quality products out there that will just keep pricing honest, if they’re commercially available universally.

Rory O'Driscoll

H, even if we were legally allowed to access the models built in China, my guess is corporate America wouldn’t want to, right?

But the interesting thing about the meta-point about DeepSeek was that it was possible to get quite close quite cheaply, and you’re going to see that independent of China, just in terms of competition here.

Rory O'Driscoll

I think the undeniable fact is we ain’t a monopoly anymore. It’s not 2 or 3 companies monopolistically producing LLMs. There are 4 or 5 companies on the other side of the pond cranking them out, and I think Mary Meeker made that point.

Jason, were there any others that you think were specifically relevant for B2B?

Jason Lemkin

Maybe just 2 more, and you can shut me up. The second one—which we all know, but I think it’s very useful to see simplified and compressed into a chart—is that token costs collapse 99.7% in 2 years.

If you’re a developer, if you’re sitting in Windsurf or Lovable all day, you get this. It’s not that simple because you’re consuming many more tokens, right? But all these ill-fitting-blazer-and-jeans SaaS guys who are saying it’s too expensive, or the mediocre VP of engineering who doesn’t code anymore, who hasn’t coded in 5 years, constantly telling me why AI is too expensive and doesn’t work—find a new job, right?

If token costs collapse 99.7% in the next 2 years, you can tell me, Rory, but I don’t know where they’re going to be in 2 years. It’s at least going to be an exponential decrease in the absolute cost per token, right? We’ll use more, and training costs will go up, but even today, in June, when I hear a VP of engineering who doesn’t code anymore saying it’s too expensive to do enough AI in the product, I want to jump off the roof.

“We’d like to do this, Rory, at our B2B workflow company, but we can’t. It’s too expensive.” Mr. Board of Director, I just want to tell you: I tell the CEO to fire that guy.

Rory O'Driscoll

You should pummel him to death, because you’re exactly right. There are some things I’m angsty about in terms of the road ahead and the economics of it, but raw information, knowledge, intelligence—for lack of a better word—is just going to get cheaper and cheaper, faster and faster.

There’s just intelligence available at a price that’s declining by orders of magnitude every freaking year. That’s huge. One of my boards has a wildly smart core AI model as a fellow board member, and it just repeats over and over again: “You can’t do it today? Build the product. By the time you’ve built it, the stuff will be cheaper, it’ll work, and if it doesn’t work, then it’ll work 6 months from now.” He’s totally right.

That’s the big trend you’re all leaning into, right? The cost of intelligence—the price of a unit of intelligence—is plummeting every month. Therefore, anything that you apply intelligence to will get cheaper every month. Just lean into it. The models will make it happen.

Jason Lemkin

I call it the AI slow roll, and I think it’s the number 1 thing killing B2B companies.

Yes. You mean we’re talking about it: “We’re going to roll something out in Q4. We’re going to do a limited release in Q4, Rory, and then next year, if it goes well, we’re going to roll it out to a little bit more of our base.” You’re just going to be slaughtered.

Rory O'Driscoll

That’s actually a fun discussion because it is so hard to watch companies turn on a dime and push toward the new thing. When Sam was on earlier, I gave Aaron huge credit. He was like, “We’re going to do this. It’s going to be top-down.”

The quintessential example is Facebook, just after the IPO, deciding mobile is it: strap ourselves into the office; we’re just going to get it done. It takes top-down leadership, and I agree: if you don’t do that, and if you don’t do it well, you’re just going to be slow toast over the next 2 years.

It’s just hard to do. It’s just hard to shake companies out of their inertia because you’ll always feel that doing a little means at least you’re trying, so that gives you points. That’s the problem with startups doing AI: they think they get points for doing a little.

7. The Existential Dread Missing in Most B2B Startups

Yeah, exactly. I had Varun, the founder of Windsurf, on the show. It released on Monday, and he said, “Listen, startups beat incumbents because of existential dread. If you’re in a startup and you don’t ship great product and it converts to sales, you lose. If you’re in an incumbent and you don’t ship great product that converts, and you’re a great engineer, you’re definitely getting reassigned and reallocated.”

“You’re not going to lose great engineers. You’re just going to put them on different products.” See, that’s the problem with B2B today versus where Varun is. I don’t see enough existential dread in most B2B startups. I don’t see it.

Aaron Levie has it. Yamini had it when she was on stage. I saw Aaron and Yamini at SaaStr this year. I mean, Rory O’Driscoll is a Scale investor. They both said the same thing: “We’re so excited and we’re scared.”

I don’t see enough existential dread in B2B startups. I don’t see it. I see a little bit of discussion. I want to walk into a board meeting and see a little bit of shaking because there’s so much going on in the world, and they just had yet another hackathon this last weekend and they’re rolling out AI voice agents on Wednesday.

If that’s not you, I honestly think you’re going to fail. You want dread. Dread. Varun’s right, because Varun, at Windsurf, has had 3 different companies in 18 months, right? Every month, he’s at risk of being displaced, and he’s honest about it. He was honest on 20VC, right? We need more of that in B2B, not this slow roll.

Yeah, I know. The other point she made, which we knew, if you will, but I really think for B2B this is super interesting, because she said a lot of stuff about pricing, but this is one to slow down on. Harry sometimes jokes that he’s old, but this is where Harry is old for real.

Her point was that the next 3.2 billion people in the world are just coming online right now. They will all be AI-first. She says they’ll use voice agents, agent-driven interfaces, and natural-language interactions. I think that is 2025.

I think what I do know is that this generation will not use the internet remotely like we do. They will not use leads, contacts, and opportunities. They will not use files. Files are disappearing overnight. Kids do not know what a file is. It does not matter, and everything will be MCP’d or AI’d.

This is an existential threat. If I’m Aaron or Yamini—these are S-tier SaaS CEOs—I’ve got to worry about AI today, right? I’ve got to worry about agents. I’ve got to worry about automation. Then I’ve got to worry about what happens when no one uses these applications remotely like they use them today.

Do you really think that the next generation is going to even understand what a Salesforce UI is? It won’t even make sense to them. They’ll never use it, right? My son helped us at SaaStr this year. We have a SaaS platform we use for tickets, and he’s like, “Wow, this is the first time I’ve seen software like this.” He codes every day.

I do think that is true. In front of every system of record, there’s going to be some system of work that does it, and it’ll sit on top of the system of record for now. If it does a good job, it will gradually displace, make irrelevant, or replace the system of record, if they allow that to happen.

The AI that’s doing the work—I can never take the AI that’s closest to you. If I’m the worker, the thing that I interact with every day that helps me do my job over time just becomes the most important thing in my life. Anything behind that doesn’t matter.

If I’m a sales rep and I have a lot of automation, voice automation, an AI SDR, whatever, telling me what to do and doing things for me, and I’m acting as a controller of the agents, that’s just going to become mentally my model of what a CRM is. Behind that, there might be some database called Salesforce, but I just won’t care, right? There might even be multiple ones. You won’t care if the company’s using Salesforce, HubSpot, Attio, and its own database.

The smart companies can reimagine what those workflows look like and build to it. That’s obviously what they’re trying to do. But if you fail, if you’re not relevant in terms of how your next generation of workers use AI, you will eventually be displaced.

It might take a long time. I think, as I’ve always said, Salesforce instances will be there at scale long after I’m dead, but the value accretion will all go to the technology that’s helping me do my job, not the technology that’s keeping score of how well my job’s been done.

The one I’m really struggling with today, and I’ve asked Aaron and others this, is MCP. I think it’s early, but I think MCP is an existential threat to almost every SaaS app. Now you can MCP into Notion. You can MCP a little bit into HubSpot, but it’s very limited, right? You can MCP into Google Calendar.

I just don’t know why, if I can just talk to my AI, my Claude, ChatGPT, and do everything I want to do in HubSpot elegantly, I would ever log into HubSpot or even learn what HubSpot is.

And I’ll give you a personal example. Harry knows there’s a company I invested in that I love called Mangomint. It’s next-generation SaaS for spas, doctors’ offices, and the like. They’re coming up on 25 million. I love the co. to death. I would do anything with them.

He was all over MCP the day he could use it. Here’s the problem for me, let me be clear: he’s the best in his space. That’s why they were able to do it. It’s not a huge TAM, and there are lots of issues. Let’s say I want an appointment at Watercourse Way in Palo Alto, where Rory goes to decompress after a tough, tough pod.

Right now, I might have to figure out which application they use. Do they use Mangomint? Which of the various applications do they use? But if MCP can just abstract that away and you have no more relationship with this application, he’s like, “I could become a pipe overnight.” He’s already completely changed his value proposition because of that.

If I don’t change what I’m doing today, no one will even know which of these applications I’m using. You might not know which restaurant application it is or which spa application it is. It might not matter. It’s very difficult for me to imagine you can increase your prices in that world.

I can tell you one thing, dude: if you’re doing SaaS for spas, you definitely don’t matter according to Sam.

No, no, no, no, no. I mean, I wouldn’t even say restaurants. You’re just not even in the conversation, dude. We’re talking about doctors’ offices and spas.

It was, in a good way, an instant wake-up call. He’s like, “If I don’t add even more value, I will be partially obsolete because people won’t even know who I am anymore. They’ll just use AI to go out and pick it for them.”

He’s right, actually. It just took me—I’m not as smart as him. Anytime everyone starts talking about agentic this and that, I start to roll my eyes. It’s too nerdy, right? The real world doesn’t think about agentic this.

But the world does think, “Can I go to ChatGPT and get my haircut?” I mean, Harry’s upgraded his haircut for the show. Looks good, right?

Thank you.

Why can’t my ChatGPT just figure out where the best haircut in the Mid-Peninsula is and do it for me? Why do I have to use these apps?

The closer you are to what the customer or the user wants to do, the more right you have to swallow anything that’s behind that. That’s really what you’re saying. Do you want to be the person who keeps track of who’s coming to the spa, or do you want to be the software that helps decide who’s coming to the spa?

I want to be the decider. I don’t want to be the tracker, because tracking on its own is inherently just not as valuable as a thing to bring to market. So, yeah, the long-term trend is clear here.

It’s very interesting that Dharmesh Shah is on the bleeding edge of this for HubSpot. I think HubSpot is threatened by MCP, but I think he’s doing the right thing. You’ve got to embrace it, right, and learn from it and get better. HubSpot is a system of record, too.

Yeah, it’s a very good one. It’s a very valuable one.

Does HubSpot really want everybody abstracting away all their structured data and using it however they want in their own applications, their own CRM, and their own marketing applications?

The incumbents will last a long time, but that doesn’t matter, because what matters to us is where the next new dollar goes and what could happen. Remember, we’re all about the next 100 million of new ARR coming on, and it’s hard. That could comfortably go to these next-generation products while, at the same time, SAP can compound for the next decade happily, right?

But they won’t be getting the new money. Our job is to find the companies that get the new dollar, not to find—and you don’t have to have a world...

Jason Lemkin

1 of the big ahas for me has been that, quote unquote, last-generation companies can compound happily for years on their existing base, expanding within those customers, while at the same time effectively you're signing new customers who are saying that that old thing is not where the world is going anymore. But it just has such momentum, it just keeps on compounding. But that's okay for that as a public company. For you as a venture investor trying to find the new new thing, it's all about the much smaller dollars in budgets that are available for the new stuff, because that's the only money we can live off.

We can't take the SAP budget for our new product for the next 10 years. We got to take the new companies or the new functionality that sits on top of those apps, be it SAP, Salesforce, Oracle, et cetera. And it's hard to imagine in 2025, knowing what we do about AI, to say, “I've been thinking we really should build a screen just like the other SAP screens.” That's not where it's going to go. Every company's market share is up for grabs when there's a platform shift.

The very biggest ones don't go to zero. They just slow down. But you're right, the mid-tier ones can really hit a wall, right? And if you're running one of these companies and you're not afraid and you're not 110% focused, you're almost certainly going to fail. And the only question is over what period of time.

8. IPO Market Is Back: What Actually Matters Now?

Turns out, yeah, making money is hard; keeping money is harder. Guys, can I just roll to 1 thing we said about not being a public-markets investor? Everyone loves the analysis we do on your Chimes of the world that we have done in the past. There have been a lot coming out in terms of M&As and IPOs.

There's Chime, obviously, this week. Groww filed for an IPO; it's an Indian IPO. SHEIN is moving its IPO from London to Hong Kong, maybe finally getting that 1 out. Omada Health is coming out for a $1.1 billion price. Circle files for an IPO at $8 billion. Salesforce acquires Informatica at $8 billion. Of those, in the free-for-all, which 1 do you think is most interesting?

Jason Lemkin

I'll hit 2. I do think Circle's interesting, right? Just because it's a fun business model. It's basically a Bitcoin-enabled money-market fund. They get your money, they're able to invest it in Treasuries, they get a nice yield, they have to share some of that money with customers and distribution partners, and they build a perfectly nice business there, right? You value that at around 18, plus or minus. Reasonable. It's just an interesting business.

It's like a $43–44 billion—the way I think about it, a $44 billion money-market fund—where they're getting roughly 4 or 5%, so just under $2 billion in revenue. Then they have to share a lot of that with distribution partners, and they have a net interest margin. It's just like a little mini-bank-type thing, and then they have opex and make a couple hundred million bucks a year, right? Perfectly good business. It's the boring version of crypto: crypto but safe. I think it'll be an interesting IPO.

Yeah. I think it's bounded in terms of value because there's no magic explosion thing. It's very clear how the model works. Anyone in finance can figure it out and value it, but I think it's interesting. Jason, over to you. What do you like?

Jason Lemkin

The most interesting M&A or other transaction, Harry, was that Snowflake bought a probably almost pre-revenue startup called Crunchy Data, which is a Postgres implementation, right after Databricks bought its own Postgres database company, Neon, for $1 billion. And I assume Neon had some real revenue, right? $250 million for Snowflake suggests to me they're buying some distribution.

But the fact that, in this conversation, AI shifts the battles—that Snowflake and Databricks now need to be database companies to some level in a year or 2—could be a fundamental change, and all these lines blur, right? Instead of Snowflake figuring out how to work with all these different Postgres providers and open-source and forked versions and all the different databases, now they're database companies. Yes, they need their own custom databases so their agents can efficiently work on all the data that's been linked and stored here.

Snowflake would be a data-warehousing company. But I think what it really is is feeling the need to support all the different types of data structures and, as you say, morphing from a world where the typical Snowflake data is data-warehouse-type data to now the kind of data used for AI. So, feeling the need to support a wider variety of data types and data structures.

Yeah, they're both, and it actually segues to—I nearly said, “Those are the 2 publicly traded companies.” Then I remembered Databricks isn't publicly traded. It's just as if it was a public company, and it should be, of course, and it will be. But you've got Snowflake and peers public. You've got Databricks, and then, Harry, you're going to ask about it in a second, but companies like ClickHouse, which is an exploding company in the database space—a columnar database that's really seeing explosive growth—and just raised a big late-stage round, I think around $6 billion, from a host of who's who.

All of them kind of—this is the AI plumbing business. It's a great place to be, right? And if you're even adjacent to it, like, I would argue 5 or 6 years ago Snowflake wasn't in it; they were adjacent to it, so they're trying to fearlessly move into it. I think the Databricks advantage was they were in it from the start. It was kind of their thing, moving data and then ultimately using moving data, which enabled AI.

Venture guys make really good thematic bets about the next 10 years and are pretty horrible at assessing how the market's going to react to the next quarter's data. Hedge-fund guys are the exact opposite. Literally, some of them—the overnight traders—don't even want to think about the big-picture trend. It's just like, “Is this EPS number over or underestimate? And will the stock go up or down?” That's just a different skill set. I'm no good at that. That's proof that we're all no good at it.

It's a fun thing you can do when you have a public company, when you're on the board of a company. You have some interesting results you're about to announce. Some things are better than expected; some things are worse. You can go around the boardroom and ask people, “Here's what we said. Here's what we're going to announce tomorrow. Will the stock go up or down?” At best, it's 50% accuracy, often.

Oh, I've seen that over and over again. It's like, hmm, we think these things are great, and then you go out and everyone gloms onto the other thing. Sometimes the stock goes down and you thought it was going up and you want to cry. Other times it goes up and you're like, hmm, okay. So, it's kind of like 2 worlds talking past each other sometimes.

9. YC Startups at $60M Valuations: How Should You Play It?

Can I ask 1 more final 1 for Khosla, quickfire? I see, obviously, new batches out this week, and they're raising, and everyone's doing 10% dilution for the round total. You guys are much more experienced than me. I'm very lucky to learn from you. I appreciate our relationships. Really, how do we play in a world where the total round is 10%? Our fund sizes are bigger, and really you've got 7.5% for a lead and 2.5% for angels. Jason, how would you advise me? You do YC very well.

Jason Lemkin

Well, first, I think at YC it's not 20. I think the new deal they're trying to do with a lot of startups is at least $50–60 million post-money, even pre-revenue. There's a ton of deals in this batch at that level. So that's what they're pushing toward. And no criticism—you've got to see YC as a business or the stuff will drive you nuts. You have to admire the game that's being played on the field, right?

When YC went to 15, people thought it was crazy, and then 20, and now they're trying to get everyone to 50–60 that are AI, that just have AI, which is 70% of the batch. That's the goal, as far as I can see. There are plenty of folks raising at 50–60 or more with essentially no revenue, right? With very little revenue. So that doesn't change the ownership question, but it does make it all even harder, right? Because then the A has to be at, like, 200 for the math to really pencil out, right?

This is what I taught investing: for seed investing to really make sense, the next round should be 3x to justify the risk. And for Series A or B, it's got to be 2x or you should just wait. You should just wait for the next round, because not that it's that simple, but intellectually it seems about right, right?

I don't know. I think you can either play that game and buy as much as you can, or you can cry about it on the internet. All I can tell you from my little analysis of YC is I've ended up owning about a little less than half of what I would have. That's 1 guy's analysis, because I've bought more. I bought more in RevenueCat. I bought a lot more in RevenueCat. I've bought more in Algolia. I've bought more in others that have done reasonably well.

You can buy more in the next round, right? But it only works unless you have a massive fund. There's only so much you can buy in the next round, right? I mean, you run out of money, don't you? So you're going to end up owning maybe half. But Garry would tell you, since 3% of the batch are unicorns, it doesn't matter.

I think, Jason, first of all, I couldn't agree more. I think it's what you said right at the start about they're doing their job and they're doing it well.

It's one of the best business value propositions to founders: we'll take you—two unknown guys or gals from an unknown place—and we'll turn you into something that, God bless them, people in Silicon Valley will value you at $20 to $40 to $50 million pre. Their success is a function of the more they can do that, the more people are going to want to come in, and the higher-quality people they're going to be able to attract. They're doing their job, and they're doing it well.

Right, so you're right: bitching and moaning is a waste of time. All you can do is do your job well, right?

Rory O'Driscoll

That's obviously not the stage we play at. We typically play at a round, a round and a half later. But the only weapon you have on your side of the table if you're going to pursue those deals is picking. You obviously have to be way better at picking, or you have to find other sources of deals, right?

By definition, what's happening is, as the pricing goes up, they will be correct on the winner deals. It won't matter, because it never matters on the winner deals. But if your rule is only to do good deals—or if your advice is only to do good deals—it's not really that actionable. I'm trying to only do good deals, but it's really hard in practice, right?

The truth is, when you're paying significantly more per unit, it's just a lot harder to make money. Your picking has to be much more fine-grained, right?

Yes, they've done a great job representing their side. Going back to it, I give Paul Graham credit. His stated intent was to make it easier to found companies. He's making it easier, more profitable, and more attractive for entrepreneurs to found companies. More companies will be founded.

10. Why 3% Ownership Could Still Work—Maybe

Jason Lemkin

I don't think it's—I think the thing is, listen, I guess it's the same math, right? But there are plenty of ways to justify paying $60 million in a seed round. Okay, if it's a generational company, what's harder—even though the math, you can do it on a spreadsheet—if you have a fixed fund size, it's harder to take the low ownership. The low ownership crushes you, right?

You can say, listen, this is low risk and this is the best team ever, but when you end up with 3% ownership with a large fund, that's where I think there's the slight fallacy in the YC data. And I love Garry, and I love the team, but that's a model for folks that either are angels, have tiny funds, or don't need to have a fund return or a material impact, right? The math works better if you don't tie that to fund size. I don't know how you make a return for a lot of funds with 3%, though.

At the end of the day, the only thing that makes this whole process work, normalizes errors, and corrects for overvaluation is ultimately returns.

Jason Lemkin

Yeah. Correction on this kind of issue is a lagging indicator. If these are, in fact, on average overpriced, then 5 or 7 years from now, the people who invest in them will slowly realize they've made a mistake, and pricing will come down. But the weird thing about venture is it just takes a long time. It takes a long time.

It'll take 10 years to discover if the $8 billion funds work and deliver an acceptable return. It'll take 8 years to figure out whether you can pay $60 million pre for an AI Y Combinator startup and make money on average. Along the way, there'll be an anecdote of one company that worked, but the real test is whether the overall asset class works for those prices of deals.

And so far, Garry's exactly right. He cites the data. The data from the earlier batches has been obviously amazing. But the cynic says if it worked at $20 and gave you a 3x, and then you pay $60, do the math here, people: your return's going to go down by the same amount. But not for YC. The founders get $6 million instead of $2 million.

There's a lot of conceits in venture. So many VCs are like, “Hey guys, take less money at a lower valuation. It's less risk.” There's a VC conceit in that one. A third of the money is riskier if you don't burn it, right? Assuming you don't burn it, 3 times as much money for the same dilution derisks your life as a founder, right?

The second thing that the grouchy people miss is one of the other things that YC has quietly normalized: if you do this round next week at $60 million—or last week, right, at $60 million post—and you have to do the next round at $20 million, it's okay.

Actually, these SAFEs are a beautiful vehicle. Every time SAFEs convert, there are 11,000 different prices. There's my best friend who invested 3 weeks before the batch, then there's the alumni price, then there's the price Harry paid, then there's the price Lin had to pay on Demo Day, and then there's the poor price Rory had to pay 2 weeks later.

When these notes convert at 11 prices, and then there's another set of notes at 14 other prices, nobody cares. Nobody cares that one was at $60 or one was at $20, as long as Rory gets his ownership in the Series B.

Listen, guys, are there any other IPOs—anything that we've missed—that we should discuss?

Rory O'Driscoll

No, honestly, I think the most salient fact is that they're happening, that the window is open, that normal IPOs—I mean, I think normal IPOs are taking place. Normal service has been resumed.

I know we glossed over it in the beginning, but I do think Thoma Bravo raising a record fund this week is a good sign, too. It's $35 billion to buy B2B companies, almost entirely B2B, right?

Rory O'Driscoll

Something a friend of mine used to say years ago, and it's always struck me: it's just so true. Price clears all markets.

In other words, if you can get a deal—it's what we're seeing now—you can't get your deal done at $25 billion, which is the price you paid for the last one. But there is a price at which most decent companies can get public, above a certain critical mass. Price clears all markets. That's what price is meant to do.

What you're seeing now is a degree of realism creeping in, and as a result of that, transactions taking place. It's totally healthy.

11. Kalshi Quick-Fire Round

I agree. All righty, we're going to do a quickfire. As I said, this is like the prediction marketplace my team adores. So, we're going to go with the first one: will the OpenAI–Jony Ive device have a screen? Yes or no?

Jason Lemkin

Yes. Your team didn't ask when, right?

Here's my thesis. If you read the internet, it says that it'll be a pendant on your neck and it'll have no screen. Even Sam has alluded to that, right? It's going to be a voice-interaction device.

I think, though—and I'm not a consumer guy, but I'm pretty into this stuff—the only thing that makes sense, and this is why you buy Jony Ive, is that it's everything. It's a pendant on your neck. It's an app on your phone. It's listening on our computers. It's listening on our laptops. It's a ring like Oura. Importantly, it's an AirPod, right? Because AirPods are great. AirPods already do all this.

If you build all of them, and the sunglasses like Meta, eventually you've got to have a watch. People do wear watches. If you do all of them and they're all Jony Ive-level, you solve this problem, because we're not all guys sitting in a coffee shop with 3 things on the bar and our triple espressos.

My son wears AirPods 12 hours a day. Rory probably will do the necklace because he likes that kind of open-the-button-shirt, hang-out-with-the-necklace, gold-chain kind of look, right? Hawaiian shirt. Harry will have the sunglasses, the polarized sunglasses with his AI in the land of no sun. So, yeah, yours will have AI.

There may be a screen in it. I think the first thing that comes out will be no, but ultimately it will be all of it. It will be yes. It'll have audio. It'll have a screen. It'll be everything. It'll be in those sunglasses, because I don't think anyone's going to figure out a new paradigm. He's just going to figure out how it's all elegant.

I don't wear an Apple Watch, or whatever you call them, right? But I might wear his watch, right? You're saying yes.

Rory O'Driscoll

I think the family of devices will have a screen.

I'll probably go with Jason's answer in an uninformed way. I think the “when” question is more interesting—and will it work?

Rory O'Driscoll

The interesting question would have been: will the device sell more than 5 million units in the first full year of shipping? I would take the under.

Jason Lemkin

It might be $50, though. That's the thing. They could have enough money to subsidize it. Is it true? Dude, I would take the over on that.

Okay, see, that's a fun bet. Do that. Do you want to do that as a bet?

Rory O'Driscoll

Yeah, fine. Done.

Great. Amazing. What are we going to bet?

Rory O'Driscoll

We'll figure it out. You know what? You can buy me the device when I beat you.

Jason Lemkin

Sold. There we go. Done.

Rory O'Driscoll

Yeah, Jason, when they sell 5 million in the first year, I will buy you the 5 million and one.

Jason Lemkin

Absolutely. Done.

Rory O'Driscoll

Oh, that's wonderful. And if not, you buy me dinner at a restaurant of my choosing.

Jason Lemkin

Done. If it's $50, I'm fucked on that trade, but okay, cool. You're highly confident.

Will Meta release an AI model that isn't open source this year?

Rory O'Driscoll

They don't appear to be able to release a lot right now. They appear to be having some kind of gear-grinding internally. My guess is that would be a decision based on some perceived national security issues around open source.

Other than that, I see no reason to change the bet they're currently on, which has been the open-source bet. So, no—in the absence of DC intervention, that's my call.

Jason Lemkin

You know, we underestimate the importance of Llama in portions of the developer community, and it's already not fully open, right? It's not fully open.

Sam Lessin

It's not—you don't even know what data set it's trained on. So I would say the one thing you know from these guys, even though they're in a relatively competitive space, is that Zuck's on another level—hypercompetitive. If releasing a fully closed-source model makes them more competitive, I think they will. I think it's more than 35%.

I'm with you. I think it's a yes. I think Zuck knows that he needs to. I wouldn't bet against Zuck on that final one.

Elon Musk is, yeah, out of public life as much and back into Tesla and everything in between. Will Elon be out as Tesla CEO before 2027?

To be clear, I read that as an odds bet. In other words, it's not just yes or no; it's a 30% chance. They're saying two-thirds probability that he won't be out. They're saying it's only a one-third chance that that happens. Correct?

Sam Lessin

Yeah. I don't think it's likely. I don't think it's the base case, but you never discount the random event. I don't know the guy's motivation from Adam, but it's been kind of painful on every dimension. Coming back, it's probably not going to be fun, and so you can never discount a rage quit, I suppose—especially when you have the fun of SpaceX and xAI to go to.

You don't do it because you think it's likely. You do it because you think the odds on the Kalshi bet are high enough in terms of return that it's not a crazy thing to do. I say actually more than 32%.

Yeah, you see, I'll go 50%.

Yeah. So that means I have to say yes on this bet. Is that how it works?

Sam Lessin

That's what it means. You think that?

Yes.

Sam Lessin

I mean, he didn't even pick someone very good for Twitter. What's her name? She's terrible. Linda Yaccarino. He could also find a nominal CEO for Tesla. He could find someone who's better than her, right? But he could still run the company like he does Twitter, or X.

So I think it's more than 50% because he can't scale as a human being—CEO of Tesla and Neuralink and SpaceX, and going to Mars. You just can't do it. Now that he's out of the administration, I think he will try to recruit somebody, just like Marc Benioff will. Marc Benioff's tried 4 or 5 times to get out, too. He's hired 3 other co-CEOs, right? It just hasn't worked. It just hasn't bounced the right way.

I just want to throw out that there is the complexity of the great comp package that has been held up by a Delaware judge who clearly just has a thing about stopping him, and that's got to be run to ground. But, yeah, there's enough complexity there that, just as a pure betting person, I'm kind of with Jason. You look at the odds and you go, it mightn't be the right thing to happen. It mightn't be what you want, but it's not a crazy outcome, just given the amount of change that's going on right now.

Also, to be honest, from the Tesla brand perspective, it might allow them to put some distance between their customer base and a fairly controversial person. So I could totally see it happening. I also think, when you look at the time difference—18 months now until 2027—you look at how xAI and Grok are going for him, and their recent raise as well. Eighteen months is so long in AI. Elon is a master of moving to the most impactful thing in the world that he has. It could be that. It could be.

Sam Lessin

And I think you see the performance issues at Twitter and the realization that he's still human. He's not superhuman. That realization comes home to roost, and he actually goes, “Fuck it. I need management teams.”

I mean, he recruited Ilya Sutskever to OpenAI, right? The guy can recruit. Let's not lose sight of that. He's got his most talented CEO.

Well, don't hate on Twitter. That was an impossible job. Gwynne Shotwell appears to be one of the most amazing managers ever down there at SpaceX. Sending rockets up, most of the time having them work, and building an amazing business—that's just been stunning management.

So you have to think he wants to reproduce that if he can, now that he has a moment to reflect. He's like, “Can I have a Gwynne for a different company? It's public. There's drama. There's comp issues.” But he's got to have thought for a decade, “How?” And I think he did try with his CTO, but now that he can try again, he's got to find his Gwynne.

Yeah, the kids are a pretty big load, to be fair.

Sam Lessin

That's a pretty big load, to be fair.

Guys, no politics, no personalities. Let's leave families out.

Sam Lessin

Okay, fair point. No politics, no families. It's just a cognitive load, that's all.

It is a cognitive load, totally. Even Elon only has 24 hours a day, it turns out. And the Neuralink round this week—I thought that was fascinating.

But guys, listen. I always love this. You know it. This week was a spicier week. We made it through. We still all love each other. This was very cordial. So thank you for doing this, as always. It's the highlight of my week, and I really appreciate you both.

All right, to infinity and beyond.

Sam Lessin

Thank you, Harry.

Are we back, guys?