Inside OpenAI’s TBPN Deal, Mega IPO Update: SpaceX, OpenAI and Anthropic

0:13Welcome, everyone, to The Information's TI-TV. My name is Akash Pasricha. It is Friday, April 3rd. Before we get to today's show, I want to highlight two pieces that we published here at The Information. My colleague Stephanie Palazzolo has some exclusive reporting around Fiji's CMO's decision at OpenAI to buy TVPN. According to Steph's reporting, Fiji had the idea earlier this year as she was trying to revamp the company's marketing and comm strategy as OpenAI found itself in the middle of major PR debacles. But Steph's story also goes much deeper. Looking at how Fiji is approaching her role as the CEO of AGI Deployment, Fiji has found ways to shift power inside the company, away from the research team, and more towards the product divisions.

0:59The story has a lot of great detail as to how exactly she has restructured the organization. I encourage you to check it out. We will link it in the show notes. The second piece I want to highlight, we have some new data out from an exclusive survey that we ran at The Information with our subscribers. A majority think that conditions for tech companies will worsen over the next six months. That is our second most negative reading in the last three years, but there are some bright spots. Our readers are optimistic about Anthropic, a new addition to our company sentiment tracker. 64 % of respondents say they are more optimistic about the company's prospects than they were three months ago.

1:38Google and NVIDIA also defied the broader pessimism. For more insights on the survey, check that out at theinformation.com. Okay, on to today's show. Today on the show, we are speaking with Lead Edge Capital about the IPO market at large. We've then got Bain Capital Ventures for our latest edition of our next GP's coverage. We will wrap with our weekly edition of the Editor's Cut. It's going to be a fun show, so let's get right on into it. Open AI's move to build out its marketing and comm strategy is a reflection of just how important public perception can impact not just public discourse, but also valuations.

2:16That is a reality OpenAI not just faces, but also Anthropic and SpaceX do as they march towards their IPOs. LeadEdge Capital is one fund that could conceivably be a buyer of those companies. The firm just raised its seventh fund, totaling$3.5 billion. It invests in a whole host of tech companies. And I want to bring on Mitchell Green, founder of LeadEdge, to talk about how he is seeing the market. Mitchell, welcome to the show. It's great to have you here. Thanks, Josh. Thanks for having me on. So we seem to be in this world right now where crafting the narrative for an IPO is even more important than the fundamentals of a company.

2:56Do you agree with that?

2:59Mitchell Green:They've always both been important. But I think definitely crafting a story is super important now. But at the end of the day, the rubber is going to hit the road when these companies eventually go public. right you you know you read about and i have no inside knowledge to this at all but you read about spacex wants to raise 75 billion dollars at 1.5 trillion i'm a little skeptical that it will raise anywhere near there but um whatever it will be a very large deal and you know what i think is what's interesting is it's one thing if you raise in a 500 million dollar a billion or a billion enough,$2 billion IPO.

3:39Mitchell Green:It's another thing raising$50,$75,$100 billion. And so without giant strategics involved, just look at these open AI rounds, how much the money has come from big strategics. You have to ask yourself, where will all the money come from? I don't know if it's going to come from Amazon, like shareholders. Where is all this institutional money going to come from? Could it come from a lot of shareholders in Tesla, Amazon, Google? I don't know, but these these are very big numbers and right when the numbers come out public institutional investors will vote with their you know vote with their wallets and say look i'm going to buy x amount of stock at x price well one thing i've been thinking about is you know we sort of saw the era where these companies were paying well saw the era we are in an era where people are paying up for researchers developers i mean technical talent you know those are the people that you need to build the products that you can sell but now i feel like we're almost in an era where the marketing talent the comms talent i mean that's that's you know equally as important now because you have to tell your story to investors well you were going to see at the end of the day numbers are fundamentally the most important thing like financials are the most important thing like you know all these specs went public they were they were high flying for a little while and then they'll they'll crash down to re not all of them but a lot of them you know crash down to reality uh and you know given the If SpaceX was going to go raise a billion dollars or$2 billion and the thing was going to be worth$400 billion and the float was absolutely tiny, then it's very easy to artificially inflate things with a bunch of marketing and PR and stuff.

5:19Mitchell Green:But when you need to raise$75 billion, that'll be done on fundamentals. Now, look, Elon Musk has made a lot of people a lot of money over the years. And so I'm sure there'll be a ton of Tesla shareholders that want to buy it and others as well. But look, SpaceX is an awesome business. I just can't say that I've seen all the financials on it. So time will tell. But I think it's going to be very fundamentally driven at the end of the day. When these three come to market, are you interested in buying them? Are you investors in any of them at all? We're not investors in SpaceX, Open Air Anthropic.

5:54Mitchell Green:Shame on us. we should be i guess uh clearly you know first time we saw all these companies since then we could have made a lot of money uh we're not uh well we do some public market investing inside lead edge we have a dedicated public fund as well as inside our main funds we can take up you know certain portion of the funds and do publics we will certainly look at them but until we see like detailed financials on each of them it's you know we'll definitely look at them um obviously it It depends what the valuation is and what the underlying financials look like. I just don't want to speculate.

6:28Mitchell Green:Say it again? I just don't want to speculate on the numbers of them until they file. Look, when SpaceX files an S-1 publicly, I think they may have already confidentially filed it. Somebody reported it or something. Yeah, yeah, yeah. But when they file it, we will certainly look at it and analyze the business. but I can't tell you how many subs, you know, they're like Starlink has or anything like that. We've never looked in detail on it. But I mean, that's sort of the heart of the question I'm trying to get at is that, you know, we've had people on the show this week looking at those numbers that you're talking about, looking at the projections, making their own projections.

7:05And I mean, SpaceX, you know, even the burn when you look at opening Ionthropic, I mean, you have to believe these sort of five, six, ten year journeys that the company says they're on. And I don't know, orbital data centers, like, you know, is there any amount of fundamentals that you could square away with this ambition that, hey, this is really not going to come to light? There you go. Yeah. You know, people have made, people have made, it's worked both ways.

7:37Mitchell Green:People have made lots of money investing in things at extremely high multiples, believing in a dream, right? And people have lost huge amounts of money investing in a dream as well. And so, look, if there was anybody you were going to bet on investing in a dream, it would probably be Elon Musk. If anybody could do it, I wouldn't bet against that guy. It'll just be, for us, it'll be just like at the price they want to go out at, which who knows what that is at the end of the day. People throw out numbers on IPOs all the time, so we kind of just ignore them. But we'll look at it, look at the fundamentals and say, look, I think data centers in space is probably a lot harder for people to underwrite than it is if there's X number of Starlink subs, could that be 100X in 10 years?

8:36Mitchell Green:I think that's probably actually easier to underwrite. Tell me about this latest fund that you guys raised. It's Fund7. You raised$3.5 billion for the fund. And I'm also wondering how you're going to approach this SaaSpocalypse era with that fund. What are you planning to invest in? Yeah, so we'll continue. So we've always invested in companies. So we have these like eight criteria that we look for in companies. And you must meet at least five of them for us to invest. And so are you like 10 million bucks in revenue? Are you growing 25 % plus a year? Do you have 70 plus percent gross margins? Are you capital efficient?

9:22Mitchell Green:I.e., this is like our version of return on equity. Are your revenues today greater than the amount of money you've burned historically? Not raised, but burned. So are you 20 of revenue? Have you burned less than 20 million to get to 20 million revenue? And we're looking for like this one-to-one ratio. do you have any customer over 10 % of revenues? Are you profitable at the EBITDA line? Are you, you know, like, you know, do you, you know, do you have 90 plus percent gross dollar retention? So, and again, we speak to about 9 ,000 companies a year and we want to invest in companies. And if I said you had to meet all eight criteria, it'd be about a 1 % yield or 900 or 90 companies out of 9 ,000 to do five to seven deals a year.

10:08Mitchell Green:that's too small of a pond deficient. So we say you must meet five of them. That leads us to look at about 900 companies at 10 % yield that meet five of our criteria. Probably do diligence on 150 to 170 of them to do five to seven deals a year. And again, that's just our framework for how we think about it. Where does that lead us to invest? Which is the hardest criteria? What's the hardest criteria that companies can never really quite hit? There are 1 % of companies meet all eight. There's oftentimes a trade-off between growth and profitability. So, well, look, it is unique to see a company that grows 50 % a year and be profitable, but they exist.

10:55Mitchell Green:Or grow 30 % a year and be profitable, but they exist. Obviously, we don't invest in small startups. Now, obviously, in those companies, those companies wouldn't be capital efficient. Nor should they be. They're trying to build a product. In a world where there's too much money chasing too few good things, I would say capital efficiency is a pretty unique thing. And just entrepreneurs that, you know, and so we've struggled. And we've been wrong so far. We didn't back any of the model companies, just given how capital intensive they are. But let me be clear. We think AI is going to change the world.

11:36Mitchell Green:and what we're very convinced of is you just have to look at history people always overestimate the near term but they always underestimate the long term i've said this before but in 99 and 2000 had i been on your and then the podcast exists and i've been on it well we would have never mentioned the word social media and today's social media is three trillion of value so we believe that ai is going to invade every space and every company is going to become an AI company. So the asset is like, where are we going to invest? Well, we're going to take those criteria, invest in companies that meet five or more criteria.

12:15Mitchell Green:Like where might those be? Software slash AI, because I think it's the same thing, frankly. SaaS is a business model. It's not like there will be more software companies in a decade than there are today. There are more software developer applications. Citadel put something out where there's more software developer jobs, like job postings today than there were a year ago. Software is not going any way. There's going to be more software companies in a decade than there are today. Software, tech enabled services. I think there's a lot of services companies that are actually going to hugely benefit from AI.

12:52Mitchell Green:And that, you know, they'll be able to - Why is that? They'll just be able to do more with less. They'll be able to, you know, if you're a tech-enabled services firm that makes software for like to deploy Snowflake or deploy, you know, Databricks or ServiceNow, whatever. And if you have, you know, 300, you know, consultants that work on this and a lot of those people are like integration engineers and things like that. Well, those engineers are going to be able to use AI to be able to, you'll either be able to run the business with the same size with a lot less number of people, or you'll be able to grow your business even larger, keeping the same number of people and just being, you know, driving revenue per employee much higher or profits per employee much higher on it.

13:42Mitchell Green:So we think that tech-enabled services is interesting. We've done stuff historically on logistics. So logistics stuff, we've done consumer internet things. But again, they will all be, quote, AI companies because AI is invading every company on planet Earth. I mean, I don't care if you're a manufacturing company. And I think what will stifle companies are companies that are over-levered, regardless. So if you're like a paint company, if you have two paint companies and one has a ton of leverage and one doesn't, and you believe manufacturing is going to get like, you know, significantly improved with robotics and AI and all these types of things.

14:18Mitchell Green:Well, the company that's over levered can't make the investments necessary. And the company that has a lot, you know, has isn't levered can can make resource investments and invest in AI and robotics. And at the end of the day, that company will win. So you're not buying these these NeoCloud companies and they're taking on all these debt? We're always skeptical of companies that use huge amounts of debt to finance growth. I mean, it's one thing if you have a giant cash cow like Oracle or Salesforce or Microsoft or Google or Amazon to dig out a bunch of debt because the free cash for those businesses is absolutely absurd.

14:57Mitchell Green:But we're always skeptical. And I would more say like in incumbent businesses, those incumbent businesses that have lots of debt versus those that don't, I would expect those that don't have a lot of debt for incumbent businesses will be able to transition to, you know, will be able to make AI investments more than those that do not. Great. Well, Mitch, I want to thank you for coming on. That is Mitchell Green, founder and managing partner of Lead Edge Capital here on TITV. This week, the information is featuring investors we included in our next GP's list. These are the people that our venture Capital reporter Julia Hornstein has dubbed most likely to lead top VC firms across Silicon Valley in the years to come.

15:39Today, I'm sitting down with Rak Garg at Bain Capital Ventures, who has invested in big, fast-growing names like Decagon and Cognition. Rak, welcome to the show. It's great to have you here. Thank you for having me. I'm so excited, and thanks for the recognition. It's great to see you. So, you know, the big topic of the day that we're talking about on this Friday is where do we think people will, where do we think OpenAI, SpaceX, and Anthropic will land, call it six months after the IPO? We don't know when it's coming, but we know it's down the pipe. What do you think? I mean, let's go through the list here.

16:14I'm gonna put you on the spot. Let's start with SpaceX. What do you think? Is it up or down six months after the debut? If I had the answers to these questions, I would be a public markets investor. Let's just say that. But I think SpaceX is building a new economy. I mean, I don't know what's going to happen to these stocks in six months, but I'm very long on SpaceX. They're literally starting a new frontier that a bunch of other companies are going to build on top of. Historically, those types of platform businesses have always done very well. Okay. What about OpenAid Anthropic? Let's go there.

16:44You know, I look at secondary demand and I look at house prices in San Francisco and what they go for over their list price on. There's insatiable demand for secondaries in both of these companies. I think that the winds move one way or the other week to week. Right now, people really want Anthropic secondary. You know, three weeks ago, people really wanted OpenAI secondary. But regardless of which way the winds shift, I think these two IPOs are going to be blockbusters. So let's shift to what you are investing in then at your firm. What is one unconventional bet that you are making right now on the market that you're backing?

17:21You know, there's a number of ways that we've been unconventional at Bin Capital Ventures. One is we were really early to tech-enabled services. This is back when everybody thought services companies were not going to do well at all. We had a lot of these gripes around margins in the venture industry. We were very early to back neofirms. Crosby, one of our companies, was just announced their Series B last week. We were part of the seed round of. Nor may I, another legal firm in the regulatory compliance category, which for decades people kind of dismissed as, oh yeah, just pay the consultants, get it over with, move on with your life.

17:56Norm is scaling incredibly quickly. We co-ledded the Series A there. And so I think we've been very unconventional in how well and how much we've scaled our tech-enabled services practice over the last three years. What about security? Are you playing in that market at all? Oh, man, we do a lot in cybersecurity. And if the last two weeks are any indication, I think we're about to do a lot more in cybersecurity. Well, I mean, that's what I want to ask you is, you know, we've seen sort of these data leaks and it's kind of been interesting to me. I mean, some of them have just been human error, which is, you know, I guess people make mistakes.

18:31Agents are the mistakes really that people are more worried about. the question I asked somebody on the show earlier this week that I've been thinking about is you know do we need to are the vibe coded security applications right are those sort of counterintuitive is it almost an oxymoron because I don't know maybe the old school SaaS companies maybe that's the way to go here you know we we ask this question a lot and I think where I've come out on this is that the Vibe coding platforms, the replets, lovables, anythings of the world, they actually have a really big opportunity in front of them.

19:07You know, they can put guardrails into their platforms so that anything built with these platforms ends up being secure by default. That's been the grail of the industry for the last 20 years. They used to be on the security team at Atlassian. You know, we were always wondering, how do we collect enough data to make our employees more secure? How can we possibly be everywhere across all these different products, all these different microservices these products use. The opportunity today is you have a set of people who have no idea what the infrastructure is. They're just trying to build things with cloud code and other things.

19:38These platforms can now embed default security into all of these apps. And now the trick is a UI problem. It's how do you make it configurable? How do you make that digestible to people that don't know a lot about security? How do you integrate that with the companies that are going to deploy all of this stuff? I think it's a massive opportunity and if i was at these companies if i was on the security team at these companies i would look at it as a product challenge so so go deeper on that so you're saying that the the vibe coding companies the lovables and the replets you're saying that there's going to be now a bigger push that they're going to hire more security engineers to figure out how to make things more secure that's what i'm hearing you say i think they have an opportunity to if they want to but But certainly, if you look at the demographics of people using these applications, it's everybody.

20:27I mean, I talk to salespeople who are now using VibeCoding platforms to build applications and websites for themselves. And historically, you had a set of people sitting in DevOps or a set of people sitting on a platform team who knew a lot about security, whose job it was to deploy. They're no longer part of the equation. Everybody's deploying everything all the time now. which means that the platform we're using to deploy these vibe coding platforms can bake in defaults and i think you know we thought a little bit about what those defaults could look like one area is agent identity right we work with a business called cognition which is doing uh you know the autonomous software engineer devin and devins can go and execute tasks all on their own and there's a big identity question there do devins take on their own identity do they take on the identity of the person invoking the Devin.

21:16You're talking about the agent that is carrying out the task, assigning it a very specific identity and knowing, hey, agent three is coming. That's the idea. Exactly. And in every company, you've got this laundry list of logs of these semi-structured data feeds that just say, agent three went to this IP address and did that action. Right. And the question is, how do you actually build that log if you're not tracking the identity of all these things? And so we've been thinking about how companies can be more thoughtful about that. So, but I guess my question for you, Rak, is you said, going back to it, you said there is an opportunity for these platforms to embed security into their tools.

22:02I mean, I guess my question is, is that really so much of an opportunity? Because that seems to be table stakes. I mean, if your platform is not secure, that's like the first thing that we got to figure out rather than if we can build something compelling, right? I think it's table stakes for every enterprise, for sure. And what the last two weeks have taught us is that these companies are growing so quickly that they're in companies that they might not even know that they're in, right? And so it's table stakes in the sense that historically, if you were a big enterprise, you would ask all your vendors to do a SOC 2 process.

22:33And this is how we, you know, Vanta and Drad and other companies have been very successful with this. Today, you just completely bypass that. Your employees are using whatever they want. They're building apps wherever they want. And I think the opportunity for these platforms is how do you make security something that the average person can configure and cares about? I actually think employees want to do the right thing. I think humans have judgment. I think people kind of intuitively understand when something should be part of the organization or should not leave the organization. The question is how do you empower them to make these types of decisions, which is why I see it as an opportunity.

23:08This was not an opportunity before. Before, this was something you sold to an IT team and you certified through a compliance process and your employees were just kind of like, dude, when do I get to use the thing I want to use? Now you can push back to the employees, which is the opportunity. Great. Well, Rak, I want to thank you for coming on. That is Rak Garg, a partner at Bain Capital Ventures here on TITV. We've had a lot of interesting discussions around the big three ipos today so far and so to cap it all off i want to bring on our executive editor martin piers and our deputy bureau chief of finance cory weinberg for their view on all these offerings and this week's edition of the editor's cut welcome to you both it's great to have you here hey kosh hello so cory i want to start with a column that you wrote this week uh you wrote in the briefing about open ai's big funding around bigger than we thought 122 billion dollars the number kept going up and you wrote it well why don't you tell us what was your view on that funding round yeah i think uh you know this was a lot of fanfare for obvious reasons um you know it's a ridiculously huge number 122 billion dollars worth of capital committed capital You know, the money from strategic partners not fully in the bank yet, but$12 billion from financial investors.

24:34So that's nothing to sneeze at. And at a valuation, you know, surpassing$800 billion post money that is, you know, two years ago, three years ago, we would have all thought this is insane. But if you look a little closer at sort of the market dynamics kind of that exist right now, a little bit more underneath the hood at OpenAI, you see a slightly weaker picture. And we have to triangulate all these data points because OpenAI is still private. We don't have a market price for it yet. But the secondary activity favors selling over buying right now. That's according to CapLite, a secondary marketplace.

25:18And the stock price for SoftBank, which has a very large OpenAI holding, has been not performing well this year, which some investors have used as a proxy for OpenAI in the public markets. There's some other signals, but those are the two I focused on just to kind of point out, look, this huge funding round is a big deal for OpenAI, but some signals are weaker. Martin, do you buy that, SoftBank being a proxy for OpenAI? Oh, well, Corey didn't actually mention that just now. I have to say Corey's very smart, so I never want to argue with Corey. I will say I think his column did make the point that some investors view SoftBank as a proxy, which I don't think makes any sense at all.

26:08I know there is that view out there, but really, if you're looking at SoftBank, all you can see is a company that has got a huge amount of debt. It is run by this crazy guy who's running around, always investing at the top of the market, borrowing money to invest in OpenAI. I wouldn't feel comfortable investing in that company, but that doesn't mean that I wouldn't feel comfortable investing in OpenAI. So the idea that SoftBank is a proxy for OpenAI, I just don't think is going to be borne out by what happens when OpenAI goes public. Okay, Corey, what do you say to that? I mean, I think you see a lot of similarities between SoftBank and OpenAI.

26:59I have to say, Akash, everything I know about SoftBank, I've learned from Corey. No, no. No, I think, look, I think this is obviously a debate. I mean, SoftBank is made up of, it usually trades on a net, it's sort of on a net asset value basis. And so investors will look at, you know, what's the value of its holdings? Like, what's the value of OpenAI? What's the value of ARM? The chip designer, that's its largest holding. What's the value of some of its telecom operation? So it's not like a one-to-one proxy for sure, but it is certainly one way that investors have played this market. And when you look at the stock chart of SoftBank, you see a huge spike towards the end of the summer and early fall last year when there was peak OpenAI hype, I would say.

27:52And then once the narrative and the messaging started getting more muddled, you saw the stock price weighed down. You know, I think Martin is right that there's many reasons for that. I think just right now it's worth looking at all, you know, sort of different signals we can to kind of understand what's the real price for OpenAI. Corey, I want to ask you about the public market investors that you talk to. We've got these three big IPOs coming down the pipe, SpaceX, OpenAI, and Anthropic. I mean, how do investors that you talk to feel about whether or not the market can handle this, you know, these big offerings?