20VC：为什么今天的VC比2021年更糟｜为什么如今Vertical SaaS是糟糕投资｜我们为何在增长预期上自欺欺人｜Revolut以30亿美元融资、750亿美元估值｜Benchmark迎来最新普通合伙人

Rory O'Driscoll

It looks like the easiest way to make money in 2025 is to take the very biggest companies and double down one more time.

Jason Lemkin

My gut tells me we're over-romanticizing verticals in the age of AI. We're going to hit the same TAM exhaustion, and it's going to be worse because expectations are so high.

Rory O'Driscoll

If any kind of deceleration happens because of any kind of saturation or slowdown, everyone's estimates on what's going to happen here are wrong. Reminder: in a bull market, the most aggressive person will look the smartest just before the crash, because the more risk you've taken, the more money you've made. Frankly, it feels tough today—as tough as it's ever been.

1. Benchmark Adds Everett Randall

Topic number one: Everett Randall joins Benchmark. Benchmark don't add partners very often. It's a big news announcement that he's joining. He joins Benchmark as their latest GP. He was with Kleiner and Founders Fund before. Rory, I always think of you with Benchmark because you quote a fantastic statement: “Reports of my death have been greatly exaggerated.” And I always think of Benchmark with this—with the portfolio and with great people like Everett.

Rory O'Driscoll

Totally. We were having that overall “Oh my God, the world is ending” conversation two months ago when a Benchmark partner opted to do his own thing. I remember saying exactly that. They're going to be totally fine. They have a great portfolio and a great tradition, and they did exactly what they always do.

I can just see it there. You make a list of top firms that have good young people, and you get on the phones. You say, “Who have we overlapped on a deal with?” And you go and hire someone talented from one of the adjacent golden firms, where the pitch is purely equal partner: “You should do this.” Mission accomplished. On they go. They're just fine, and Kleiner will be just fine. Mamoon and Ilya are wildly talented people. There won't be any shortage of people if they need to fill that slot.

Jason Lemkin

It reminded me of you, Harry.

Rory O'Driscoll

Yes, just like you, Harry.

Jason Lemkin

Obviously, he's wildly talented, right? Recruited by everybody. I don't know Everett, but he may be as ambitious as Harry, and no one wants to screw around. If you're ambitious today, you want to go fast, right? You want to go fast. Vista, Bond, Founders Fund, Kleiner, Benchmark—I mean, those are 5 good ones to get on your résumé in 8 years, aren't they?

Yes.

Jason Lemkin

No need to stop at anyone in the B tier.

Rory O'Driscoll

And that is probably part of the message: There's just a lot of change going on if you're ambitious, if you're young. Everything's moving at fast velocity. You're getting fast-velocity markups. You get to declare fast-velocity success. You take that fast velocity, and you want to rise up in the organization. You can just keep on moving up at a time when there's a lot of change, and there hasn't been as much change as this in the longest time.

I also know Benchmark are extremely generous in terms of backdated carry, and being brought into this carry pool for this fund with Fireworks AI, Mercor, Legora, Manus, and many others—that's a very attractive carry pool to be brought into.

Rory O'Driscoll

No, it's the Godfather offer I can't refuse moment. Good for all concerned. Capitalism is great. I was laughing, thinking about it while preparing for this meeting: “Oh my God, it's a wonderful deal.” And then you have to remember probably owning one-tenth, one-hundredth of what the best AI engineer is earning at Facebook/Meta, just to put all of us—including us—in our place.

It's funny. It used to be the best economic gig in tech, and now we have to remember, no matter how wildly successful we VCs are, there are people vesting $1 billion over 4 years at Facebook/Meta because they wisely did computer science and AI at school 10 years ago. The market for talent at the high end in these winner-take-all moments—the market for talent in every market, be it AI engineering or top-tier venture capital—it just becomes very heated. I was going to say “overall,” but that's a judgment. “Heated” is definitely true.

Well, let's play that out, Rory, because I could still argue that venture investors will end up better paid in carry. If you're at Thrive, GC, or Lightspeed—

Rory O'Driscoll

I disagree. If reports of the billion-dollar-plus package are true, very few people are going to make a $1 billion, 4-year-vested package in venture. So I actually argue with you, Harry. I don't think you can top that. Over 20 or 30 years, venture is a great career. You look like you want to disagree. Please, feel free to disagree.

Well, I think if you are one of the top 1 to 3 carry participants in one of the large mega-platforms, be it Andreessen, Thrive, or GC, I would argue that you will have more than that in distributions in the next few decades.

Rory O'Driscoll

Up until the last sentence, you were wrong, but you were making your case. You admitted the truth in the last sentence. All these amazing funds—and we hope to have amazing funds too—over 10 years, you're going to get a ton of money. From 2016 on, if you look at distributions in every one of these funds, congratulations: You own a shit ton of private stock that's worth a whole ton of money.

Whereas the comp package for restricted stock in Facebook is, “Congratulations: Over 4 years, you have fully liquid stock.” In terms of liquid-stock cash payment, it appears to be still the best gig on the planet right now.

How long was it before you guys got your first carry check?

2. Carry Checks Take Years

Rory O'Driscoll

The first carry check was relatively quick, but there was a 10- or 12-year period after that where it was very much the tail end of the 1999–2000 boom, and then there was a 10-year period of squat.

When markets go down 80% as the Nasdaq did, and then they stay down, IPOs are postponed, and you have a European waterfall, absolutely. Totally. Venture, as someone said to me years ago, is the get-rich-slow program, and there can be 10-year periods of non-payment.

Jason Lemkin

Brian Halligan this morning was quote-tweeting Benchmark about Benchmark One coming up on 20 years and how it was a great vintage and great wine’s age, or whatever it was. I’m like, “But I’m not sure I want to wait 20 years for my wine. I’d like a few sips tonight.” I do think it’s complicated, but my 2017 fund should hit 5X on paper by the end of this year, right?

But that’s a lot of years already. It could be 18. And listen, do you really want to sell your winners in today’s world? Of course you don’t, right? Hopefully, I’m not in a walker by the time I get my distributions from it.

That increasing period of privatization, as you mentioned there, ties in beautifully to Revolut’s $3 billion fundraise at $75 billion, up from $45 billion in 2024. It was massively oversubscribed. Everyone wanted this one, to be fair, in terms of the large institutional platforms. Private markets win again, and the public markets are delayed. How did you read this?

3. Revolut Tests The TAM

Rory O'Driscoll

The big-picture story is that it’s another round where the public markets have ceded that business to the private market, right? This company could clearly go public. It could have gone public years ago. It’s doing—what is it?—$3 billion in revenue last year, making $1 billion, growing at 60%. It could go public anytime it wants.

Jason Lemkin

I’ll tell you what it made me think about a little bit: it challenged one of my early tenets from many years ago, which is that the best founders figure out their TAM, right? A small market’s okay. They figure it out. They add layers to the onion. That’s absolutely true with the best founders, right?

I’m sure we could all come up with a story, but when I think about Revolut—and fintech has gone in and out of fashion since we all met, right?—it’s been hot and unhot, and then people don’t like the margins and this and that. But, man, the markets are big. This is my new heuristic: if I could, I would like to invest in startups that, at $100 million ARR, have 1% or less market share. 1% or less market share at $100 million. That’s what I would like.

And not even fake market share. If you look at the public markets in B2B, there’s almost no one except Palantir that’s having an easy time north of $1 billion. We can look at all of them, and there are even folks like Klaviyo that are crushing it and still trading at 6X north of $1 billion. I want to believe that founders will figure this TAM thing out, but now that we’re staying private longer and $1 billion doesn’t even count as an exit, right?

On Monday afternoon, it just counts as a few million bucks to buy the house in Woodside, per Rory’s earlier story. I’m much more worried about TAM than I was even 12 months ago. I’m much more worried about TAM exhaustion.

Rory O'Driscoll

Obviously, if the goal is to get to $1 billion in revenue before you go public, and our job is to get these companies public, then you need a bigger market than if the goal was $100 million. So I totally agree with you on TAM. I don’t agree with what it’s worth at the $100 million, 1% level.

I think the best deals—because if you go into a big, wide market where you quote, “Only need 1%,” you’re probably undifferentiated. I think the best wins are when you start with this small market and then, as you succeed, your addressable market expands.

So I would argue Revolut’s early market—and they might say that they only had a couple of percent of it—was not everyone banking; it was very much folks who were traveling and had a lot of FX needs. You pick this pointy little niche, you get traction in it, you get good margins, and then the beautiful thing is that, if it expands out, you find yourself able to address more and more customers.

Because if, from day 1, they’d gone after everyone in Europe for all banking options—all consumer banking options—I think they’d have gotten spread out. So I agree with you on the TAM, Jason. I just think the best of all things is when, as you grow up as a company, your TAM grows up as well.

Jason Lemkin

I’m with you. I just don’t believe it anymore in my heart. We believe that, but if the entry was at $25 million post-money and the exit was at $1 billion, it all works out, right? TAM exhaustion is someone else’s problem because you’ve distributed 24 months after the IPO.

Now I see TAM exhaustion across my portfolio, and I never used to. Even 18 months ago, I didn’t think about it. I see TAM exhaustion everywhere, and you’ve got to run so fast as a founder to keep ahead of it, faster than maybe we used to think. We used to have more time, Rory.

Rory O'Driscoll

I agree on TAM exhaustion. Almost all these high private-market bets, interestingly enough, even there you have a TAM question—not an exhausted-TAM question—because typically, when you’re paying $70 billion, you’re buying the winner in a space, right? You’re buying the undisputed winner, right? So for all these companies, you’re probably paying a premium in terms of revenue multiple.

So, in fact, in all these cases, you’re making some kind of “the TAM’s even bigger than you think” bet. It’s interesting you’re worried about it at your $25 million pre-round, but if you were writing the Revolut memo at $75 billion, you’d be writing the same question, which is, “How big can this thing get?”

Because, look, for context, Revolut has a $75 billion market cap. The biggest bank in England is at $110 billion, and then I think Barclays is at $60 billion. So you’re already as big as the biggest banks in the country you’re domiciled in. All these things are TAM bets at the kind of multiples people are paying.

I go exactly to your statement, though, which is that the founder determines the TAM that they grow into. Rory, you don’t know this, but I’m super close to Daniel at Spotify. I’m super close to Alex at Deel. I know Nik at Revolut very well. All of them have expanded TAMs sequentially over time, opened up new chapters in a way that has unlocked more and more enterprise value. The best founders unlock new TAMs.

Jason Lemkin

And I was thinking about that as well. You have Deel. I know they’re not directly competitive in every space, okay? But you’ve got Deel, Rippling, Gusto, and even ones that are much smaller and older, like Justworks. They’re all at 9 or 10 figures in revenue. My point is that all of them have to start as point solutions in most cases, right?

Yeah.

Jason Lemkin

Unless you take the Rippling version. But the notional TAM is huge. The best founders do it faster, right? They’re not stuck wherever Deel was in 2018. But the notional TAM was large when Deel was started, even if everybody didn’t see it.

Rory O'Driscoll

So, to pile onto Jason and be direct, I think you’re wrong.

You know why you think I’m wrong?

Rory O'Driscoll

Yes, and I’ll tell you why, to be clear, right? I actually think Jason said it well. You named 3 companies. I’ll just deal with the specifics of those companies: Spotify, Revolut, and Deel.

I think in all 3 cases it was pretty apparent that there was a potential very big market there. You have music consumption. That’s what they started with. That’s what they’re doing today. They expanded geographically, but that’s the story.

Second, Deel. Payroll is one of the biggest markets. We’ll talk about that in a second. Then Revolut: fintech, obviously, from day 1—a niche, big market.

So I think where you are correct, and I respect the founder comment, is that all 3 of those founders threaded the needle to go from the entry point to a much bigger space—to grab that TAM and think of it as closely adjacent empty space, right? That’s how I think about TAM: you have an initial small market and closely adjacent empty space.

To be clear, though, I never said that they didn’t start in big markets. I just said that they’ve unlocked more and more value where others wouldn’t commit.

Rory O'Driscoll

Yeah, yeah. But my point is, the implicit statement you’re making, which I’m specifically disagreeing with here, is that there are lots of people who have started in much more circumscribed markets, and no matter how amazing the founder is, there’s nothing they can do, right?

You were implicitly saying some version of, “They succeeded because they were great, and other people didn’t.” Again, this is me being a little pointed: I don’t believe that. I don’t believe entirely in the great-man theory. There are lots of thinly sliced SaaS markets that people invested in in 2017, 2018, 2019, and 2020, and you just ran out of space. You’re never going to be big.

Well, you mentioned some alternatives to Deel in the exact same market that have grown much more slowly.

Rory O'Driscoll

Agreed. But Harry, that’s the point. I agree with that statement, right? But the way I describe it is this: the addressable market determines the size of the prize, and the skill of the CEO determines who gets the prize.

But you can’t say that if you put the Spotify guy running workflow for back-office banking, he’s going to turn up and get a $100 billion market cap. You have to start with big, wide-open spaces. That’s my only point. I’m just being a little bit of a nerdy investor.

Then you can say, now, in each of those spaces, who won? Why did Spotify win? We looked at a bunch of the other music companies at the time. It was all very fun. I have a little arcane theory on why they won, but we can come to that.

Jason Lemkin

Yeah, I'd love to hear why you think they won.

Rory O'Driscoll

All the other music startups based in the US got strangled at birth by lawyers because it was all about intellectual property rights. Little Spotify got going in a bunch of European countries that, let's be frank, your average Big Five record label didn't really focus on. So they got a much more attractive licensing deal, while in the US all these guys were wrestling with shitty gross margins and litigation with the music companies.

They got critical mass early, built an excellent product, and then gradually increased their leverage versus the record companies. If you look at Pandora, it was always slugging it out because of the radio-type license. All the other subscription companies in the US always struggled to get access to the music because the record companies were such a pain in the ass.

I really love that Spotify has stuck it to the record companies. It's kind of 10 years-late revenge. But again, it was a combination of great execution and a little bit of serendipity that kept them away from the fray and helped them get critical mass.

4. AI Repeats TAM Exhaustion

Jason Lemkin

For what it's worth, I think in the age of AI, we're making the same mistake again in our euphoria. We're very excited. I mean, Replit and Lovable going from $0 to $250 million in 10 months, and a billion at the end of the next year—that's putting aside Anthropic and OpenAI.

There's so much froth, greed, and excitement, in good ways, that we're funding so many vertical AI plays that we magically think are massive. There's no one better than Brett Taylor out there, right? But we're funding Sierra at $50 million ARR and a $10 billion valuation, assuming that it will hit $10 billion ARR in 5 years or something.

I get the upside, and I get people's budgets turning to software. I'm already seeing it. We have 4 humans and 12 AI agents at SaaStr. But my gut tells me we're over-romanticizing verticals in the age of AI. We're going to hit the same TAM exhaustion, and it's going to be worse because expectations are so high.

That's my take on Revolut, Harry: TAM exhaustion. We're doing it again. We're doing it again in exuberance, and maybe it's fine. How many legal niche tools in AI do we really need? They can grow like a weed, but how many can achieve the velocity at a billion in ARR that we need on this 20-year journey to get these carry checks? The bar is so fucking high to accelerate at a billion.

I agree. I think legal is actually a very good case, though, because it's very enterprise, has very sticky revenues, and people don't change tools much.

5. The AI Adoption Trap

Jason Lemkin

A crappy TAM that only looks good today because everyone's in market. Here's a weird thing happening today in AI: it is blowing up our assumptions. In our greed and our rush to make money, we're ignoring something that's happening.

I just got back from Dreamforce. In a way, it was the conversation of everyone at the CIO level, and everyone's in market for the first time in forever. Listen, I've invested in legal and had a decent exit. It might be 5 or 10 years for someone to look at a tool, kick the tires, think about it, get nervous, and wonder if it's Windows 3.1-compatible.

Now, because of AI, everyone's being yelled at and told, "Go find a tool," and they're buying. They're coming up with $50,000, $100,000, or $150,000, and it's nothing to buy a tool. The fact that everyone's in market instead of 5% of the market, which is our traditional metric in B2B, is warping how we think about market size.

It's like 2020 all over again, when everyone was in market for a contact center, an e-signature tool, or a digital events tool like Hopin. Everyone was in market, and then they disappeared the next year. They're not going to be in market every year for an AI tool. This will be a window that will disappear.

Rory O'Driscoll

I think this is a huge point, Jason. Seriously, and you expressed it so crisply. It's been running around in my head, but that was just super clear.

If you think about SaaS, there was this 20-year period where it diffused gradually. Some people would be in market every year, and your companies grew pretty consistently. You could lean in on a 5- or 6-year growth rate.

What you're postulating here, and if it's true, it's going to be terrifying, is that because AI is on the front cover of literally every business magazine on the planet, everyone's in the market. So your signal as an investor on what's going on in 2023, 2024, and 2025 might be entirely wrong.

You're basically making the COVID mistake. When you looked at the growth rate for Zoom in 2021 and early 2022, what do you think was going to happen? There wasn't a human being on the planet who didn't have a Zoom account by late 2022, so the growth went to 10%.

I don't know if it happens like that here, but Jason, if any kind of deceleration happens because of saturation or a slowdown, everyone's estimates on what's going to happen here are wrong. The counterargument that Harry's just dying to make is the eat-the-work argument. But at the very least, you articulated the buried downside case extremely well there.

Jason Lemkin

That's why I bring up legal, because no one would touch legal for years because the TAM was too small, and all of a sudden we think it's huge. Don't get me wrong: people are going to make a ton of money here. There are markets that are utterly changed forever and will absorb massive capital.

But I think in B2B we're going to make more mistakes here than get them right, per Sam Altman's point. As investors, I think we're being delusional. We're running that late-2020, early-2021 playbook again and not realizing the impact of the fact that people aren't going to buy a legal AI tool every year. They're just not. They're exhausted.

Well, the comparison to COVID, I think, is not right. It was a temporary moment in time that did not sustain; it was not enduring. To apply the same logic here would be to expect that we won't have AI continuing to improve our productivity in the future, which I think we would all disagree with. So I don't think that is an apt analogy.

In terms of the huge TAM in legal, I don't think that's why we're all getting so excited. I think it's because of the structure of data in legal that makes it so relevant for this current set of AI technologies.

Guest 2

Hold on, just to step back: superficially, you're right. Listen, even before this week, I never would have said 2020—I don't even use the C-word—was anything like today. It was so weird when everyone suddenly needed a contact center. They needed to buy everything in a week because we were stuck at home.

At least the privileged were stuck at home. The real people still had to work and go make your coffee. But I don't think the analogy is all wrong. It wasn't a change to software; software was no better in 2021 than it was in 2015. That made no sense.

But the fact that everyone is in market is similar, and I think it's worth learning a few lessons for investing. We have to avoid confusing permanent changes with people briefly being in market for exogenous reasons. That's the only similarity, because software is radically better today.

It's an exogenous reason that every CIO's neck is on the line. Every CMO is told, "Bring in an AI tool or you're going to get fired." That will not last. It will not last. Deals will get harder because they're just going to get harder.

Are you not making the case for why it's so important to own a market very quickly, a la Harvey, then? They're all in market now; they won't be next year. You have to get it now because they are spending. They're all here now, and they won't be tomorrow.

You mean that kingmaker point you keep coming back to?

No, it's not even kingmaker. I think it is kingmaker, but I think, Harry, you're exactly right—that's the argument to make.

What you're saying is that what should have been a steady progression of company-by-company decisions over 5 to 7 years has been compressed into every company making a buying decision in the next 1 to 2 years, then rolling it out and sticking with it for the following 5. So you're right. Unfortunately, the game you have to play is that you have to be here now.

Showing up 2 years from now, when, taking Harvey's example, 90% of American law firms—the top 500 American law firms—will have made a decision, is just too late. So it's not that Jason is saying it's crazy to be doing it right now. He's simply saying you could over-extrapolate the growth now and think it's going to be like this for the next 5 years, when in fact what you might find is that everyone makes a decision and then you slow down quite a lot.

The business doesn't go away. It's not Hopin, to invoke a bad memory of your COVID days, Harry. But the top law firms have all made a decision, and now you're embarked on a 3-year, steady rollout. Maybe those growth rates go from the unprecedented 5X or 10X that you're seeing this year to a more prosaic 2X, 3X, or 4X, which is still damn amazing. But if you've leaned in too much on valuation, you might be over your skis. And if you've done the number 3, 4, or 5 player, you might be shit out of luck.

Jason Lemkin

Yeah, and it goes to Harry's point: if you've got a winner, lean in, because I don't think every law firm is going to be in market every year for the next 5 years. They're going to settle on whoever they bought. When it doesn't work, they might switch once, but it's exhausting to switch vendors. Business process change is huge. We're ignoring business process change.

One of the talks at Dreamforce this last week was about CEOs saying that onboarding business process change was the highest it's ever been in their lifetimes.

They didn't budget for the cost of onboarding these AI apps. They got the price of the vendor right, but the soft costs—the training, the onboarding, and the business process change—were the highest they've ever been in their lifetimes. They're not going to do that every year. And so we may go back to 5% being in market in 24 months instead of 100%. Just get it right in your venture models and get it right as founders. To Harry's point, run like hell because they won't be in market again.

But I do think that we have to acknowledge the difference between enterprise and consumer, because I think consumers will continuously be in market for new generative AI tools, be it videos, pictures, websites—you name it. That's a big difference. And Jason, how do you square that away, though, with your statement before, which I always remember, which was, you can see a future where you have so many more instances of Supabase and you need 10 times more? You just couldn't consume enough compute, combined with Benioff saying 0.1% of Salesforce has AI. What happens when 50% have it? How do you square away those 2 opposing views?

Jason Lemkin

I don't know that there's—it's a good question. I feel like I'm becoming one of those curmudgeons who says you should only invest in trillion-dollar markets. I'm agreeing with it because Amazon just went down in part—I mean, whether it was DNS or whatever—it was database contention with Dynamo, because so many folks needed databases, and Supabase hit Amazon issues because so many people need databases. So every single app in the world needs a database, and what's changing is that now folks might need 10 databases or 20 databases instead of 1.

It actually gets to the point where you should take more and more Supabase risk investing because the TAM is not only massive, but even bigger, and maybe do fewer vertical AI agents, where it's a small part of what ServiceTitan does, but it's amazing. But it also might increase the odds that your portfolio comes up snake eyes, because you're trying to do all the Supabases pre-revenue at $200 million, or throw the dice at them at $5,000 a month in revenue. You're going to have a high loss rate, too.

Rory O'Driscoll

No, I'm laughing. This is the longest we've ever gone without even actually starting on the agenda, so congratulations, everyone. I don't know if it's only trillion-dollar markets. I think what you've got to be very wary of—

Jason Lemkin

Trillion.

Sorry, trillion-dollar markets. I apologize. I think there are lots of different ways to play it. What it does speak to is, don't confuse 25% growth rates with long-term growth rates. Have a good handle on your TAM and, therefore, valuation.

The interesting style question, actually, I'm processing through, and we'll come to it now. There are probably lots of these good vertical markets where you can make money. There is going to be adoption. You're going to see $500 million to $800 million revenue companies. The question, per your point, is, in a world where you don't go public until then, how well do those investments do? How do you think about valuation for those companies versus valuation for a company like Revolut, which is de facto already public, and you're really just doing public investing at scale?

If this is 2020, and we are overestimating TAMs and adoption, and we go back to that, does this pop or does this deflate? Is there a—

Rory O'Driscoll

It's not 2020—I thought you said—it's not that it's 2020. I don't think Jason said that, so I'm going to defend him. I think he merely said that, when you're assessing trajectories, there have been instances recently, like 2020, where extrapolating from the last year was a mistake. If it's true in this case, it would be for very different reasons than 2020.

I don't know, but it could be that the rate of diffusion slows down. I think the markets—everyone may be in market to pick someone and then slow down for a year or 2 as process management adopts it. So it's not quite the same as 2020. It's kind of the “history doesn't repeat, it rhymes” comment. I think what Jason's saying is that if you take these growth rates and extrapolate them for the next 4 or 5 years, you could be catastrophically wrong on the growth rate. With your mental model of SaaS—you know, slight acceleration every year—you could be catastrophically wrong on growth rate. That's what I say. You look like you disagree.

No, I'm not. Honestly, it's my thoughtful face. I learn from both of you.

Well, that's why I didn't recognize it.

Jason Lemkin

The other related corollary, just for investing, is that this is the problem with being a solo GP: you only have so many people to talk through the thesis with. But I think that if you get an M&A offer as a founder or an investor—and the founders make the decisions; the VCs don't make the decisions—

Rory O'Driscoll

Yeah, we make no decisions.

Jason Lemkin

If your TAM isn't really accelerating, take it. This is my new learning to simplify all this stuff. Listen, if you get a great offer at $50 million ARR and you have 0.5% market share, don't take it. This is the classic Paul Graham advice: everyone regrets selling because the next year you're twice as big, and then you're 4 times as big. But that can happen even if you're hitting TAM exhaustion. You can still keep growing, but your value doesn't. The value stops increasing.

It's not all like Revolut, where every year you go from $40 billion to $70 billion to $140 billion to $280 billion. This is my new learning when there's an M&A offer: let's be honest, has our TAM grown faster than our revenue, and are we at tiny market-share penetration? And frankly, do what you want, but if your TAM isn't large and expanding, I'm too worried the odds are against you that you're going to hit a TAM ceiling. This is just my learning, so just sell.

VCs are going to lose 80% of their investments in AI B2B because they're ignoring these issues, and so be it. It's okay as long as 1 or 2 of them work out of 10, but they're going to lose so much money. We're hyper-funding niches once again, like we used to, because of this in-market thing. We're hyper-funding niches we shouldn't be, right? We just don't need that many legal apps or veterinarians that only treat cats. There's only so much demand.

As an investor in vertical SaaS and with many vertical SaaS providers, I'm going, “Hmm.”

Jason Lemkin

That's why I think about it, too. I've changed my mind. The stress at scale is so high now. You really need— You can say Toast is a vertical SaaS company, but it's the largest vertical there is in B2B: restaurants, right? It's the largest segment of SMB. Toast is $22 billion, so you're really going to be worth $220 billion or $440 billion? Maybe. But your vertical better be bigger than restaurants, and you know what? None of them are.

So you have to ask yourself, “Why will AI make me much better than Toast?” Otherwise, don't make the investment. And that's a tough question to answer at the partners' meeting, isn't it? Why will this be much bigger than Toast? For any vertical SaaS. There's no vertical—I don't know about over there in the UK, but I think they eat a lot of chips and a lot of— Maybe you should only invest in restaurant vertical SaaS, even though it's the worst vertical, too: the lowest TAMs, the highest churn. But at least you can make it up at scale.

I'm not torn on it because $22 billion is an incredible exit, but so is $2 billion, and $2 billion would return my funds several times over in certain cases.

Jason Lemkin

Yeah, but when you make that overinflated investment, sure, if you got in really early, it's one thing. But when you did the A at a $150 million valuation at $3 million ARR because everyone else wants to do it, Harry, and you're patting yourself on the back for beating out Sequoia, Accel, Stride, and all those guys, does the math pencil out on any of these deals? Is it really better than Toast, this vertical SaaS? I'm getting more worried as time goes by.

Rory O'Driscoll

That's the nuanced reply, which is, you look at these verticals and you go, “They're adding value. The product is better for the business customer than the prior version of SaaS. They're either making the customer experience better or replacing labor. There's a business here.”

Typically, what we're seeing is that in these verticals, it's a wedge product—maybe it's document recognition or a voice bot. And you can see, down the line, a story you can build. You have TAM expansion within that vertical as you just do more and more, and you take from that. And you go, “Are you building value every day?” You're damn right you are, right? And therefore, you're probably creating a valuable enterprise.

Money should be available to fund those. They're at the cutting edge. It's AI. It's not trailing-edge, plain-vanilla SaaS. You've got this vertical. You may have only a smaller number of competitors. You can build enterprise value here.

I think the 2 things you're saying are, 1, that's all very well, but if you go in at pre-money equal to your total TAM, you're never going to make a dime, right? And I think you're exactly right on that. Assuming that every market is as big as the biggest market is the fatal error.

And the other thing is, because the bar is so high for exit, right? As I said, there are really 2 games going on. There's the game of investing in companies at $1 million and trying to get them to $200 million or $300 million so they could go public. And frankly, that's the game that 30% of the dollars are playing.

Maybe the savvy money is playing a totally different game: these companies are already long past the point at which they can go public, but let’s do this winner-take-all, keep funding them in the private space. These little vertical companies aren’t going to become that.

You’ve got to say to yourself, “Are you making a perfectly good product for a perfectly sensible world that no one gives a shit about?” Because you’re not Revolut. It looks like the easiest way to make money in 2025 is to take the very biggest companies and double down one more time.

Guest 2

Here’s the bull case. When I started investing, I stole this from a slide someone did at Emergence. For a vertical SaaS or vertical B2B company that’s somewhat SMB, that’s basically an ERP. It does everything. It does payroll. It does the backend.

For the smallest customers, you want to get to $10,000 a year at least. It’s what they run their business on. Get 10,000 of those, and you’ve got a $100 million business. That proved to be true again and again and again; it’s just that $100 million isn’t enough today.

So the question with AI, with replacing humans with software, is whether those same 10,000 customers can spend $100,000. If they do, you may still slow down at $1 billion, and that’s the question that I think we’re going to have some wins on and some losses on.

Will people really spend $100,000—small businesses—on your same vertical agent software and those same 10,000 customers? We’ll find out. We will find out.

That’s where I think legal is attractive, though. We have this company, Solve Intelligence, that sells to IP law firms. Yeah, all of their contracts are over $100,000—several hundred grand in a lot of cases.

Jason Lemkin

But so are the vendors you’re competing with. So are LexisNexis and the others. It’s not 10 times larger. I’m not saying it’s not a great investment, and I’m not saying it’s not going to return to your fund, but it’s got to be 10X higher for the math to pencil out in venture today: the deal sizes, not just the number of folks in the market.

That’s where the confusion is. You could confuse the two: the number of folks in the market, and whether the deal size is 10X what it was 24 months ago. I think the Lovable and the Replit have massive deal sizes in a sense. It’s so much TAM extraction away from crappy agencies and vendors.

But if it’s just a little bit bigger deal size, we’re going to get crushed. I don’t know. That’s my simple math. Can you get $100,000 from a small business or $1 million from a midsize enterprise, like a law firm?

Will a plaintiff’s law firm that used to spend $100,000 or $200,000 on just a couple of pieces of software spend $1 million on your software because they don’t need humans anymore? If they do, it’s golden.

Rory O'Driscoll

Stepping back and giving the case for the defense, as it were: You have legal software, a horrible market for many years, because it was basically selling workflows to people who didn’t care. To be fair, LLMs manipulate words. That’s the core of what they do, and lawyers—it’s the most LLM-obvious market out there.

You can definitely make the case in all these verticals. We could talk about patent law, which is where you are. You can talk about Harvey in corporate law. You can talk about EvenUp in plaintiff litigation. You can definitely make the case that what came before is not predictive of what’s happened now from a technology perspective.

There’s something really exciting going on in law because of LLMs. I want to put that out there. It will change the practice of law, because at some level you have to be a techno-determinist. The technology that the world has invented—whether Sam Altman has invented it or whomever has invented it—is supremely good at ingesting, synthesizing, and spitting back out word concepts, and that’s what lawyers do.

If ever there’s an industry that could be automated and changed, it’s these guys. So that’s the case for a lot of these companies that can, in fact, scale. I don’t think the past is predictive in terms of the amount of dollars you can extract from these companies. I think it could be 10X, to your point.

But you are right in the sense that if you start slicing it—you take the overall lawyer count, and you slice it: how many are patent, how many are litigation—if the bar is $100 million or $200 million, I don’t think you hit TAM exhaustion. If the bar for an exit is $1 billion, then you could hit TAM exhaustion in some of these markets pretty quickly.

The ultimate return boils down to entry valuation and the healthiness of the exit market. Stepping back, you should be investing in the area where the technology’s having the greatest impact, which just means it totally makes sense that we’re looking at these spaces.

For me, there are 3 areas where I’d be investing if I had infinite sources of capital: the absolute winners in a space—your OpenAI, your Anthropic, the absolute anointed winners; your absolute winners with great economics, which are your Revoluts and your Deels of the world; and then your really early-stage companies. I think those are 3 great pillars.

What I don’t want to be doing is—respectfully, and I don’t mean this horribly, this is a different game—your Mira Murati’s at $2 billion at $10 billion. Your $300 million into Periodic Labs, where this is a huge amount of money into a still-questionable early asset. That’s where I’m like, “I don’t know.”

Rory O’Driscoll

It’s interesting that 2 out of the 3 Harry-chosen spaces are effectively post-public-eligible, anointed winners. It speaks to where the market overall is. Most of the dollars are going there.

What you’re saying, Harry, is that one-third of your money you’d like to do venture capital with, and with two-thirds of your money you’d like to do public-style investing with a 2-and-20 comp structure because they’re still private. I think you’re exactly right. The market seems to agree with you that that’s a good way to make money.

There we go. We mentioned the anointed winners there. I’m loving this conversation. OpenAI have said that they will potentially spend more with Oracle than with Microsoft. I find the OpenAI-Microsoft relationship fascinating in how it’s developing.

How did you guys read OpenAI spending more with Oracle than Microsoft, and what does it mean for the power dynamics in that relationship?

Rory O’Driscoll

I think Microsoft didn’t want to spend money in an economically irrational way, and Oracle wanted to be in the game. OpenAI seems to be extraordinarily good at divining other people’s needs, wants, and desires and taking advantage of them.

On Microsoft’s side, when all is said and done, the shareholders should award medals to Satya, their CFO, and their GC, and they should hire someone else to do their technology because they haven’t shipped. They’ve cut a brilliant deal with OpenAI, and now they’re gradually stepping back as the hype comes in, saying, “We’re just not going to make economically irrational investments.” So I think they’re smart.

Jason Lemkin

Obviously, in the end, OpenAI needed much more capital than they thought when they started. Microsoft bailed them out by buying 49% of the company. Now they need much more capital than Microsoft thought—probably 2 orders of magnitude more than Microsoft’s high-end model of how much capital OpenAI required.

So Microsoft, by de-risking it—in essence, spinning it out for 30% ownership of what they get but not having to fund it—is getting in the folks that can tolerate a much lower margin and can somehow get a market benefit out of this in Oracle. It’s kind of crazy that Oracle comes out of here and replaces Microsoft, but Microsoft also gets out of what might have been an awkward situation.

If they were somehow stuck funding their subsidiary, that might be more than nickels and dimes if they had to fund OpenAI for eternity.

You said something about economic rationality and Oracle stepping in and being that capital provider in a lot of ways. Their debt-to-equity ratio is now 4.6X. It’s high. Is Oracle out over its skis, or am I being overly cautious?

Rory O’Driscoll

We said 2 weeks ago that we thought they were over their skis, and since then the stock’s down, so I think we can claim an attaboy on that one. Look, you’ll only know when they play the game.

If the demand for AI compute is as high as OpenAI appears to think and Oracle appears to think, and they can bring this investment in on time, then they will be rewarded with a perfectly good business at decent growth margins—not as bad as they currently are, because I think there are some startup costs. So it will have paid off, and their current market cap will be validated.

I just look at the risk-return profile and say it’s no accident that Microsoft said, “That’s an interesting risk-return profile, but I don’t need that bet,” and Oracle said, “I’m a wannabe in this space. I’ll take it.”

One of the interesting things, going back to what I said, is that I saw a dumb tweet that was like, “Oh, OpenAI’s going to go bust,” because you had the whole capacity issue—AI isn’t going to get those quickly—and a really dumb OpenAI is going to be in trouble. No, they’re not. They’ve brilliantly palmed off all the risk on everyone else.

If you step back—and we’re going to talk about Poolside in a second—OpenAI said, “Yeah, we, OpenAI, need gigawatts and gigawatts of data centers. We need gazillions of chips. We need all this stuff. You all should do it.”

Go team. And yeah, we’ll sign commitments, and if we need them, we’ll actually pay you, shock horror, one fine day with money we don’t yet have. But they’re not taking on huge amounts of leverage. They’re not taking on huge amounts of building. They’re just like, “We’re in the market to buy this stuff. You should invest on our behalf.” It’s brilliant.

They’ve offloaded a lot of the balance-sheet risk to everyone else, and all these other people seem to be happily taking it on right now. We’ll see. That strikes me as a lot of risk to take, especially when, in the end, if it all works, OpenAI gets the upside.

Your best case is you’re the commodity compute provider to someone who is very rational and going to be able to grind you down at scale. Your worst case is you put billions of dollars into fixed assets that aren’t going to return. So I think, again, the OpenAI corporate development deal-making machine is second to none. They have a ruthless instinct for weakness and take advantage of other people.

Totally agree with you. I’m pleased you mentioned Poolside there, and I do want to go to it now, actually, because it is a super-relevant one tied to that. On the vertical-ownership side, Poolside announced that it was building its own 2-gigawatt AI center, which is a big announcement.

Poolside has not released a product to the public. They have customers and they do have usage, but they haven’t officially launched a product to the public. For those who don’t know, how would you describe it, Rory—or Jason?

Rory O’Driscoll

They’re building a core LLM to do enterprise-focused coding and software development, some version of that, and providing an entire runtime environment for these models. It’s a big enterprise idea.

Without knowing the traction, stepping back, if they’re right or if they’re wrong, either way, it’s terrifying, because the conclusion they’re basically saying—and they’re very smart people—is that in order to compete at the software layer, you have to not only build your own LLM, but now, goddamn it, you have to build your own data center. What they’re basically saying is that this game you thought was a software game is now a fixed-asset-at-scale game.

They’re not doing it because they’re saying, “Hey, I’d really love to own a data center, because nothing’s as fun as fixed assets.” They’re presumably doing it because they can see no other way of doing it. What that means is these smart people have concluded that’s what it takes to win in this space. I don’t know if I agree, but I haven’t looked at the specifics.

But again, if they’re right—if they’re 100% smart and 100% right—does that mean all the other companies trying to build models have to do the same thing? Is there a conclusion here for the capital intensity of, say, superintelligence, or for the capital intensity of thinking machines? Do you really have to own your own damn data center if you want to build an LLM? It’s an interesting and big-ass conclusion, right?

I looked it up, and it’s not even like they’re doing the Altman thing of having someone else build it. They’re partnering with CoreWeave. Part of the documents I read said that the Poolside center was going to be developed, but I might have guessed it would have been one of those build-to-lease arrangements.

You know the way big corporations often do a build-to-lease, where they say, “I’m a software company. Mr. Developer, build this building and I’ll lease it from you for 10 years”? I might have thought they’d have said to CoreWeave, “Mr. Data Center Guy, build this data center and I’ll lease it from you.” But in fact, they’re actually stepping up and being the prime on it.

I think it’s a big escalation in capital intensity. I think they must have been driven to that not by choice, but by necessity, and it just speaks to how the business of playing in this space has become even more and more high-stakes.

Jason Green

But what is clear is the competition’s gone way up over that time, right? The competition—from Claude Code to GPT-5 Codex to whatever else is out there now—has increased dramatically. No one wants to manage a massive data center, but there’s no way to achieve their goals otherwise.

Rory, I think I got it wrong. It’s not about cost, right? There’s no way they can do this cheaper. It’s not about cost. It’s about the fact that the bar has gone up to compete with horizontal applications, and it’s just much, much, much bigger than when they started this journey.

Rory O’Driscoll

Just think how different the economic intensity here is. If someone came in to you when you’re building a SaaS app and said, “I’m building this great SaaS app, but by the way, we’re not going to use AWS. We’re going to need our own infrastructure layer,” you’d say, “Hmm, that’s interesting.”

And then they said, “Oh, and by the way, we’re not even going to use someone else’s data center. We’re going to build our own data center, right? And we’re going to do all this so we can have really great self—” You’d be like, “Get out of my office.” But that’s where we are in this market.

Jason Green

It’s good to sneak some of these things up on your VCs, isn’t it? You don’t want to scare them on the first or second check with things like this.

Rory O’Driscoll

And it’s a cynical comment, Jason, but you’re exactly right. What’s happened here is the boiled frog of capital intensity. I think this, again—I’m going to say it—is where OpenAI and maybe Google have made it a game of capital intensity, where they’re clearly winning, right? It’s making it harder and harder for people to emerge and compete.

Again, I don’t know what level of compute they felt they needed, and therefore what they had to do. But again, I repeat what I’m saying: assuming smart people making intelligent decisions based on the facts they have today, it’s a terrifying conclusion about capital intensity for people who want to play in this space.

You’re right. You said it: it sneaks up on you as a VC. You think you’re in a business that needs $500 million to cash-flow breakeven, and suddenly you’re in a business that needs $5 billion to cash-flow breakeven, and you own bulldozers digging a hole somewhere in Texas. Oh my God, what the fuck just happened?

I was actually one of the first investors. I don’t know if you guys knew this. I invested in Iso, the founder of Poolside, in his previous business, which pivoted into Poolside, so I was very luckily rolled into the first round, which is great. I’m very grateful for it. It’s like a 50x. Thank you, Iso.

I’m just trying to understand the rationale for all the providers who are building models. What do you think Poolside are seeing that they are not?

Rory O’Driscoll

I’m going to make a really pointy distinction here. You used the word “rationality.” Let’s agree that the word “rationale” is not the same as the word “rationality.” Rationale is why you think you’re doing this. Rationality is whether you’re right, right?

I think the rationale is pretty clear here: “Oh my God, I need this compute,” right? That’s the rationale, and we’ll know in 5 years whether that was rational or not.

That’s very helpful. Thank you for that English lesson.

Rory O’Driscoll

It wasn’t actually meant to be snarky, though I can see why you often think I am. It was just really trying to distinguish carefully between why you think you’re doing something—which can make a ton of sense on the day, given the assumptions—and whether, in fact, you’re correct in the end.

But, “Oh my gosh, I need the compute,” when no one else who is building their own models shares that opinion.

Rory O’Driscoll

Well, OpenAI does, and Anthropic—I mean, they need access to the compute. It may well be that what you’re seeing here is that, because OpenAI and Anthropic, for all their faults, along with the hyperscalers, have sucked up all the capacity, it may be as simple as these guys realizing, “I need X gigawatts of data center capacity, and I just can’t buy it today. So if I can’t buy it, I’ve got to build it.”

Literally, it speaks to how all this CapEx is sucking up all the capacity there. Even though, going back to the now versus the future, I might be skeptical of the ultimate return on this marginal CapEx—and I could be right or wrong on that; you’ll know in 5 years—it is probably an objective fact today that if you woke up and were trying to build your business and needed that scale of compute, you simply couldn’t get it.

You’d ring CoreWeave and they’d say, “Look, I promised $22 billion to OpenAI, I promised $10 billion to Anthropic, I promised $5 billion to Microsoft. I’ve got nothing for you.” Then you’re left going, “I either give up my dream and say I can’t do this, or I can’t put my company on pause until 2027, when I think all this shit is cheaper. So I’ve got to play the game now.” And they said, “In that case, I’ve got to go build it.”

I can totally see how you get to that point, which is different from saying you won’t regret it in 2 years. I assume they’re doing it because they rang and said, “Will you sell me 2 gigawatts of data center capacity?” They couldn’t find anyone to sell it to them at scale, because it’s all been taken up by people with bigger balance sheets.

It also, to me, indicates their expectations about their future ability to fundraise. It is a bet-the-boats decision to make this permanent investment. They clearly think they’ll be able to raise a huge amount more.

Jason Green

Well, they probably didn’t expect this when they started. I’m sure their slides looked great, but deep down, I don’t think they thought Claude Code would be at $1 billion, that Cursor would be at $1 billion, and that Replit would be coming up on $1 billion.

I think they believed the notional TAM was huge. I just don't think they thought we'd be in the billions of revenue already. And so now, going to Rory's point, there's probably no other way to get 40,000 NVIDIA GPUs. It's just not possible otherwise, because you're not the leader. But going to your point, it's probably fundable today because this is much bigger than they probably thought it would be. They knew they would be huge; they just probably didn't think it would be this big in Q4 of 2025. And so now they can raise $5 billion or $10 billion—I don't know, whatever the number is—which was probably impossible when they started.

Rory O’Driscoll

The thing is, everyone's aspirations and their risk appetite have been walked up. You're exactly right. No one had a plan back in 2016 for OpenAI, or in 2022 or 2023 for these, to say, “I'm going to need $5 billion to even play.” You think you'd get there on 50; you think you'd get there on 500. The stakes have gone up. The signal is strong because the returns are there in terms of market adoption, and everyone's risk appetite increased.

Now, at some point, could that perspective change, and would that be pretty painful? Yeah, but that's how every boom goes. That's what it feels like when you're trying to buy memory chips, when there's a memory chip shortage, and you've got no choice but to sign up with 5 different distributors and commit to buying them because you can't get any capacity. Then one fine day, capacity comes online, demand diminishes slightly, and, oh my God, these things go down 25% or 30% in value. That's what the boom-and-bust cycle is like. At some point, that'll happen here.

6. The AI Boom Bust Cycle

It's really interesting that the boom-and-bust cycle makes me think of a bubble, and I was looking at definitions of a bubble last night because I have far too much free time on my hands. It really was 2 things. One is a more-than-proportionate drop in the value of assets, with “more than proportionate” being more than 20%. And the second is productive capital leaving a market for more than 3 years.

Rory O’Driscoll

And that's a bust, to be clear. That's not the bubble definition; that's the bust definition.

That's a bust definition. And I thought, “Wow, that's not where we are today.” We will not have productive capital leave AI and data centers for more than 3 years. And so everyone who's like, “Oh, we're in an AI bubble, we're in an AI bubble, and it's going to bust,” I don't think so, because if we're in a bubble and you're anticipating the bust, you're suggesting that those 2 elements will happen.

Rory O’Driscoll

No, I don't buy any of that. I think your description of a bust is actually correct. That's what it feels like on the downturn, which is different from saying it's going to happen. I think it might, but the definition is correct.

If it goes wrong—let's go with the if—I don't think it will be because none of this stuff works. It'll just be that, oh my God, to Jason's point, we overextrapolated on 1 year's adoption and we thought everyone's going to buy this in 3 years and we're going to need X gazillion dollars of capacity. It turns out that growth next year slows more than we thought. It's still a dominant long-term trend, but the diffusion of this technology is going to take 10 years, not 2, and we've overinvested in capacity.

The marginal player cuts back on their purchases, and then pretty soon, instead of having a shortage of data center capacity, you have a mild glut. Then the price goes down, and that's how it unravels. That's what happened in the bandwidth bust. It was a boom from 1996 probably until 1999 or 2000. And then there were 5 years where no one invested in more bandwidth, because you wouldn't. Because once there are existing assets available for sale at less than the price it takes to build new assets, then no one actually builds new shit, right?

And you could imagine—I'm not saying it's going to happen yet—the way it goes wrong is if people don't need the marginal data center that they built for $2 billion, they have to sell it. And if the only offer is $1 billion, that's what they take. And if that's the case, no one is going to build another data center for $2 billion. That's what the unraveling would look like. Now, separate question: is it going to happen?

Is it going to happen?

Rory O’Driscoll

Of course, because if I had certainty on that, do you think I'd be wasting my time talking to you, Harry? I'd be trading as we speak, right? I mean, it's super hard to call the time. I find it almost inevitable that at some point you will overinvest because that's the nature of the beast.

Jason Green

I'm making an investment this week, a B2B AI investment. It's early, but it uses more inference than anything I've invested in yet. And, in fact, what they want to do soon is use 24/7 inference to run massive amounts of compute for a relatively common B2B use case, 24/7.

And so there's work to be done. They can't afford it; you can't afford it, right? But it's a sign of the future that smart folks are going to figure out already how to use 1,000 times more inference and compute than we're using today. Because instead of running a little one-off thing, or even using Lovable for an hour and then letting the servers with no load go, this is 24 hours a day, 7 days a week, 365 days a year, running like 20 different passes through the Claude API, wanting to go as quickly as possible.

We're going to have more apps like that at all levels. That's 3 orders of magnitude more inference than you really want to use today. And if it were available today cost-effectively, they would consume all of it. They would consume all of it today if they could. They have demand from their end customers.

Rory O’Driscoll

Yeah. And that was a key sentence: cost-effectively. At today's price, they probably can't afford to do that all the time, and the bet you're taking is that as price comes down, that will get used up, correct?

Jason Lemkin

Historically, folks have gotten smart at this, right? An early bet I made was a company called OpusClip, which Harry knows, right?

David Sacks

Mm-hmm.

David Friedberg

They made clips from videos. The truth is, it didn't need as much compute as you thought, but they got really good at it. For example, in the early days, they'd only show you the first couple of clips, and you'd have to request the rest because there was no point in giving you 30 clips when the 30th was never as good as the first one. And they got better at a million things.

Now we're at the stage—I don't know. If you're running massive inference constantly, it's not that simple, but it does augur well for the build-out. Forget about where the apps are; we've just started in the amount of inference these apps can use.

Maybe the next legal app, the next Harvey—or maybe Harvey does this—shouldn't just do what you want on demand, 24 hours a day. It should be figuring out what you want, and you wake up in the morning and it's done all your legal work for you all night long.

If you believe that, should we not just be plowing money into NVIDIA?

David Friedberg

Yes. I mean, it's where we all are. It's all of our 401(k)s. We're already deep. All of our QQQ and 401(k) holdings are already long NVIDIA. It just depends on how much more you want to concentrate.

Rory O'Driscoll

I think one-dimensional sentences aren't useful, right? Because a couple of things. One is, almost inevitably, with a trend this amazing and impressive as the technology of AI, with something that powerful in terms of a powerful economic impact, you will get overinvestment because it's just the nature of the beast. People will keep leaning in until it hurts.

So at some point, it's inevitable that people will find themselves overextended and there will be a retrenchment, because that's just the way markets work. If it works at 10× growth, go 20. If it works at 20, go 30. And the only thing that stops you doing it is when it hurts. So of course there's going to be a correction. Sitting here and going, “Is there going to be a correction sometime?” isn't that useful.

The challenge you all face as investors—we all face as investors—is you can't sit it out and say, “I'm going to wait for the crash.” That's not a useful thing. How do you make sure you're there to take the upside and still be survivable when the shakeout comes? So it's not a one-dimensional comment. It's not, “Is there a crash?” Yes or no.

It's more a question of: you want to take all the advantage of this amazing technology, but you want to run your business, time your investments, and do temporal diversification such that, at any point in time—and you don't know when—the whole market is going to find itself overextended. You can survive that overextension and lean into the trend afterwards.

Jason Lemkin

But no one's doing temporal diversification now, are they? Everyone's just raising a fund every 18 to 24 months. There's no temporal diversification.

Rory O'Driscoll

Temporal diversification is one of those things you probably, early on in the cycle, will regret doing because you want to get as much as you can, and then later on in the cycle you regret not doing it because you get caught. But yes, that's what you see. You see, just like in 2021, temporal diversification compresses, people get greedy, and then they regret it.

Salesforce has invested $850 million of its new $1 billion AI fund, and I was with one of the largest foundations yesterday, and they were like, “Honestly, we're back to 18-month cycles, Harry.”

David Sacks

We love that you’re three years, but you’re the only one, dude. Eighteen months is where we’re at, okay?

Jason Lemkin

Yeah. The diversification is having 3 funds, and if 1 of them is negative, the other 2 make up for it. It’s another way to get your diversification: just do 3 funds, right? If you’ve got a 5X, a 3X, and a 1X, what do those average up to? 3X?

And for the record, it depends massively on the relative size of the funds—

Jason Lemkin

No, I know. But I do think that’s what we’re having, right? I do think that’s what we were doing. You can’t get diversification in 18 months from temporal diversification. You can go from ChatGPT-4 to 5 in 1 fund. That’s the diversification we’re getting. We’re getting 1 or 2 LLMs.

Rory O'Driscoll

Again, in a bull market, the most aggressive person will look the smartest just before the crash because the more risk you’ve taken, the more money you’ve made. Then that same person is going to get hurt the most on the downside. So if you actually think about it logically, the correct algorithm you’re trying to figure out is: How aggressive can I be to be 1 step below the level of aggression that blows up in my face in the crash, such that I can power through?

We talked about this in the context of ’21. The most aggressive funds really hit acute problems, but some funds that were aggressive took a little licking, got a lot of the upside, a little bit of the downside, and kept on rolling. What you want to do is be aggressive enough to be relevant and make all the coin you can in the boom without, at the same time, getting caught over your skis and getting shot in the downturn. That’s why it’s a 2-dimensional problem, not a 1-dimensional one. Where do you come out in that?

Jason Calacanis

I just don’t know if today we care about any of this stuff anymore. I don’t know if we care about fund diversification or risk profiles or any of this stuff. It’s just go, go, go in the age of AI, and even if LPs are concerned, they’re still funding the leaders.

Rory O'Driscoll

All these little things and nuances about how people’s motivations happen, but at some level, in the end, the capital will get allocated rationally over the long term. It’s just going to take a long time, and my guess is, over the long term, it will be interesting to see how capital allocations to venture trend over the medium term.

It takes a long time to get there. If you’re funding people moving really quickly, if you’re not getting the returns, if you’re not getting the time diversification, in the end, the numbers will tell. All the endowments report their numbers each year at the end of June, and you can see the strategies that are working.

One of the things that gnaws at me, including us, is that the truth is, venture returns over the last 5 years have been massively lower than the public-market returns. At some point, you will see pressure because of that, and the infinite spigot of venture capital is going to get impacted. If this AI boom doesn’t come good, the infinite spigot of venture capital is going to get impacted.

1 level up from all the relationships you decided to have, there’s someone sitting there going, “I just have a spreadsheet, and I just have the last 5 years for the S&P, and you’re illiquid. I need 300 or 400 basis points more than that, minimum, to do this, and we’re not getting it. So why am I? Maybe we should just do less of this this year.” That’s, in the end, how things get normalized.

Jason Calacanis

And it takes a lot of energy to do venture. There are smaller checks. There are a lot of managers. You need a team, right? You sure better achieve that because there’s a lot more cognitive overhead than sticking it in the public markets and a little bit of T-bills.

Yeah. You’ve got to earn more. You’ve got to earn your worth.

Jason Lemkin

When I got into venture, I just didn’t really understand the soft costs involved. There’s so much manager selection. There’s manager turnover. Unless you’re doing a Yale model or others, it’s a relatively small amount of your portfolio for the soft costs involved.

If you’re putting 5% of your assets into venture to get a little alpha, is it really worth meeting with 100 managers, flying to London, and having Harry reschedule the pod for his LP AGM? Unless you want to be—unless that’s your job, going where Harry started—it better be worth it, right? For a small amount of your portfolio.

Rory O'Driscoll

Look, the truth is, the Cambridge pooled 30-year return says you get exactly what economic rationality would assume you get, which is around 600 basis points on a pooled return, not a median return, above small-cap. That’s worth doing. Venture is worth doing in aggregate over time. That’s what the facts say, and that’s what economic theory would say.

What’s also true is that it’s massively cyclical, and you have periods of massive overfunding on euphoria, massive underfunding on depression, and riding those is brain-dead hard. We’re just in 1 of those euphoric periods now.

Jason Lemkin

When was the underfunded part? The first 2 weeks of March 2020? I don’t remember the underfunded part of venture.

Rory O'Driscoll

The underfunded period was really from—

Jason Lemkin

There were about 2 weeks when it was underfunded.

Rory O'Driscoll

Yeah, the problem is your time periods are wrong. I can remember 2 vast underfunded periods, each of which were from about ’87 to—

David Sacks

1963.

Jason Calacanis

This was Arthur Rock and Arthur Patterson.

No. Hang on, guys. No, but the point is this: There’s something going on here that’s actually worthy of pointing out. If you’re in a business with 10- or 15-year cycles, you just have to internalize that you have to have a 30-year span to talk about cycles, right?

I’m actually right when I’m saying the big underfunded cycles after the PC boom, from about ’87 to ’93, ’94, and ’95, were massively underfunded, and the internet kicked off in that period of time. Then the money roared in. By ’96, it was boom time. By ’99, it all went wrong.

After ’99, the money went out, but it took 10 years to go back out. From about 2000 to 2010, the funding rate went steadily down, but it takes 10 years to unwind bad decisions. By 2010, we were massively underfunded, and then, obviously, those survivors were able to make compelling returns. More money rushed in.

The interesting thing about the last 15 years is that it’s been a 15-year cycle, not a 10-year cycle, because the equity markets have been so forgiving. At some point, that turns. In the context of anyone playing this business from 2010 on, there has never been a period of longer than 1 year where there’s been a substantive correction or a curtailment of capital. The only year would have been 2022 or 2023-ish, and God bless ChatGPT, it ended that.

It’s a very different vibe when you’re dealing with year after year of just grind. We haven’t been through that. Please, God, we won’t, but that’s what it looks like.

Harry, 30 years. When did you enjoy it the most?

Rory O'Driscoll

Tomorrow.

Jason Calacanis

That’s a good answer.

Rory O'Driscoll

I enjoy it most of the time. It’s a good question. I think that—

But is there a period where you were like, “That was a golden day”?

Rory O'Driscoll

The good question you can ask is: When was it very clearly very attractive to invest? In 2010. Sometimes it’s a great time to buy. Sometimes it’s a great time to sell. Very rarely is it a great time to do both.

You’ve got to enjoy the process, not the outcomes, because the outcomes are outside your control. I can’t answer the question, “When did you enjoy it?” I can answer when it was a great time to invest and when it’s been a tough time to invest, right?

It was a great time from 2010 to 2015. It was tough in ’21. Frankly, it feels tough today, as tough as it’s ever been, because the good news is stuff is working, but there’s a lot of variance, a huge amount of capital, and it feels like you’re way out there on the risk curve, as we said.

You can enjoy the entrepreneurs. You can enjoy the excitement of all the new technologies. But when you’re writing checks, you’re like, “Wow, it’s sobering, the risk you have to take here to play.”

Do you agree with that, Jason, it being harder than ever?

Jason Calacanis

No, I think this is the easiest ever.

Oh, wow.

I love that. I wasn’t thinking—

Jason Lemkin

Yeah, because there are so many entrepreneurs. Change is when you make money in venture. There’s so much change. There are so many great entrepreneurs, and we don’t have to worry about gross margins, which really makes investing in B2B easier.

LPs, even though they’re conservative, are still pressuring you to go, go, go. This is the easiest time to invest. It may not be the easiest time to make returns, necessarily, but it’s the easiest time to have a checkbook and to feel smart about yourself.

I was literally talking with Claude the other day about how much money I’m going to make investing today, and it said, “You should assume a 40% to 50% lower fund.” It said, “You might end up with only a 2X to 3X fund, and it’s okay. That’s the moment in time.”

This is just Claude. We were comparing. I had it upload all the analysis and said, “Your last one’s going to do really well, but look at your entry points and ownerships,” right? That may all happen, but I feel privileged to be part of this moment in time.

I’m just worried about the entry points, ownerships, and gross margins. The rest is great.

Rory O'Driscoll

Typically, in investing, when you’re most happy, you’re probably less likely to make money, and it’s a great time to be doing the activity of investing, meeting these wild entrepreneurs.

David Sacks

But the problem is, the euphoria can often be an angst-lit concern about return. That’s all.

7. OpenAI Enters Adult Content

I do want to do one final one, which is very entertaining, I think: OpenAI to allow erotica. Sam Altman has sat in a room and gone, “Yeah, generative AI erotica—we’re allowing it.” It is the largest use case for Grok in their image and video generation: erotic creation.

Rory O'Driscoll

I believe that. It’s funny. I remember back in 2022, even before ChatGPT, we looked at a company—I won’t name it—that was doing an online role-playing game. They’d started off with OpenAI as their LLM provider, and they told me they actually had to switch off because it turned out the demand in the role-playing game was for conversations that OpenAI at that point was not willing to support. But another LLM provider, who shall remain nameless, was very happy to support.

We ultimately didn’t do the deal, but that’s typically what you see. We saw the same thing in early social networking too, which is that there’s a genre that wants that kind of product. So I get it. Then the question, from a business perspective—not so much from a moral perspective, but from a business perspective—is how much of that you want to support?

It’s been interesting. Even a lot of social media companies have wrestled with various forms of content moderation, and they might find, “Yeah, they’ll do that for a while.” But once they become an ad platform at scale, they might decide that’s not something they want to do.

The demand is inevitable. Human beings like to talk about sex. Shock horror. The question is, which businesses meet that demand, and how? So we’ll see.

Jason Lemkin

Well, look, two things. One, at a high level, I haven’t done any OpenAI erotica. I’m not opposed. I should’ve done the research for this. No joke, right? But I suspect it’s great because I’d love to—

If we had a little more time, I’d—well, maybe we do have time. I’ll ask both of you what your ChatGPT moment was when you knew it was good. The moment for me was when DeepSeek came out, and everyone was talking about it. It wasn’t even that long ago.

I went into DeepSeek to get a sense, and I asked, “What happened in The Sopranos after it went dark, after the last episode?” It was so good. It wrote the next episode of a TV show that didn’t happen, and its ability to use LLMs, transformers, and GPUs—it doesn’t have to be 100% right, does it? It just had to be great.

Then I went to Claude, which I had low faith in before, and then I went to ChatGPT, and they all wrote me a great ending to what happened after The Sopranos got dark. My jaw dropped, and then I became a convert.

So I’m sure it makes great erotica because you’re just taking all the erotica of all time, adding a little bit of faux creativity, and you could be on it all day. It does worry me. Again, I pay close attention to everything Sam says because I know it’s bigger than what he’s saying, right? He did walk this back a little bit on Twitter. He said, “I didn’t mean it to be as big a deal as it was.”

But I think he’s saying we’re pushing the boundaries now. We want more adult—we want to let people have less adult supervision. I don’t think that Anthropic are the good guys and OpenAI are the bad guys, or any of that phony baloney, but this one worries me. This one worries me.

Just like in the beginning, to get these off the ground, we had to trample copyrights and destroy everyone’s IP rights. All of my IP is stolen. Everything I’ve written, all my videos were taken without my consent. Crossing the line on what’s right or wrong as AI gets better and better worries me. It really does worry me, and I think we shouldn’t cross these lines. We shouldn’t cross these moral lines.

Is it crossing a line to have an erotic AI partner?

Jason Lemkin

No, but crossing the line of what type of interactions you have with AI might—it does worry me. A lot of things that are adult and frightening worry me. It just worries me. AI is too powerful.

Rory O'Driscoll

To give a contrast, is it worse than a racist ChatGPT or a fascist ChatGPT? This is the tricky part. My big aha is that content moderation is astonishingly hard, and tech bros blunder into it and spend 10 years in the congressional spotlight making idiots of themselves.

No one’s ever really nailed it, I think. Then you have to flip-flop with the administration. It’s a really hard problem, right? I think this could have even more interesting nuance.

A lot of the imperviousness of the social media platforms has been because their line is, “We didn’t write the content. We’re just a connection mechanism. It’s other people’s content.” What’s super clear on ChatGPT is that you are writing the content. So for things like advice that goes wrong, medical stuff, maybe even some of the political stuff over time, they’re a lot more in the crossfire.

I think the content moderation and content decision job at ChatGPT is going to be a hot seat for the next 5 years, and I don’t think erotica is going to be the hardest problem they face. So I agree. I think it was an interesting one, Jason, but oh my God, it’s just the start.

Jason Calacanis

The point was that we’re going to allow a lot more usage, right? Erotica is the cute one. We all kind of get it. We can pretend we’re embarrassed, but I think it’s just the wedge. You get it, right? That’s a little naughty, but why not leave people alone in their rooms and let them read erotica on their phone? What’s the end? No harm, no foul.

But I worry it’s much more than that, just like everything Sam says.

Would you be happy with someone else seeing your ChatGPT history?

Rory O'Driscoll

Absolutely, except if it were another venture firm.

Jason Calacanis

I wouldn’t. No way. I would not be remotely comfortable. That’s to Harry’s—it’s a good question to ask, right?

Rory O'Driscoll

Yeah.

Jason Calacanis

And that’s with whatever guardrails they have. I would not be happy.

David Sacks

Yes, I was, actually.

Jason Lemkin

Once it got good—after that Sopranos moment—I was all in.

David Sacks

I’ve got to admit something, and it’s not going to be nearly as shocking as you think, but going back to Spotify: Do you remember when Spotify used to share your music? I hated that feature. I listened to such boring, shitty mediocrity.

My kids laugh at me because I’m like, it was far more terrifying to me that people would know how old-school my music taste was than anything they could learn about my ChatGPT chats. So yes, I get it. People don’t want to have their inner selves revealed, even if it’s just their taste in country music.

Jason Calacanis

It’s much worse than your Venmo getting out.

Rory O'Driscoll

Yeah, much worse than my Venmo. Much worse than the Venmo. When you listen, you’re like, “You listen to those sad-ass songs?” as my wife says. “What kind of loser are you?”

8. The Final Investment Bets

Okay, we’re going to play a game, and it’s agree or disagree. I’m going to say a statement to you, and you’re going to say agree or disagree and why, and we’re going to finish there. Okay?

Rory O'Driscoll

Sure.

Number 1—and I’m making it up, but Jason, you gave me the inspiration for this—Replit will hit $1 billion in ARR by the end of next year. Agree or disagree?

Jason Lemkin

It’s only 4x. I’m all in. I’ll take the bet.

Rory O'Driscoll

You’re probably at $250 million now by the end of next year, and you’ve gone from nothing to—yeah, I’ll disagree. It’s a TAM market-size question. I don’t have clarity on—

I’m going to disagree. They’re at $250 million by the end of this year, not now. So it’s not 15 months; it’s 12 months. I think they’re in more of a prosumer element of the market, which is smaller. I think Lovable has a larger TAM because it is literally everyone.

Now, there are higher churn rates associated with that, essentially, but there’s a much, much bigger TAM being everyone. Then I think you’re just going to start to see cohort maturation and real churn occur.

Jason Lemkin

I think we have it all backwards, and I think this is a real concern for early-stage investing. It’s a huge concern. Replit today—I started about 110 days ago—is so much better than when I started. It is so much better with the current agent.

Already, I don’t know how many sites in the last YC Demo Day classes—their sites, their marketing sites at least—were vibe-coded, but it might have been 20% or 30%. I could see the Claude Artifacts on the front end. I don’t know whether it’s Replit, Lovable, or both, or even Claude Code. It doesn’t matter. I know Claude Artifacts. I know it was built in Claude. It’s painfully obvious when you’ve been in it, and it just looks vibed.

If in 6 months all this stuff can be vibed by anybody, then how the hell can we tell those early-stage investors? We can still judge founders, don’t get me wrong, but when a 19-year-old founder walks into 20VC and the product is really, really good at $30 million pre-money, the classic ways we could judge software at that stage go out the window.

So I think this is super disruptive for early-stage investing, and that’s why I think $1 billion is easy, because we’re missing how many new categories of software are going to be built. I didn’t believe it when I started. Now it’s painfully obvious. As this gets better, everyone has an app they want to build. Everyone.

Jason, if they scale to $1 billion in revenue that quickly, then they will be raising at a $20 billion valuation. My question to you would be: as one of the top 0.01% of power users, you should, from a logical capital-allocation decision perspective, be investing in Replit.

Jason Lemkin

Yeah, I get it now. The biggest unlock was when Amjad said he has all the money left from the last round. I don’t get that, right? He said he would share all the data at SaaStr. I don’t know. But let’s assume it’s mostly true. Founders are always directionally correct, but there’s a spin. If there’s really a path there, then competition and other things inside—you unlock the biggest issue, right? If the model is self-sustaining.

I know it’s trite to say you’ve got to look forward, not back, but this Replit v3—and I’m sure it’s true with Lovable—I can’t tell you how much better it is. Literally, now pretty much anything I want to build, I can see it in my mind, sit down, and create it. I can get it into production. As more folks can do that, it’s just crazy what we’re gonna build. I just don’t think a billion is a lot. Rory, help me: what’s the TAM for mediocre outsourced dev shops and WordPress agencies?

Rory O'Driscoll

This is the point.

Jason Lemkin

They’ll all disappear. We don’t need these crummy WordPress agencies and terrible offshore dev shops that never finish a project and charge you $20,000 or $50,000. They’re all gonna be gone.

Rory O'Driscoll

I can summarize this in a sense. If you think of this as a tools market, it’s probably gonna flatten out. If you think of this as replacing all the people using those tools to build crappy products, and you can just compress that labor spend, then the TAM clearly supports a billion-dollar outcome. The only remaining question is whether it’s going to be Replit, Lovable, or both. So I see where you’re coming from.

Love it. Jason, you should leverage being a top 0.1% power user and fucking invest. Go do it.

Jason Lemkin

I’m with you.

On this show, Amjad said it. There we go. 5 million.

Jason Lemkin

Gotta be 10 to make enough money, but I’m with you.

Okay, 10 it is. You just upped the game.

Jason Lemkin

Yeah.

I would rather be a Deel shareholder than a Rippling shareholder. Agree or disagree?

Rory O'Driscoll

I’m gonna punt on this one. I have an adjacent investment, and I’m trying to avoid commenting on areas where I have an adjacent investment. I know that’s lame. I’ll punt.

Come on, Rory. You can do better than that.

Jason Lemkin

Having an adjacent investment should actually allow you to answer the question better than me. You have a little bit of inside information.

Rory O'Driscoll

I think I’d step back. I’ll get in with a big-picture comment. These are great markets, and the reason is something Jason mentioned earlier, which is that one of the most universal business processes every company has is that they’ve got to pay their employees. It’s a big-ass horizontal business marketplace, right?

In the US, the old-school market supports a $100 billion-plus company, ADP; a roughly $70 billion company, Workday, which is originally HR; and then you’ve got Paychex at around $50 billion, plus a bunch of $10 billion and $20 billion outcomes. In other words, the business process of paying people their money supports a load of really great outcomes. So when I look at the 2 companies, Rippling is doing that next generation in the US. It’s kind of like Gusto’s story: We’re gonna be a little more high-end, integrate all the HR stuff, and replace these existing products.

To a rounding error, the only negative on this market is that, by definition, it’s a served market because everyone pays their damn employees. We’ve all been small-business owners. You can get almost anything else wrong. You can skip your vendors, you can skip whatever, but if you don’t pay people on a Friday afternoon, you don’t have workers on Monday morning. Every single company has an existing vendor, especially in the US. So that’s the negative on the Rippling side. They’re just grinding through, picking up new startups, and then they’re in a big-ass replacement, and they’re doing great and amazing. Then they’ll build a big company.

The attraction of Deel, the attraction of my company that we’ve invested in, Papaya, and the attraction in all these spaces is that internationally it’s much more the Wild West. Obviously, people are getting paid internationally, right? But what there isn’t is an international vendor of the same size and scale as ADP in the US who can say to the US CFO, “Hey, Mr. CFO, you’ve got employees in 20 countries? We’ll pay them all. We’ll make this go away. If they’re EORs, we’ll pay them. If they’re employees, we’ll pay them. We’ll solve your international payroll problems.”

That’s the opportunity there. I think my company, Papaya, is more at the mid-market and higher end. I think Deel does a brilliant job at the lower end of the market and is expanding up. I think these are big opportunities because what happened in COVID was that people’s eyes were opened to how much more talent you can access worldwide, and all these companies got a lift from that.

You think about it: someone runs in and the VP of engineering says, “I wanna hire 3 people in Liechtenstein or Kazakhstan.” What the frick does anyone know about employment laws in Kazakhstan? You’re open to someone who’ll solve that problem for you, right? So I think there’s been this giant growth of international payroll. I think there’ll be a couple of big companies built in that space.

I agree with you. So you’re rooting for Deel?

Rory O'Driscoll

I’m not rooting for them because we compete with them. Of those 2 choices, despite a little distaste for what went on in terms of the espionage thing, I would bet at the margin that the TAM and the competitive matrix are more attractive for Deel. That’s as much as I can get.

But you just love the “despite the espionage thing”—that little espionage thing.

Jason Lemkin

We move on quickly these days, guys.

Rory O'Driscoll

We really don’t. By the way, you guys were right on that. We had talked about this, and I was troubled by it. You’re right: the world moved on so fast your head spins.

Dude, business completely uninterrupted. Churn zero. They’re profitable, killing it. Jason, Rippling or Deel?

Jason Lemkin

Going back to the start of the conversation, if we’re ending the conversation, a billion’s still early to me today—not because I don’t have profound respect for a billion in ARR, but because I worry that, for us to get our exits, we have to see enough acceleration past that point.

At the end of the day, Deel’s pain point, from, I think, inception to today, is more acute than Rippling’s. It’s an acute pain point. It’s a problem that we’ve all lived with. As founders, we’ve lived with it. It’s very difficult to solve this international onboarding problem, versus Rippling, which is ZenPayroll and Zenefits done better—a very clever problem to solve, and a problem that every US startup and company has. But there are already point solutions there.

One word.

Jason Lemkin

What’s the word?

He said Deel. He said Deel.

Jason Lemkin

No, I didn’t say that. Do I have to pick one?

Rory O'Driscoll

Yes, damn it. What do you think we’re doing here, shooting the shit?

Jason Lemkin

I’m still gonna pick Rippling.

Wow.

Jason Lemkin

Because as great as Deel is, this is a limit of my intelligence. This is a limit of me, okay? You have inside information I don’t, Harry, as does Rory. You both, from Deel and Papaya, have information I don’t. I don’t know, ultimately, which is the most defensible because both can compete with each other. Deel is a much more agile company than I realized. It can build everything Rippling has, right? It’s already built a lot of it, right?

Rory O'Driscoll

And already did the espionage thing.

Jason Lemkin

And you can bring Parker on and say, “Hey, were you slow to do some of this?” And why was Gusto so slow? I genuinely don’t know. But I’m not gonna say, in the age of AI, that having these massive installed bases isn’t a huge asset. Yeah.

Rory O'Driscoll

I’m gonna ask something totally different because you said it in passing. If a billion is still early, why on God’s green earth are you writing checks to people doing $1 million in ARR?

Jason Lemkin

Because in venture, if you stay out of your sweet spot investing—for me, we’re different—I found all my losses are when I strayed out of my sweet spot. All my LPs are like, “Take more risks, Jason.” That was the worst advice I ever got: to take more risk in venture.

Rory O'Driscoll

Agreed.

Jason Lemkin

The best advice for me is to take less risk. That’s how I make the most money.

Rory O'Driscoll

But my point is, do you think it’s less risky to go later or more risky?

Jason Lemkin

For me, I don’t have any unique value to add to the CEOs of Deel or Rippling today. I don’t have any unique value to add.

Rory O'Driscoll

What you’re saying is, “I’m really good at this thing, which is picking $1 million ARR companies,” and trying to do something else—even if it’s more attractive from an intellectual risk-return perspective—if I’m not good at it, then I shouldn’t do it. I actually totally respect that. I have come out the same door. We tend to be a round later than you, but it is just fascinating for both of us, and even for you, Harry, right?

Yet we’re doing these deals at half a million, a million, $5 million, $10 million in ARR, and then Jason can casually say, “Oh, by the way, when you get to a billion, you’re still early.” I mean…

Jason Lemkin

This is the problem with venture. It's slow. I finally figured this out: it's my anxiety. It's my anxiety today.

It should be. Yeah.

Jason Lemkin

But the only competitive advantage I have is that you start getting customers, and you don't know how to scale revenue, and you want help scaling GTM. Enough of those folks come to me that I can achieve at least top-decile or whatever rates by being chill.

But I'm not, like, a computer. I'd have to learn how to do that. I can't muscle my way into co-leading Lovable. I don't have those skills.

To your point, what it means is that it's just the elongated time to exit, which we can talk about next time. But, yeah, it's just... I think you're correct. It is stunning that in the same business, in the same rough construct, in the same quoted “asset class,” you have Jason doing $5 million and companies doing $1 million, and you have people doing half-a-billion-dollar investments and people doing $5 billion or $6 billion in revenue, and we think of them the same.

It's obvious when you think for even a second that those two things are so unlike each other that it's absurd. But that's the world we live in now.