20VC：Tiger Global 靠 OpenAI 脱险 | Coatue 的新基金：炒作还是实质 | 为什么 SBF 是过去 5 年最伟大的投资者 | 为什么大型基金都在投资 Perplexity

Rory O'Driscoll

The fact that Sam invested early in Anthropic and Cursor is astonishing.

Jason Lemkin

I think the weirdest thing in this is that, for OpenAI, you have a CEO and now another CEO who are both not technical. I just think it's really weird. Microsoft laid off 3% of their company today. It's not enough. I'm not sure I need 80% of my team today. So I would armor up if I were Clay. I would hire everybody, I would raise another $100 million, and I would just scorch-earth everyone in the space.

Rory O'Driscoll

What Perplexity is selling from an investor perspective is an at-bat, a credible one in three—not equally weighted, to be clear. OpenAI's clearly going to win, but maybe you can be third, and that's worth a damn sight if the prize is a trillion bucks. That's what they're selling.

Guys, it is so good to do this. I always say this: this is my favorite show to do. But thank you.

Rory O'Driscoll

I bet you say that to all the girls, Harry.

You know what? Clearly, you don't listen to the show, my friend, because I don't. I actually just thank them cordially and pretend I'm thrilled.

Rory O'Driscoll

Yeah.

1. Owner Raises at a Billion

But I would love to start with some big news, which is Owner's new round. Jason, you led the seed here. $90 million at $900 million, I think it is?

Jason Lemkin

I don't even read the document. Honestly, I don't read the document. I just found out it's $120 million when I read it today. I didn't even know. I didn't even read the document. All I care about is my ownership. I'm being a little facetious, but actually, no: $120 million. Yeah, $120 million.

At a billion.

Jason Lemkin

Yeah, at a billion. Yeah, yeah.

Wow.

Jason Lemkin

The learning is, look, yeah, they're at $40 million, growing 10% a month, but the trailing is there, right? So they have done a lot in AI-infused marketing, but in some ways it's also a pre-AI company. I mean, it's really good software. We could talk about that.

But the interesting thing was that the narrative is right. This is just my learning. With those metrics, with the growth and the thing, Adam did a great job doing what you're supposed to do: getting to know all the VCs over time, socializing. But then the classic thing, which actually gives me a little hives, is opening the data room on Monday, getting 2 term sheets that afternoon, and getting all of the term sheets by Wednesday. That process still makes me nervous to this day for a variety of reasons.

But the meta lesson, going back to our conversation, is, look, triple, triple, double, double is still good enough, right? Owner is growing faster than that, objectively. But if you are, then it feels like there's unlimited—this is the learning—there's frigging unlimited capital. Even just from the insiders, they could have filled out $150 million in this round.

Wherever the zone is today, this is the endless struggle for me. This is my learning from this: if you're in the zone—and I think it's harder than ever—there's just unlimited effing capital, right? But you've gotta be in that box. So that's my learning: be in the box, right?

Rory, what do you do in those cases? I have this now with the team, where they say, "Harry, a great founder, great founder. We need to decide by Wednesday," and it's Monday. And I go, "I can't write a $15 million check by Wednesday when it's Monday. I just can't."

Rory O'Driscoll

Well, the framing of the question says why it's wrong. If it's Monday and you're hearing it for the first time and you've gotta write by Wednesday, you're just way behind. Because even if you crank and write the term sheet, you're also gonna be up against someone who's met them before in the last round, is ready to write another term sheet now, and has done some work the prior Monday to Friday. For them, Monday is just confirmatory, and then you've got 2 days.

So, look, the speed at which things are moving makes it really hard. But there's no use crying and saying, "Shit, I wish it was 2010." You just gotta, as they say, play the game on the field.

It's really hard to go from zero to decide in 2 days. Maybe you can assimilate the data. Maybe you can, but it's very hard to assimilate the person. In other words, it's very hard to know enough about that person in 2 interactions spaced 1 day apart or 2 days apart to pull the trigger here. So that's the hard part.

We have internalized that you've just gotta be tracking them. You've gotta put a lot of effort into seeing the ones you wanna see in advance, to know in advance what you want. The consequences of that means the second-order problem is that you can't be looking at everything equally, because you can't woo 10 people; you can't woo 200 people.

Upfront, picking your shots on where you wanna do the wooing becomes part of the struggle. My rule of thumb is, if I don't have a list in our Salesforce of 10 to 20 names that I know I wanna see, that I could imagine investing in in the next 12 months, I'm probably not doing my job.

We talk about it internally. Everyone has their hot list. If you can't name those companies, and you're just wandering around hoping shit's gonna turn up on Monday that will make you money on Wednesday, it's not gonna be successful.

2. Series A Funding Collapses

The question that I'm finding Series A investors and our Series A team asking is: how quickly after the seed can we preempt? Because it's so freaking competitive that they're like, "The seed was done a month ago. Can we just bid it up now? Because when we don't, Lightspeed, GC, and Sequoia do."

Jason Lemkin

Well, if you bid it— I mean, as silly as these things sometimes seem when they're bid up in 2 or 3 months, right? Sounds silly at first, right?

But going back to Rory's point, let's say you met them and you really like the deal. It didn't work out for whatever reason. You get 2 more investor updates, and the company's grown 50% in 2 months. You've already done the diligence. You already met the founder, right?

Why wouldn't you do that deal if you believe the price made sense, right? You get a second chance. Sequoia seems to be really good at these second, third, and fourth chances, right? Sequoia did this round at seed and then this round, and then it does Clay at $1.5 billion.

To me, it seems chaotic, but I don't think it's chaotic, right? It's win when you can win, isn't it, Rory?

Rory O'Driscoll

I do struggle with the, “Should we do it three months later?” because there's a little part of you that says, “Oh my God, that just feels wrong,” right? So I admit my biases are that way.

Jason Lemkin

And you know they don't need it. You know that this is solving for your problem, not for theirs, fundamentally.

Rory O'Driscoll

Yes. And if they don't need it, well, they're big boys. It's up to them to say they don't want it. I don't have to solve everyone else's problems. It's hard enough to solve my own.

So I do agree that's an issue, but the bigger issue is there are a couple of things. Can you stomach paying twice as much as someone did three months ago? We've never done that. I struggle with that.

Jason Lemkin

Yeah.

Rory O'Driscoll

But then, as a theme with me, I always think, “Am I getting that right?” For example, there's no doubt some of the best companies in these high-growth markets have the highest velocity of raising. At some zoom-out level, it's Adam Smith giving a signal to everyone: These guys have found a place to put capital. Give them more capital, you fools.

OpenAI has been the classic example. “Hmm, we put in $100 million, the model got smart. Shit, let's do $1 billion. Oh, it got smarter. Let's do $10 billion.” You're going to double down until it doesn't work. That's the signal that says we need to get money into this thing.

So I'm wrestling with exactly that. How soon after that should you do it? You don't want to be paying twice the price of someone else for the same risk. That makes you feel like an idiot, which is why we haven't done it. But at the same time, as Jason said, six or nine months later, probably, if it's a good deal, that's when you should be engaging.

On the flip side of this, we've just seen, literally just before this—and sorry, Rory, then we'll get to the bits that you have prepped for, because I promise I won't throw in everything—Carta just announced that Series A rounds are down 81%.

Rory O'Driscoll

Yes.

I agree with this. Our Series A team are scratching their heads, going, “What the fuck has happened to the Series A market?” Are you guys seeing the same thing? How do you reflect on, think about, this 81% drop in Series A rounds?

Rory O'Driscoll

I saw the data. The seed and the pre-seed are the believe-in-the-team rounds, and the A is the show-me-the-traction round. Belief is easy to manufacture, and traction is hard. So once you get to the traction round, you either have it or you don't.

And if you don't, I think the smart thing people are doing is not trying to raise; they're just trying to figure it out. We'll talk about a company that did that in a minute and did an amazing job of it. Never call a question unless you know the answer. Don't go out and try to raise money unless you're pretty certain you've got what it takes.

Jason Lemkin

Series A conversions are down. Who cares? Go make your startup S-tier. The whole point of venture is to invest in S-tier startups. If you built a B-tier startup and it's hard, or you built an A-tier startup that could get funded in 2021 and it can't today, cry me a river.

I was there with Owner for years; it couldn't get funded. I couldn't get funded multiple times. I went through sequential years as a founder: easy to get funded, impossible; easy to get funded, impossible, right? Crying about it because it's hard to raise a Series A is a B-tier way to look at it. Be the best of breed and you'll get 5 term sheets. You really will.

Rory O'Driscoll

This is a totally weird analogy, Jason, but I get what you're saying. Years ago, I actually had stunningly bad cancer. You get the numbers and the statistical survival rates, and they're miserable.

What my wife and I internalized at one point is that the statistics are actually interesting to the doctors because they have lots of patients and they want to keep a rough eye on things, right? To the person, to the patient, it's 0 or 1. You either make it or you don't. And it's the same thing here for the startup. You're exactly right. Either you have something that's worth funding, in which case, yay you, and the statistics don't matter, or you don't.

At the margin, it's interesting that it's slightly easier to get money. But fundamentally, I think you are right: you want to get money because you have a good thing, and having a good thing is the hard part. Venture is pretty much on tap if you have the kind of metrics that you guys got at Owner.

Look, I was telling Harry before we started here, whenever there's a good deal announced, I go to our Salesforce, I look at the Chatter notes, and I look at why we passed on that round 4 or 5 years ago, and what idiots we are. That's just the nature of the thing. At the time, it didn't look obvious. You guys hung in there, you made it work, and all power to you.

3. Rory Returns to Venture

Jason Lemkin

The cancer you talked about—why did you come back to venture? Why didn't you throw in the fucking towel and say, “I've had enough of chasing these deals”? Seriously, you do. We've talked about how folks are leaving venture, right? Some are certainly not elective, but we've also seen a lot of folks who made a lot of money step out of venture over the last couple of years. Why did you come back?

Rory O'Driscoll

So, I did not mean to make this a personal thing; it just kind of came into my head, but I have no problem talking about it. I internalized at the time that I was just under 40 and had stage 4 colon cancer. My biggest thought going through it, when I was doing chemo for about a year and a half, was that I kept on working.

Some people say, “I had this thing, I had this near-death experience. I want to travel around the world, live in a yurt, I don't know, climb Mount Everest.” What I realized is that I like my work, and I just like to keep doing it. You just do it until you can't.

I've processed through the whole existential what-are-you-doing thing and come straight out to: it's a good job, we get pretty well paid, and it's quite interesting. I have no desire to do anything else, and that definitely brought it home for me. Sometimes it irks my nearest and dearest when she'll say, “You know, really? You couldn't even change?” And I'm like, “Yeah, that's what you got.”

Jason, do you know what I love so much?

Jason Lemkin

What's that?

How cancer changed Rory: “I just want to find another enterprise storage company. Give me another round of that.”

Rory O'Driscoll

You know—

Like—

Rory O'Driscoll

You know—

I don't want to see Everest. I just want another data storage company with—

Rory O'Driscoll

You know—

High NRR.

Rory O'Driscoll

Hey, there's a lot to be said for sitting here in the hospital.

Just give me more.

Rory O'Driscoll

I actually used to take calls when I was on chemo. I used to lie on the floor because it hurt. But I don't mean to make this a personal thing, you know.

Jason Lemkin

No, no.

Rory O'Driscoll

Actually, as a random comment on the “yay venture,” I was one of the first people to get Avastin, which was the Genentech drug that was funded by venture capital way back in the day. Kleiner funded Genentech and, before that, you'd have been toast. After that, literally, it was a week after it was FDA-approved.

At the risk of getting political just for a second, I don't know what my healthcare provider paid for that drug, but I'm damn glad they did.

4. Tiger Finds an OpenAI Lifeline

So you said “yay venture” there. One of the villains or criminals of venture, so to speak, over the last few years has been Tiger. People criticize, obviously, the deal volume, deal count, and dollars out the door. It's definitely been viewed with some skepticism, for sure. But positions in OpenAI and Scale are proving to make some of their fund performance not look so bad. If we project forward, this could really save them. How do we think about this, chaps?

Rory O'Driscoll

First of all, it's not a morality play, so there's no right or wrong. Look, they had a very aggressive strategy. They did 300-odd deals in 2021. Obviously, in retrospect, a total mistake.

If they had enough time diversification in Tiger 15—or PFP, whatever they called it, 15—to get some OpenAI in, and they had the guts to do a lot of it, then, yeah, can you pull it back totally? I think—I don't know—but at the very least, you can salvage something from what looked like a very tough fund.

So it's entirely plausible that one deal has a significant impact. Now, given the size of the fund, $12 billion—

Jason Lemkin

Wow.

Rory O'Driscoll

Given the 350 A rounds in 2021, this gets to something we've talked about earlier. The only way it works is bet sizing. In other words, if they put 1/350th of the fund into OpenAI, it's not going to bail them out, even if it's a 10x, 20x, or 30x.

If, on the other hand, they had the guts, the foresight, and the courage to put 10% or 15% of the fund in something that could 7x or 8x, then, yeah, maybe they've snatched victory from the jaws of defeat. More power to them. I don't know the amount they put in, but that's the key fact.

Jason Lemkin

Wait, let's go back in time. Help me, Rory, because you're so good at this. They did 350 Series A rounds, basically, in a year?

Rory O'Driscoll

I don't know about A rounds.

Deals, I think.

Okay.

So help me just think. 2021 was good times, especially in B2B, because everything was working, right? What would it have to work out to in B2B for that fund to do 3X? Help me think through the math.

Rory O'Driscoll

Well, I think you shouldn't conflate the 2, because the truth is, any 2021 exit is a 2018 late-stage deal, right? Which is why, by the way, if you look at it, a lot of the late-stage funds are going to have a very excellent 2018 vintage, where, interestingly, the earlier guys won't because they won't have had it all the way through the system by the time the window shut.

Yeah.

Rory O'Driscoll

The later-stage funds are going to post a very nice 2018 fund. Tiger, as the definitive late-stage firm, probably has a great 2018 fund. I haven't checked, but PSP 14 or whatever it is, right? Because if you were buying stuff at $2 billion in 2018, you were probably selling stuff at $6 billion in 2021, right?

Jason Lemkin

Yeah, they were the gems, the $2 billion men, right?

Rory O'Driscoll

Yeah.

Jason Lemkin

The gems.

Rory O'Driscoll

That was beautiful.

And then, of course, everybody does the same thing. You start thinking you're smart because you're making money, and then you do 315 more deals in 2021. The math of those, Rory, I mean, it's a $12 billion fund, so you've got to return, let's just do $24 billion to get a 2X.

My assumption is, look, you're not going to have the hit rate. The calculation you're asking isn't worth doing, because this isn't going to work because 20% or 30% of the 315 deals become solid deals, right? There's not going to be enough deals. It's going to work, if it works at all, because they put 20% in OpenAI and 10% in Scale, and then they get a couple of dribs and drabs. That's a couple of decent 2021 deals that become okay, but not much. It's just hard to dig out of a $12 billion hole in $100 million increments.

Jason Lemkin

I have to say, I think they are unfairly criticized. I completely agree that the deal volume was off the charts. I don't think the strategy was that wise, all of this.

That said, if I was an LP in those funds, if they hold on to OpenAI and Scale—and I'm actually in some of the back catalog with them, in the good and the bad—the bad news is, they will 1X. There are liquidation preferences. They haven't raised crazy amounts. They will 1X. They won't lose money on them, and there are actually quite a few that are really fucking good.

Rory O'Driscoll

Totally. I think that's fair. People have strategies. They either work or they don't. The facts come in. The great thing about this business is, in the end, we don't have to say what we think of each other; the numbers tell.

If they were able to put a lot in those 2 big deals, they win, and they should win because that's a very shrewd move. When you're in trouble, you have a lot of troubled deals in 2021, and you say to yourself, "Objectively speaking, what's the only strategy that can save this fund?" The correct answer is to shove the remaining 40% of the fund into 1 of the only 2 or 3 things that can go to the moon.

It's a total morphing of the strategy. There's an implicit statement in there that the strategy was wrong, because otherwise you wouldn't be in the hole. But at the same time, getting out of the hole counts for points, too. It's a little like Bush in Iraq. It was a mistake to go in, but at least, in 2006, he surged his way out. This could be the Tiger surge: made a big hole, then fixed it.

Jason Lemkin

I have to say, I think the thing that's fascinating is actually when you look at FTX, their positions in Anthropic and Cursor actually would have saved them if they had had the time to prove that out and they hadn't done the commingling. That would have saved their financial performance with those 2 investments alone.

Rory O'Driscoll

Totally.

Jason Lemkin

That's why I tell founders, "Just only do a little fraud." You've got to know where the line is of too much fraud, right? And that was too much. That was the problem. You poke the bear too much.

Rory O'Driscoll

That was not cool, Sam.

Jason Lemkin

You poke the bear. Yeah.

Rory O'Driscoll

That was not cool.

Jason Lemkin

He just did it too far. A little commingling, using the funds to buy a compound in The Bahamas, that's okay, but he just did it too far.

Rory O'Driscoll

The statement's putting shit on the thumbnail.

Jason Lemkin

I feel the need to state for the record that Jason, once again, is merely being ironical, and we will not be leading the promotion for this show with a picture of Jason and me with someone saying, "Only a little fraud is fine," okay?

Rory O'Driscoll

I think all of crypto's a little fraud. He just took it too far, right?

Jason Lemkin

Well, Rory, don't be stupid. We couldn't fit that much on a thumbnail. We'd just have "Only a little fraud." Yeah, exactly. No mitigation. Okay, got it. There's a lot in there, for what it's worth.

First, just to observe, the fact that Sam invested early in Anthropic and Cursor is astonishing. What a talent. What a willingness to look at new stuff in 2021, before the ChatGPT moment, when it was just crazy stuff that people were saying, "This might work, who knows?" It might have been early 2022; I wouldn't swear by it, but it's astonishing to pick 2 of the most important companies in the post-2021 crash and nail it. Clearly, a very smart man. That's yay.

Rory O'Driscoll

Yeah.

Jason Lemkin

The second thing is your comment that that could have, quote-unquote, "saved him." It's worth pointing out that the core business he also had was a pretty impressive and good business. The core exchange worked fine, too. It was all the weird shit on top. It was all the commingling. So, yeah, he had an excellent business, blew it with fraud, and did some great venture. That's quite a polymath.

Jason Lemkin

Do you think he deserves another startup if he gets out on time, if he gets pardoned? Do you think he deserves another one? Theranos got another one, right? The Synapse guy. Do you think a top fund will give him a couple hundred million to get his next venture going?

Rory O'Driscoll

That's a good question.

Jason Lemkin

I think so.

Rory O'Driscoll

Would you fund him?

Jason Lemkin

Would I fund him? I don't think Rory or I would. I'll defer to Jason. But I think someone will fund him. He showed the upside as well as the downside. I don't know if there's a lot of morality in the business. I think someone will give him just $100 million to start, at a $1 billion post, to hire a team and get things going and see where it goes.

It's not a lot out of the new $5 billion fund, is it? It's 2%.

Jason Lemkin

Yeah, it's all cute, and look, there are lots of examples.

Rory O'Driscoll

I mean it, though.

Jason Lemkin

What? You're right.

Rory O'Driscoll

I think someone will fund him.

Rory O'Driscoll

I don't know if I agree, in the sense that, at the risk of sounding like a stick in the mud, I think there's a big point spread between dodgy, aggressive performance and acute failure—WeWork being the most obvious example of major failure, hubris, grandiosity, and implosion of money on a large scale—but no convicted crime.

On the other hand, being convicted of a whole bunch of fraud-related offenses is a different matter. I just think that's a bigger lift in terms of attracting capital. So, no, my gut is, once you're past the convicted-criminal stage, the bar goes way up.

5. Coatue Targets Retail Investors

Rory O'Driscoll

You said, "Yay venture," saving venture. The thing that really stood out to me was Coatue's marketing of the new fund as being open to anyone with $50,000. Philippe Laffont went on All-In and really showed this kind of democratization in access to venture and a new model where you could redeem, where there was kind of liquidity built in. How do we think about this?

Jason Lemkin

Well, I want to hear what Rory thinks, but I watch a lot of YouTube, and Boiler Room came up. It was the story.

Vin Diesel. It's just a story. Let's just rip off the retail investor.

Jason Lemkin

You really are the cynic here.

I'm the most positive. I'm not a cynic; I just think people are cynical. I'm not a cynic. I think this is cynical, ripping people off for $50,000 who don't know what they're getting themselves into.

Jason Lemkin

And bringing a couple of things together: 1, in defense of the thing, a lot of the big private-equity firms are making the same move. They're trying to tap additional sources of wealth. We've just discussed it. A lot of the endowments are under pressure for capital. You've just got to get money where you can, and it's 1 more vehicle.

I think if you look at people like Blackstone and people like that, a significant and expanding portion of their capital is coming from high-net-worth individuals. I don't know if the bar is as low as $50,000, but there's no doubt that all the wealth managers have these private-equity-type products where they've constructed some element of liquidity similar to what Coatue is doing. So it's not like it's out there, way out there in the blue.

The other comment I'd make is, going back to this, here we are—we've just made the complete round trip. Everything used to go public early, then they stopped going public early and stayed private for longer, and all the institutions could do it. Now we've had to recreate this vehicle to allow public investors to invest in these companies. In fairness to Coatue as well, I want to say, on better economic terms than the traditional 2 and 20.

But when you zoom out a million miles here, this is all madness. These companies should be public, and then Fidelity Growth Fund could do them at 70, 50 bips instead of Coatue doing them. So the core problem here is that all these companies want to remain private for longer, and you have to ask yourself, why is it such a shitty experience being in the public markets? Because it clearly is. This is a workaround for a problem that would be better solved some other way.

Is it a workaround that others adopt? Is it a workaround that Lightspeed, General Catalyst, and others go, “Hey, this is something that we should be doing as well,” or is it unique to Coatue, do you think?

Jason Lemkin

I think anything that works in finance gets copied immediately. It’s just one of those life rules.

Do you think it will work? And, respectfully, he’s on All-In because he wants people to invest, and he’s marketing a product.

Jason Lemkin

I think they’re very smart people. One thing I didn’t understand, by the way, is the concept of—was it Dell and Bezos as anchor investors? I don’t know if you saw that part of the announcement where they said—I think it was Michael Dell. I didn’t understand that, because I would’ve assumed that they can get all the liquidity. They can get whatever asset they want. They pass the $50K threshold, let’s put it that way. Jeff Bezos and Michael Dell meet the $50K sophisticated investor threshold.

So I didn’t understand that, but do I think it’ll work and raise capital? Probably it will, because the facts are there. The other PE vehicles have worked. And then let’s get real. At the end, it’ll be packaged as some version of, “This is the only way you can get access to OpenAI, Anthropic, and all the hot new startups that are changing AI. Sign here,” and people will sign. Because it’s true. It is the only way you can get access to those assets. So, yeah, I think it’ll sell.

Jason Lemkin

Listen, I’m not a real retail guy, but based on my limited experience, Rory’s right. If you tell folks they can get access to these hot names, they won’t even understand what the carry economics are. They won’t even process what it is, right? In fact, I think the way they’re doing whatever the carry is—12.5% and 1.6842% fees—it’s almost too insider-baseball-y, right? I don’t think the average retail investor even knows what that means.

It’s actually arguably very high, although it’s low compared to traditional venture, right? It depends on whether you look at it as Fidelity or as VC. You know, is it—is this Fidelity—

Jason Lemkin

True.

Rory O'Driscoll

—or is this VC? But I think—

Rory O'Driscoll

That’s an interesting point, Jason. You’re right, I didn’t take that into account. 50% of the assets are public. You’re exactly right. That’s probably how they got it. Half of my assets are public stocks, which should be 50 bips, and half of my assets are venture, which should be 2 and 20, so you blend. You’re exactly right. Good point.

Rory O'Driscoll

All right.

Jason Lemkin

So it’s not cheap. It’s market.

Rory O'Driscoll

You know, there just is a line where this could rip retail investors off, and I just hope it doesn’t cross it.

Jason Lemkin

There are really only 2 things that go wrong. Either you have the wrong manager or it’s just the wrong asset class, or maybe the third is the wrong structure. So let’s take it apart. You’re getting an excellent manager. Coatue is a top-tier public-private manager. So if you look at the 3 things that go wrong when a retail investor puts his money in dumb stuff, mistake 1 is not going to happen. You’ve got a top-tier manager.

Are they a top-tier private manager? Honestly.

Jason Lemkin

They’re at least—put it this way, I would say for the kind of later-stage things they are, they’re clearly very sophisticated. They’re in some good deals.

Rory O'Driscoll

They have a brand.

Jason Lemkin

Are they as good, experience-wise, as, pick a name, Benchmark or Kleiner? No. But they’ve established a meaningful-scale franchise. Compared to a lot of ill-thinking people, they’re thoughtful investors. They’re in the flow. They have access. It’s not like a million billion coming in where they have no access. Because one of the things that goes wrong is when these weird outside vehicles come in and they don’t have a preexisting business, you just don’t get the good deals. They’re already in the flow. They’ll be able to get good deals.

I think the real questions are actually the other 2 issues. One is just the timing in venture. If the next 5 years are tough, no one can save you. Then, obviously, a lot of retail investors will think, “Oh my God, that was dreadful.” So, to me, that’s the bigger question.

And then, lastly, the structure thing is interesting. Will people internalize that there are limits to liquidity, and this is not SPY, your friendly local ETF that’s fully liquid at 1 minute’s notice? There are redemption gaps, redemption blocks—well, gates, that’s what they’re called: redemption gates. And if you remember back a couple years ago, it’s either one of Blackstone or BlackRock—I get those 2 mixed up—but they had a real estate fund where they had to put up the gates on liquidity because they just couldn’t meet demand.

So those, to me, are the questions much more than, “Will they…” I don’t think they’ll do bad investments. They’re shrewd guys. The question is, does the retail investor who thinks they want it today really want it when it’s cyclical and illiquid, and then they discover that?

Rory O'Driscoll

If I step back, I do worry it’s being oversold. But any single individual I know that wants to LP into venture funds—anybody’s, including mine—I tell them, “Don’t do it,” because no one understands the illiquidity.

Jason Lemkin

Yeah.

Rory O'Driscoll

It’s not worth it. It’s not worth it. It’s not worth it for a large amount of your income because the illiquidity will stretch it out. It’s not even worth it to put a little bit of money—“Oh, I’m going to put $50K into 20VC,” and then it does 8X, but it’s 17 years later. It’s just not worth it for the stress.

And I don’t know how all the gates will play out, but a lot of folks may get stressed by this investment. And I think 99% of folks should only be in liquid investments, including people in tech. You should be as liquid as possible. It’s just too stressful for the average person. VTI is the perfect product for 99% of people. It’s the perfect product. You cannot beat it.

One of the things that I just hate about venture as a founder is when I smell too much greed. Now, a little bit of greed is okay, okay? We’re aligned. We’re on the cap table together. There’s a good greed, but there’s a lot of VC today and in 2021 that’s super greedy. There is a super-greedy element to SPACs. That’s why I hate them. You can tell me there are some good ones, but it’s super greedy, okay?

There are types of SPVs and opportunity funds that are super greedy, and I just don’t like the smell of it. I just don’t like the smell of it. And then when times are good, this super-greedy approach—maybe it’s the right playbook in venture. “Grab the billions. Grab the billions.” But there’s a… I don’t know. Some of it smells too greedy.

Jason Lemkin

There’s always that feeling when you go to the retail investor that you’ve exhausted anywhere else. I get the cynicism. The weird thing that’s happening is, as privates become more and more of the economy, it just makes sense that the big private houses find more and more—have to access more and more of the public capital to kind of feed the beast.

I get you, but a $1.2 billion fund doth butter no parsnips on that extension of private markets. You need $10 billion to be playing in that zone.

Jason Lemkin

Well, I think the way you get $10 billion is you start with $1 billion. So, yeah, I hear you. Look, I’m saying again, just look at what the PE firms are doing, where private is a significant portion of their total raise.

My guess is, if you’re running one of these big firms—and I’m sure there’s a PowerPoint on the desk at Andreessen, at General Catalyst, and at Lightspeed on this—if you’re running a firm and you want to make sure that you’re matching whatever it is those guys are doing, what the other people you perceive as your scale peers are doing, then you’re going to do what they’re going to do, and they’re all copying the PE guys. So the move is inevitable. There’s no point getting all moralistic about it. They’re just—it’s the game they’re playing.

6. Klarna Walks Back AI

Also, credit to you, Jason, for potentially the fastest bet to go south in a long time. I mean, you very confidently last week were like, “You know what? I bet you $100K that AI’s going to replace jobs very quickly.” And then this week, Seb from Klarna, the biggest proponent of replacing people at Klarna with AI, goes, “Yeah, seems I went a bit far, and we’re going to be hiring back a load of people to walk back a lot of that AI transition process that we made.” How did we think about that?

Jason Lemkin

Few things I actually enjoy more than being wrong. I enjoy it, right? I’m happy to admit it. I have no ego in it. I generally enjoy being wrong.

Believe it or not, I’m thoughtful when I speak up, because I’m going to win this bet for a bunch of reasons. But one thing: this Klarna thing was misunderstood in the beginning, and it was misunderstood today. It’s misunderstood. Look, first of all, there’s some drama in what the CEO’s trying to do to get attention for whatever reason, right? Drama with the sale.

But here’s the point. This is what’s happening. For everyone that’s in AI, in B2B, there’s a slider, okay? There’s either literally or figuratively a slider.

Jason Lemkin

If you go into an app like Gorgeous, where I'm on the board, where there are 20,000 customers using AI for SMB support, there's literally a slider, and you can dial how much AI support you want from 0 to 100. No matter what anybody says on X and LinkedIn, the average across their SMBs is 20%. Folks who put the energy in get to that 40 number that everyone talks about—it’s 40%. But you have to invest time, and out of 20,000, they have a handful of folks who are at 100, like Klarna.

Do you know how many, out of 20,000, are at 100? What's your guess? How many went to 100?

Rory O'Driscoll

Probably fewer than 100 people, maybe even 5 or 10.

Jason Lemkin

Two. Two went to 100. These were folks who absolutely knew the trade-offs and knew what the issues were, and this is what Klarna did. They moved the slider to 100, and they did not move it back to 100% humans. He did not say that. What he said is, “I’m bringing back some humans.”

He did what 2 out of 20,000 customers did at Gorgeous: he moved the whole thing all over to 100 to learn, to be dramatic, and it went too far, so he moved the slider back. But you know what’s going to happen every 3 months? That slider’s going to move closer to 100. It’s going to move closer. I believe, in most cases, it will never get to 100, but what will happen as we go into next year is folks will be like, “I’ll deal with the downside of 100.”

It’s only 2 today, but more and more folks will say, “Listen, some orders are going to be wrong, some answers are going to be wrong, but I’d rather have no humans in my new, cool, 5-person, billion-dollar startup.” These 5-person, billion-dollar startups are still going to move the slider to 100. So I just think it’s misunderstood. The fact that he bounced back so far a bit—he did not say, “I’m rehiring everybody.” He did not say, “I’m rehiring the 1,000 people that I laid off in support.” He’s probably going to rehire 200, right? And 800 will still be AI-ed.

So I think I’m going to win the bet, but if I’m wrong, it’s cool. It’s possible. But I literally see all the data across 20,000 AIs and this slider. Once I realized it was only 2 that did 100, then I had my aha moment, right? That’s too far. But they talked them through it, and they told them what the downsides were, and they walked through it, and they did extra training, and they’re like, “We’re still going for it.” Those were products that were simpler, et cetera, et cetera.

Rory O'Driscoll

First of all, Jason, you’re not going to win the bet because we’re calling it now. You’ve been margin-called. We’re closing the book.

Jason Lemkin

Okay.

Rory O'Driscoll

We’re cashing you out now.

Jason Lemkin

Okay.

Rory O'Driscoll

All right? Send the money.

Jason Lemkin

Okay.

Rory O'Driscoll

But actually, having disagreed with you last week, I 100% agree with the way you outlined it this week because, frankly, it was more rational. You’re right: stylistically, you’re an entrepreneur, Seb’s an entrepreneur. You’ve got to move big organizations, and one of the ways you move a big organization is you create these big-ass goals, you violently shift the thing one way, and if you have to correct back a little, you do it, right? It’s very Elony, and we can talk about his automation in the Tesla plant as an example of that.

I think you’re exactly right. I don’t know if the CEO of Klarna believed it and thought, “Maybe we can do it.” If he didn’t believe it but thought, “We’ll get to 80,” the only way to get to 80 is to try for 100. But it’s unfolding exactly the way I would’ve said last week, and I agree with what you’re saying now, which is that, pre-LLM, your customer support, B2B or B2C, could chip away 20% or 25% of the number of tickets. Unfortunately, they were the easy tickets because it was, you know, “How do I fix my password?” So you actually didn’t save all that much in headcount.

Depending on where you are on LLMs, you can get to 50%, 60%, 70% without any deterioration in service, and in fact, based on some references we did, an improvement in NPS. That’s what’s going to happen as the base case. Some people are going to try and do 100 and then probably back off a little. My guess is that in a year or 2, you’re right. Maybe it won’t be Klarna because they’re big and they’re doing money. But if you’re running a small DTC company with a fairly simple product, and you were just really focused on it, I can see in a year or 2 saying, “We just don’t do support. We answer all the questions.”

So the direction of travel is clear. It’s going to take longer than people thought a year ago, but it’s not going backward. So I’m in violent agreement today. This is just a 5-year trend, not a 1-year moment.

And so I love Seb. I think he’s fantastic. I’ve had him on the show. He’s a friend and an investor in Project Europe, so this is all Seb with love. I’m surprised by the lack of strategic analysis around the timing of how he bluntly presented this.

Public markets—I had the founder of Duolingo on the show recently, who very clearly said, “Hey, public markets take a very binary approach to AI. You’re either an AI winner or an AI loser. Very simple. When we started, we were an AI loser. You saw that in the stock price. ChatGPT is coming for language. We changed our positioning around how we use AI. Content creation is powered by AI. Now we’re an AI winner, reflected in pricing.”

I’m summarizing, but I think it was very well articulated there. When he was going public, he was singing the song of, “We’re AI-first. AI, AI, AI.” Now he’s no longer going public, he’s able to say, “Actually, it went a bit far. I don’t need to project that AI progressiveness right now, and I can save that for the next day when I do want to go public.” I think it’s a very clear strategic message from a CEO who was about to go public, needing an AI story. Very wise and quite right of him, and it’s just the walk-back of that.

Jason Lemkin

You’re probably right. You would know best. I think, in general, though, when I see a lot of these statements from public-company CEOs, they’re really also telling their team it’s time to change now.

Rory O’Driscoll

Yeah.

Jason Lemkin

Enough. Honestly, a lot of big-company CEOs I talk to are like, “I’m not sure I need 80% of my team today. They’re just the wrong people.” It’s not 3%. Microsoft laid off 3% of their company today. It’s not enough. It’s not enough. The people running the 2018 playbooks are going to become almost useless going forward.

So you always see these comments about CEOs publicly saying, “We’ve got to go harder, guys.” I’m not sure who listens to those statements. Pushing the dial to 100, people are going to listen, right? They’re going to Rory’s point. I think that’s what it is because the Fiverr guy’s like, “My job is at risk.” It looked dramatic, but I think he’s right. So CEOs are trying to give folks shock therapy, and I don’t know that anyone’s listening, but at least he said it ahead of time.

Rory O’Driscoll

Agree.

Jason Lemkin

“Your job is at risk.” The Fiverr guy said everyone’s job at the company is at risk, including mine, with AI. Tobi at Shopify kind of implied that too, that everyone’s job is at risk, and I believe it with my bet.

Rory O’Driscoll

Totally.

Jason Lemkin

I don’t think it’s 5 years, as Rory said. I think by the middle of next year, in tech, almost every single person’s job will have changed by the middle of next year. It doesn’t mean there’ll be mass unemployment.

Rory O’Driscoll

Changed, yeah.

Jason Lemkin

It’s not going to change in 5 years; it’s going to change by next year. CEOs are at least trying to tell people, “Before you get fired or laid off, you’ve got to step it up.”

Rory O’Driscoll

I agree.

And maybe an interesting distinction here that I’m just internalizing, Jason, is this: if you’re in charge of driving change—in other words, if you’re the CEO of a large organization—you have to make these hyperbolic statements because otherwise it’s just so hard to move 10,000 people.

Jason Lemkin

So hard.

Rory O’Driscoll

Right? You have to put stakes in the ground. It’s a management technique. Look, I’m sitting back, frankly, as a small VC, an analyst-type person. I’m trying to be very precise: what percentage will be automated in the next 12 months so I can build my 5-year expectations for revenue growth? It’s a very different thing. I’m trying to find the right answer.

The CEO is trying to find the right answer for his organization to make progress, and by definition, that’s a much more oomphy, lifty kind of statement. I’m looking at my best CEOs as they’re driving change here, and they’re doing stuff like this. I’m thinking of one in particular. I got the missive at the start of the year: “By God, we’re going to drive this.” And I was like, “Wow, that’s what it takes to get through to people.”

I think that’s what’s going on here. I don’t think it’s some mysterious—maybe there’s some public-market messaging in the cloud; I don’t know. But I think it’s just a CEO of a big organization trying to drive change, and the only way you can drive change is to push, push until something breaks, and then throttle back a little.

Jason Lemkin

Literally, a CEO of a company that just crossed 100 million asked me—not that I’m any smarter—“How do I create more urgency in this AI age?” I don’t even think it’s about AI. I think it was about, as a CEO, how the hell—we’ve had this level of urgency for years. I need to double our level of urgency because everything else is urgent today. How the hell do I do that with 10,000 people? How the hell do I create even 5% more urgency?

What did you say?

Jason Lemkin

The only advice I gave to this particular CEO was immediate: he was hybrid, so I said to force 100% of people to return to the office in 30 days and let everyone go except your S-tier engineers.

Let them all go because you don't need them. If you're there from 6:00 in the morning, like 20VC, till midnight, like Harry is, Harry posted on Twitter last night, “My whole team's here.” I get BST and PST confused, but there are multiple messages in that tweet that Harry sent out. He's like, “Don't work for me if you don't want to be here at night,” or whatever the hell it was.

100%.

Jason Lemkin

Yeah, it's a message.

All in person, and we work late, and we believe that the harder you work, the luckier you get. 100%.

Jason Lemkin

This is my only half-decent idea to create urgency: force everyone to come into the office. To be honest, we have a beautiful office in Palo Alto. I only go 2 days a week, so I acknowledge it's hypocritical. I'm not willing to go back, but it's the only idea I have.

7. OpenAI Bets on Nontechnical Leaders

And speaking of driving change, the single biggest change in 20VC in how we do what we do is simply ChatGPT across everything. This week, a couple of big bits of news: new CEO of apps, Fidji Simo. I love Fidji. I had her on the show when she was at Instacart. Fantastic operator. How did we evaluate this kind of layered CEO beneath Sam, now CEO of apps for OpenAI? What did we think?

Rory O’Driscoll

They weren't going to start being normal now, dude. We are 10 years into the least normal startup on the planet. Why stop now?

Jason Lemkin

I think the weirdest thing in this is that, for OpenAI, you have a CEO and now another CEO who are both not technical. I just think it's really weird. And listen, Sam is obviously off-the-charts genius level. Even though he's lost a lot of people, he can recruit like no one on planet Earth, and maybe that's all that matters as a CEO.

My life experience is that nontechnical CEOs—now we have 2 of them—can't win at companies like OpenAI, yet they are winning. But my experience is they almost all fail.

Fidji built out an apps ecosystem at Facebook unlike any other. Why does it need to be technical? I'm naive. Help me understand.

Jason Lemkin

Because the rate of change is so fast that I find nontechnical CEOs just can't understand it. They're really great at sales and marketing, and they're really great at knobs and dials and spreadsheets and price increases.

Honestly, Harry, no matter how many times you talk to me about RAG and vectorizing my content, I'm never going to understand how it works. I could spend 100 hours with the smartest people in the world; I will never understand how OpenAI works, never.

Now, she's smarter than me, but my point is that all the nontechnical CEOs that I've seen, especially those who take over my investments as outside CEOs, never understand the product. They never understand it. And now Sam is S-tier—for, I mean, S-S-tier, right?—and she's S-tier. But it's still weird to me that one of the greatest technological innovations of our lifetimes is now run by 2 nontechnical people. I still think it's weird, right?

Rory, does it impact how you think about their expansion into the app ecosystem? You mentioned before, very wisely, I think, chat, coding, and customer support. Does it impact how you think about that?

Rory O’Driscoll

A little, not a ton. Going back to that comment I made, actually, one of the things you told me, Harry, is that doing this would make me up my own game on thinking, and you've been very right, by the way. I decided after that that comment was wrong. I think they will do—obviously, they've done coding. I don't know if they'll do customer success because it's so idiosyncratic.

So I think the apps that they'll do will be very broadly horizontal, in a way that coding is and the way, obviously, that chat is. And you can envisage a huge amount more on the consumer side as they—

I think shopping in particular.

Rory O’Driscoll

Absolutely. Totally. Yeah, it's a thing.

I do agree it is astonishing that the most compelling technical product in the last 10 or 15 years has been created with a CEO at the head who's not technical. It just speaks to some shrewdness by him, empowering that technical team, feeding them money, and providing them leadership. It's a stunning achievement. We'll look back and go, “Wow.”

But I think it is going to work. At the margin, it doesn't matter, I suppose, is what I'm saying. They just have huge—there's just so much more to do on the coding and on the consumer side. And you're right, ChatGPT's going to suck in all your brain. It's going to suck in all your phone calls. It's going to know everything about you.

And, you know, it's going to be like—remember when, way back when, you thought Evernote would know everything about you? You ain't seen nothing yet. It's just going to take it all in, and you're just going to be able to defer to it. Web search and shopping is just going to be a huge thing.

So, yeah, I think there's a ton to be done there. It takes someone who's not focused on the pure technical stuff and not focused on raising $500 billion. And it looks like this is that person.

8. OpenAI Becomes a Concentrated Bet

Should we all chuck our funds into OpenAI at this point? It seems like the easiest way to get a 3X. The shortened window to liquidity—I am so sure that OpenAI is going to be a $1.5 to $2 trillion company right now.

Jason Lemkin

I think you should put—listen, I don't—I remember, I might have this a little bit wrong, but I remember I was around when David raised Craft Ventures I, right? And I think the next week he put a third of the fund into SpaceX. I had just a little bit of overlap with LPs, and they're like, “David's crazy.”

I'm like, “Listen, I only know David as a founder. We were founders together. I don't know him as an investor. This is one of the smartest guys I know. If he wants to put a third of his fund into SpaceX, I think it's going to work,” right?

I think he did it first. I think he just called up Elon: “Any extra share?” I don't know what the story was, but I might have this a little wrong. I think it's mostly correct, and it obviously worked. A third of fund one, and it seemed like a nutty move, but it was highly concentrated. Can't lose.

Rory O’Driscoll

Agreed. We just discussed Tiger half an hour ago, where it may well be that the saving move was doing exactly that. It's not a crazy comment. It's not what my LPs are paying me to do. But in an open canvas, you say to yourself, “That's a compelling company of one that does have just a huge, enormous market opportunity ahead of it.” Obviously, it's got to sort out its entire messy legal structure.

A question for you, Rory. You mentioned that it's not what your LPs pay you to do. What would you do if you didn't have LPs in that respect? If they just gave you a completely blank canvas?

Rory O’Driscoll

Look, we've discussed this a number of times: the kind of single-bet variance, making one exception without making an exception across the team on everything. I don't know, right?

But you could split the fund and put 25% into Ramp, 25% into Rippling, 25% into OpenAI, and 25% into—you name your other breakout. It's not what your LPs pay you to do, but you're like, strategically, that is how I think we will have the most value created in a good time window.

Rory O’Driscoll

I do believe we are in a world of fewer, bigger winners, and that rolls up and down the entire venture ecosystem. If you thought your portfolio count had to be 30, a seed fund had to have 30 deals, you need 45. We typically—the target portfolio was 20 deals in our fund. I believe at this stage we need 25 to 27, 28.

Why? Because instead of exiting at 150, we're going to exit, best case, at 300, which is 2 or 3 more years, when 1 in 3 of these companies will fuck up. So, by definition, if you want to end with 3 or 4 winners, you just have to have more at-bats.

Moving up the bar has had consequences that ripple up and down the ecosystem. Instead of us having 20 deals and having 4 great outcomes, we might need 27 deals but only have 3 great outcomes. But they will be bigger because the good ones will have compounded from 150 to 300, and the bad ones will have failed.

So if you take that to the extreme, you're at your point, Harry: fewer, bigger winners all the way up the stack to 1 huge winner. By OpenAI staying private for longer, it might get to a Facebook-type valuation before it ever goes public. Facebook today, not Facebook when it went public.

So yes, what you're saying makes sense at some directional level. The hard thing then to assess is that, at the same time, you can still overpay for growth assets and be wrong by 5 or 6 years, and history's replete with examples of that. You look at the Nifty Fifty in 1968; they didn't come back for 10 or 15 years. You look at 2000; the Nasdaq didn't come back for 14.

It is possible to take a good idea and push it to such extremes that you end up wrong. And I just don't know—I haven't seen those numbers to say, “Look, is 27 times forward revenue for something like that the right number? What's the compound you're embedding there?”

Let's take OpenAI. They're doing $4 billion last year, $12-ish billion this year, then he trails off on another figure. What's that? What kind of revenue multiple are you looking at? What kind of compound are you embedding there? I don't know.

Okay.

Rory O’Driscoll

I looked at it side by side with Google, and it had tracked virtually the same to now. But if you look at their forecast for the next 3 or 4 years, and in fact, their leaked forecasts are showing higher growth than Google.

Jason Lemkin

So at some point, you’re over-extrapolating into the future, and when is that point? It’s not a stupid idea, but obviously, you haven’t done it.

Rory O’Driscoll

If you were just about making as much money in the most efficient way possible, would you do it the way you’re doing it?

Jason Lemkin

I think the problem with private markets is you put all your effort into being able to do one thing well, and the cost of that is you don’t focus—you’re not equipped to do something else. It’s not been something I’ve focused on, so I don’t know if it’d be easy to be successful at it.

For starters, let’s push on this. The very basic comment is that OpenAI said in the last round, “You either show up with $250 million or don’t show up at all.” Right, remember that?

Rory O’Driscoll

Yeah.

Jason Lemkin

That’s an example of how, to play in that space, you have to be equipped to play and set out to make that your objective. You have to equip yourself as a fund with the ability to write 4 $250 million checks; otherwise, you’re not going to get to see the deals.

I just think, sitting here with my $30 million check size, I can make a phone call, but I don’t think they’ll get back to me. Leave a voicemail. Jason’s AI will, at 100%, just look at my customer support ticket and say, “Not worth replying to.”

Rory O’Driscoll

It always replies, but you’re right.

Jason Lemkin

“Dear Mr. O’Driscoll, you do not meet the accredited-investor requirement at $250 million bucks.”

Rory O’Driscoll

Moving this on because I could press here for a while.

Jason Lemkin

You really are a dick, Harry.

Rory O’Driscoll

No, I’m not a dick. I’m not. The question we brought up there was the nonprofit versus the for-profit, and this was a big point. Now that’s gone back. They’re still a not-for-profit. I thought the whole point was they were moving to a for-profit. Jason?

Jason Lemkin

I mean, it is interesting. The most interesting thing of all of it for me is that when Microsoft did this deal, it seemed like a crazy, weird get-around M&A antitrust game, and Microsoft was just going to lose billions subsidizing a backup bet. Now it looks like Microsoft got a great deal. I mean, that’s the way venture works.

But getting everything they get, plus 10% of all revenue until there’s AGI, plus the returns, I see why Satya was sitting pretty and wasn’t really concerned about all this. Not only could he afford to lose it, but in the end, what looked like a weird backdoor license in M&A is an epic investment, right?

Not that I think Microsoft cares about it as a financial investment. It can’t care. That’s the irony, but I guess they have to work it out is the answer. It’s like the US and China. At some point, it’s going to be messy, but they just have to work it out.

Sometimes things don’t work out. But staying with this one and leaving the US—

Rory O’Driscoll

That was a murky intrusion.

Jason Lemkin

Yeah.

Rory O’Driscoll

Yes. Sometimes.

Jason Lemkin

Staying with this, I think it’s funny. There are a bunch of great reasons for doing it at the time, both the original not-for-profit and then the Microsoft structure around that, but now you’re left with this interesting conundrum.

It’s clear they’re not—I mean, to be fair, they’re not going back, I think you said, Harry, to a not-for-profit. They’re not doing that. That’s not what’s happening. What’s happening is they’re not going to just convert the underlying company to a classic for-profit. They’re going to convert it—it’s a public benefit corporation, like Patagonia—where basically it’s just like every other company, but you have in your articles of incorporation a specific obligation to look out for interests other than the shareholders.

The good thing about that, which actually strikes me as a decent solution at that level, is what it says is, “We’re going to be trying to make money, but at the same time, we don’t have this binding obligation just to maximize shareholder value.” So when you’re public, you won’t get pounded by the Delaware lawyers and told you can’t do this, you can’t do that because it’s not in the shareholders’ interest.

It’s a useful legal structure. As I say, Patagonia uses it, so it’s a thing. It’s not something they pulled out of thin air. The idea is you drop the assets into that thing, and then at the holding-company level, you have the not-for-profit—the foundation, I think it’s a foundation not-for-profit—with significant board control and a significant economic stake.

That structure makes sense, and maybe it’ll be a little less contentious in one sense than the pure subsidiary being a for-profit. But to your point, the hard part is everyone has a veto. To Jason’s point, the Microsoft deal is so weird and so, quote, “clever,” that unwinding it—I mean, you’re basically asking, how do you value what percentage of a company?

Imagine if Jason did a deal in one of these companies and said, “You’ve got to give me all your profits until I get my $20 million investment back. Then I’ve got to get a rev share. Then I’ve got to get something else with a cap.” And now you’ve got to convert that to a percentage ownership in a simple deal. I don’t know how.

That’s an interesting one, because you do get into this: 2 people have to agree. I’m not sure where the leverage is, and I think Microsoft’s leverage might be pretty strong, because the current deal is pretty interesting and attractive for them. So I think you’re unwinding something that maybe made sense at the time; it feels a little clever now.

They have a block, and then separately, you have the whole risk of litigation from Elon. Even under this structure, is it still not-not-for-profit enough to do it? So there’s a lot of wood to chop yet, and a lot of Delaware lawyers and California lawyers and New York lawyers who are going to put their kids through college on the litigation in the next few—

Rory O’Driscoll

A lot of kids are going to get put through college on this deal.

Jason Lemkin

Absolutely.

Rory O’Driscoll

A lot of kids.

Jason Lemkin

It’s going to be big.

Rory O’Driscoll

Each of your children are going to go into college on this one. The legal bills are probably $20 million a month, or $10 million. They could be—

Jason Lemkin

Oh, really?

Rory O’Driscoll

—$10 million a month. $20 million sounds high. It could be $10 million a month, though, the legal bills, right?

Jason Lemkin

In the end, that kind of public benefit corporation structure is actually what Anthropic did from day one. They got it right. It’s interesting, but OpenAI is basically saying, “We’re going to go for something like the structure Anthropic already has.” It’s obvious that that’s the endpoint that just about works. Somehow they get there, but God knows how.

We’re going to speed through a couple of companies where there were notable announcements and news. And then Jason’s got SaaStr. Big week, Rory, for Jason. Go SaaStr.

Rory O'Driscoll

Absolutely. Honored he even came.

That’s—I mean, honored, honestly, what a freaking hero. Perplexity: $500 million rumored round at a $14 billion price, rumored to be led by Accel. Any thoughts?

Jason Lemkin

I just think it’s interesting. I do like Perplexity. Perplexity, of the leaders, is the closest to Google on steroids, right? I mean, they announced they were at $100 million ARR recently, right? So let’s say they’re at $200 million today, which is still generous growth, right?

Does it justify this, or is this a distant number 3 getting a massive premium? I don’t even know if the Anthropic valuation is right. They may be getting too much of a valuation premium compared to OpenAI, and I just don’t know if it deserves it.

Rory O'Driscoll

In a world where we have a rational M&A strategy—and it’s TBD if we will under this administration—the big picture here is this is an at-bat, a 1-in-3 at-bat, at a trillion-dollar company. Google’s a trillion-dollar company, and this is a 1-in-3.

There are only 3 people that are going to be relevant here: OpenAI, Anthropic, and Perplexity, right? The mere fact that you’re in the arena, to use a phrase, and you’ve got users, you’ve got revenue growth—you were first with the idea of web search plus LLM combined. You got that done. You got that out the door. That gives you the right to play the game, and maybe you can build a standalone thing and get public.

In a world where, frankly, IPOs happen like they happened in ’96, 4 search engines went public in ’96. You don’t remember any of them except Yahoo, but it was Lycos, Excite—I can’t even remember the 4th. Poof. Because it was a big, obvious market, it was happening fast, all of them had a chance to be big.

So, going back to that upside-junkie comment I made last week, what Perplexity is selling from an investor perspective is an at-bat, a credible 1-in-3—not equally weighted, to be clear. OpenAI’s clearly going to win, but maybe you can be 3rd, and that’s worth a damn sight if the prize is a trillion bucks. That’s what they’re selling.

I am actually an investor in Perplexity. I think I have to—

Rory O'Driscoll

Good for you.

—I think I have to announce that, otherwise my CFO will fucking kill me. But that was exactly my thinking, which is: how many companies have a credible chance of being a trillion-dollar company, where it is still very small—very, very, very small, very small—but still a credible chance?

Rory O'Driscoll

In a world where you can do M&A, which may not be today, there’s also a whole bunch of big companies who need to be credible in this space too. So plan B shouldn’t be awful.

Now, as I said, the weirdness of M&A in tech for the last 5 years is head-bangingly depressing. But there's no doubt in my mind: there are a couple of trillion-dollar companies that are like, “Shit, maybe I'd like to mess with Google's head. I need to have this.”

100% agree. They have an incredible team around them, to be fair.

Rory O'Driscoll

Yeah. Good for them.

One thing that no one sees is that their distribution strategy has been very, very smart in terms of large partnerships. They've done quite a few in Europe with big telecom providers, which enables them to have default access to consumers' phones. That is very smart, and if you look at Google in the same way in the early days, they did exactly the same. It was distribution through partnerships. Very smart.

Jason Lemkin

I realize that the investment memo should be updated. The first paragraph should be, “Odds of trillion-dollar outcome.” You think I'm being facetious, but I'm using an old template. I remember the first deal I ever did was Pipedrive. We talked about it years ago, Rory. I remember when I wrote up the investment memo, it was the odds of getting to a $100 million exit. That was the old structure.

And I was forced by the traditional VC firm to fill out the numbers, and I said, “5% chance of a $100 million exit,” right? It did sell for $1.25 billion. But I'm just using my 2013 first-investment-ever lens, and I did 5%. Now, instead of $100 million, I mean, then it should've been $1 billion and then $10 billion. But maybe there needs to be another row, which is $1 trillion. What are the odds in the IM of $1 trillion? And if it's north of 2% odds for $1 trillion, we do the deal.

Rory O'Driscoll

Yeah.

Jason Lemkin

I think some version of that is true. The way I'd say it, the opposite is: if you're looking at a deal that has all the risks of a classic private company but doesn't have embedded upside beyond the base case, you probably shouldn't do the deal. As I say, we're all upside junkies. It's the pixie fairy dust that lands on our portfolio every 5 or 6 years that makes the math worthwhile.

So if it doesn't have that, you gotta ask yourself why you should do it. And this one has it in spades, 'cause it's the biggest pixie dust. It's trillion-dollar pixie dust, not $100 billion pixie dust.

I totally agree with both of you there. In a similar-ish ilk—

Jason Lemkin

So you're going to do your super pro rata? Is that the answer in this alleged acceleration?

Rory O'Driscoll

No, it's coming. I'm going.

Jason Lemkin

Are you? This is just what I don't know. Are you doing super pro rata, pro rata, or none? What are you gonna do with your check?

My business is not to do $14 billion priced rounds.

Rory O'Driscoll

Ah—

So—

Rory O'Driscoll

So after giving me crap half an hour ago about—

Jason Lemkin

Inconsistency.

Rory O'Driscoll

—not doing this and just doing what the right thing to do is, you're saying it's not your business. I just wanna note that moment. I accept it, but—

Rory, before the visuals have been made, do you want to pick this fight, my friend?

Rory O'Driscoll

No. No.

No, it's a very fair point, very fair point. But no, $14 billion is not my game, but I'm thrilled that Accel are rumored to be—

Jason Lemkin

You're taking a dollar-cost average—that's the thing. As an existing investor, you don't—

Rory O'Driscoll

No, I think we've beaten them up enough.

Jason Lemkin

You don't have to take the nominal price too seriously. You're dollar-cost averaging it.

9. Clay Faces Brutal Competition

The interesting thing is—and then we'll let Jason run—actually Clay. Clay obviously did this kind of $1.5 billion-priced transaction. I think it was employee secondaries with Sequoia.

Jason Lemkin

Yep.

My thinking there was that people are now believing Clay is the next credible threat to Salesforce, and that is why people are getting so excited by it—that actually it's much more than, “Oh, we're shaking our heads.” How do we think about this?

Jason Lemkin

Maybe the VCs are. I don't know—maybe that's what Sequoia says. I'll tell you just 2 things I see in the field, because this is pretty close to our core audience. Clay is, first of all, a great success story. Let's simplify it to that, right? There are a couple of things that are driving Clay. Certainly, there are super-sophisticated, cutting-edge teams, right?

But there's also every struggling marketer today that doesn't understand AI and wants to deploy Clay. Massive pull. Every 2021 CMO that's scared they're going to lose their job—nothing's working: search, SEO, content, everything's down—they're hiring Clay consultants, Clay engineers, deploying, writing checks like Hopin in 2020. It's literally like Hopin in 2020, but for marketers.

And I think they earned it, right? So I don't know about the Salesforce. Maybe that's the vision. But I'll tell you what's happening on the ground: just like people needed a digital event solution during the pandemic, marketers need an AI solution now. Their jobs and lives are at risk. This is what I'm seeing.

Literally, we were at a SaaStr pre-event last night, and I'll tell you everything I heard about Clay. That's what everyone's saying—every CMO. We're gonna have a CMO summit on Thursday, and I'll ask, and Clay is the winner.

Does that mean it's unsustainable?

Jason Lemkin

I'll tell you my second question. So every CMO—we're gonna have 400 CMOs on Thursday. Rory, if you come, you can sneak into the CMO summit and ask them. You can ask the question for me: “How many of you are using Clay? Raise your hand. How many is it because you're scared of AI?” I bet if it's a closed door, they'll say, “Because I'm scared.”

The only question I have for Clay is, boy, I've never seen more great founders than I met last night that have Clay—the Clay target. They're going for it. Everyone. Everyone wants, “I want an easier-to-use Clay. I want Clay with better data sources. I want Clay that can be self-serve. I want Clay for this. I want Clay...” And I'm not saying Clay won't win, but literally this is a category where the knives are out. It doesn't mean they don't already have scale and won't win.

I literally met the CEO last night. He's like, “Hey, are you Anna Lemkin's father?” I'm like, “Yeah.” “Well, I just dropped out of Stanford with your daughter. I have a new competitor to Clay. We're already at $2 million.”

Wow. Already. He just dropped out, and he's 19 or 20, with my daughter. I'm like, “What do you mean you're at $2 million?” He's like, “Well, honestly, we're just much easier to use and we have better data sources.”

It's this story I've already told you for, like, the 3rd time. So that's $2 million in a couple months, right? Clay has won this Q1 2025 vision of the marketer's platform, and I'm not betting against them.

It took, like, 4 years for folks to figure out why Gong was successful. Anyone in sales adopted Gong, and they're like, “I can actually listen to my reps' calls? The dumb things they say to prospects?” But it took everyone else about 4 years to figure out why machine learning on voice calls was disruptive.

Now it's happening in days with AI, right? Or weeks—they're figuring it out. So competition's going to be insane in the space, is my summary of my rambling point. Insane. So I would raise even more. Forget the secondary. I would keep it as primary, because I'd build up my war chest.

So you raise it as primary?

Jason Lemkin

I mean, I'm just saying the competition is so high. We started this conversation on Owner and why did Owner raise $120 million, right? Part of it is because, even though it pulled away from some of its venture-backed competitors, it's such a competitive space.

I'd love it if you could win in a competitive space and be cash-flow positive with 50 employees, but we have a lot of history of that playbook not working. So I would armor up if I were Clay. I would hire everybody, I would raise another $100 million, and I would just scorch-earth everyone in the space.

Rory O'Driscoll

A lot of agreement. It's worth pointing out that the original Clay product is a pre-GenAI product all around combining multiple data sources and manipulating those sources. It was a horizontal, spreadsheet-type functionality initially, then focused on marketing.

The problem it solved was: hey, you need to build a 10,000-name list of B2B CFOs between 50 and 500. Do you use ZoomInfo? Do you use people data? Do you use one of 3 other sources? No, you use Clay. You import from all of them, and they brilliantly consolidate the 4 or 5 different entities and give you a clean, combined list.

It's a RevOps function that was pre-AI that they solved brilliantly, right? Let's start with that. That's what the product actually does.

Now, what they've added is these Clay agents in the last year or 2 that take that list and start—they're going to start doing email, start doing enrichment, start doing all the agentic work after that. So they're moving down-funnel from list management to an AI-enabled SDR.

So it's a totally excellent product. It hit the sweet spot of the need. It initially was not an “Oh, my God, AI/GPT” story. It's something totally different. I mean, it's so far from Salesforce CRM that I can't even think about it right now in any useful fashion.

That's what the product actually does, which should never get in the way of a good story from a VC, obviously. It does it really well, and it fills a need. And you're right, they have the chance to run fast on top of that and do a bunch more on top.

The roadmap is pretty clear because you've got this AI lift, and now you've got clarity on what the next 5 sets of automations could be, but there's lots of people doing that.

We have investments in that space. I'm sure you do, too. There's a whole ton of AI automation coming to top-of-funnel sales and marketing. That's what's going on there.

Jason Lemkin

I do think being the vendor to take advantage of AI fear is a great strategy over the next 18 months.

It's not sustainable, though.

Jason Lemkin

I don't care. If it gets me to 300 million in revenue, the world changes.

I disagree. Hopin was at 200 million in revenue.

Rory O'Driscoll

Yeah, but we did come out of the pandemic, Harry.

Jason Lemkin

No, I'm with Jason, Harry, because I think that you can use that fear. I'm thinking of some companies where, genuinely, when you did references on them two years ago, you talked to the very few customers and they'd be like, “I'm buying this thing because I need to do something in AI.” You fast-forward to today, and they would say two years ago, “The product's not great.” You fast-forward to today, and the same people would say, “The product's improved a lot. I'm now getting real value from it.”

But they sold on the fear well ahead of the product. I'm always biting my tongue to think of companies and not name companies, but I have a couple in mind in the relevant professional services, white-collar spaces, where they've gone to finance, gone to legal, gone to folks like that, and it's been very airy-fairy at the start of GPT, but they got in the door, they told the big story, they sold the fear, and then over the last 2 or 3 years they've built the product.

It's different than Hopin, where the fundamental end demand died. If you seize ground but then the ground turns out to be waterlogged, you're toast. But if you seize the ground and it matters, then you win. I think there's an element of the AI fear story that has been real in the last year, and probably for another year or so.

Rory O'Driscoll

I do think people that have budget will spend a lot to not lose their jobs. So if you're that one app for the CRO, the CMO, the CCO, or the CFO—if they spend six figures on you, and the odds are that they won't lose their job—you will find budget. You will not only find budget out of the budget cycle, you will find budget this month. You will find six figures of budget if I buy you and I might not lose my job.

I'm just smelling this with CMOs and Clay. I'm just smelling this fear: I'm going to lose my job, and all I have to do is write a six-figure check, I'm all in. My budget's 5 million, 10 million in marketing this year. All I have to do is come up with 200K for Clay. Done. Send over the contract tonight.

Rory O'Driscoll

In the end, you have to deliver, and you've got to deliver the thing roughly that you said you were going to deliver, not something different. But it's a totally legit tactic at this point in the cycle, provided the product gets there in the end.

Jason Lemkin

Seriously, now I know we gotta wrap, but I can't tell you how many marketers, if they're honest, when I talk to them, are looking around and they're saying, “I don't know what my team's gonna be doing in 6 months. I just don't need this writer. With ChatGPT, with AI, I just don't need my team.”

And then everyone's looking for the AI wizard, the AI magician, and to the extent this person exists, they're going to work for a super-hot startup. That's the other fear with the CMO. They're going to work for Windsurf, and how is your B2B company growing 19% this year at 81 million in ARR? How are you gonna get the AI wizard, even in marketing, to come to your company? You know what? There's no chance, right?

So you need this Hail Mary to save your job, because my infographic person that needs a week to make an infographic, and then my product marketer that takes 30 days to turn around a brief for product marketing and it's terrible, you're looking at your team and you're like, “I don't even know what to do with these people anymore. I don't know what to do with them, so I'm gonna buy Clay.”

I'll tell you the one thing that is so far off is video. Video and AI capabilities around video editing, in particular for complex video, are so far off.

Jason Lemkin

Today. But Higgsfield is so good, man. My jaw drops with Higgsfield. Listen, I don't think you can produce 20VC with AI, don't get me wrong, and that's a good thing, right? But I don't even think there's a point in having a static marketing image after Higgsfield. I don't see a point.

I agree.

Rory O'Driscoll

It's so good.

Jason Lemkin

And I think within 2 years we'll still be at 20VC level for my video team.

Jason Lemkin

Yeah, you'll need it, right? But I think even when I look at Opus, where I invested, in some ways you can make fun of OpusClip because you'd be like, “Now everyone can do clips,” right? I mean, other folks do it, but OpusClip democratized clips, right?

Jason Lemkin

We tried it. They weren't nearly good enough for us.

Rory O'Driscoll

Well, fair enough. But I'll tell you what's interesting. I'll just give you one last thing to close on. The meta-problem is when everyone could use Opus, and everyone used Opus, and so then their 20VC clip gets even more valuable because it's so differentiated, right?

Interestingly, Opus has a feature that's coming out which, for you, is not valuable, but for me, now they will create a clips video and search all your video. I have 12 years of video. I'm gonna go off to SaaStr in 5 minutes. We're gonna produce 300 pieces of content. You think I can make a 1-hour video out of the best of all these speakers?

Now, for 20VC, worthless, okay? Worthless. But for a CMO that's still struggling to get their Zoom webinar working, that's a big change.

But it does not make my content more valuable, sadly, Jason. It actually makes it less valuable because it turns discovery into a massive fucking problem, because now we have infinite supply of content and discoverability is—

Jason Lemkin

Agreed. So sell into that. Make money out of this trend. If you're investing—

Fair enough. Fair enough.

Rory O'Driscoll

Make money out of the fear. Make money out of fear.

Jason Lemkin

The two ways to make money are: one, sell the tools so everyone can produce this content at scale; and then, back to your comment, Jason—“What do I do with my people?”—I do believe the marketing people who know how to use this stuff not only continue to have their jobs but become even more useful. Again, it's the same: you've got to be on the side—

Rory O'Driscoll

Indeed.

Jason Lemkin

—of using this shit and leaning into it. If you're resisting it, you're toast.

Rory O'Driscoll

You're right.

Jason Lemkin

Yeah.

Jason Lemkin

But the honest truth, maybe to break on, is that it's far fewer people than you can almost even talk about in public. So few people are on top—

Jason Lemkin

Well—

Rory O'Driscoll

—of what AI can do. They're just gonna hire agencies, and they're gonna lose their jobs.

Rory O'Driscoll

But now, now you're doing the Klarna thing again, dude. You're sliding—

Rory O'Driscoll

Yeah.

Jason Lemkin

—the scale to 100. I think the scale advances steadily at 5 or 10% a year, and yes, you're gonna need fewer people, you're gonna get more efficient. Maybe it's 20—

Jason Lemkin

A month. 5 or 10% a month.

But Harry still makes his stuff handcrafted with care in central London, so there. Trust me, I'm with Rory on that for video and for me. I love the balance that we have of the beautiful nuance of Rory, and then the binary US bravado of Jason. Coming together is just wonderful. And then me just sitting in between. Other than Coatue, where I just unleashed, guys, this was fantastic. Jason, good luck for SaaStr, dude.

Thank you. Thank you very much. Me and Rory are rooting for you. Yeah, it's gonna be a special one. Good luck.

Guest

All right. Well, we'll see you at the one in December in London. Christmas in London. We'll all do it the first week of December together.

Game on, baby.

Guest

Thanks, guys.

All right, talk to you later. Bye.

Take care. Bye.