20VC: Anthropic Raises $45BN but Falls Short on Compute | OpenAI Crushes with GPT5.5 and Codex: Back in the Game? | China Blocks Manus $2BN Deal to Meta | Thoma Bravo Hand Back Medallia Keys to Creditors | Why Google is a Bigger Buy Than Ever Before

22:36I don't think we internalize it, right? I was thinking about it. If you're at a$10 billion run rate right now, which is roughly on Tropic end of last year, right? And you're looking forward two years and you think you're going to go 5x this year and maybe 4x next year, not crazy, which means you're going to be, which is 20 times. So that's$200 billion two years from now. So let's run it. Let's say$100 billion two years from now. So whatever you have today capacity to serve$10 billion, you run that model and you say, now I need capacity to serve two years from now, 10 times that amount, which is$100 billion.

23:09I need$90 billion of new capacity. And the capital intensity for every dollar of run rate revenue, it probably takes$4 or$5 of CapEx to support that. So if you're going to add$90 billion in revenue capacity, someone between you and your partners has to find plus or minus$300 billion to buy chips, dig holes in the ground, build data centers, and make it all happen. Think about how capital intensive that is. You're doing$10 billion in run rate, and you're effectively saying between you and your partners to be able to meet demand two years from now, you've got to invest$300 billion. Not all yourself, some of which are your partners.

23:45And by the way, if you get it wrong and you end up doing 200 billion in run rate revenue, you're going to only have half the compute you need. You're going to look like an idiot. And if you get it wrong and you only get to 50 billion in revenue two years from now, you're going to be left with 150 billion of stranded capacity. In software land, it was so easy. If you sold more, you made more money. You didn't have to spend a lot to make that happen. At worst, you had to hire some reps. Microsoft had to hire no one when they exploded in revenue. They just shipped more PCs. more PCs ship and they got their like 20 bucks per PC.

24:17In this case, two years before you get the revenue, you have to bet four times that amount on CapEx. So my big aha from this is, it's obvious when you say it, but how incredibly risky this bet is. And it's no accident that if you look at the two CEOs, who is going to take the risk to the upside and just spend the money and just double take the consequences? It's going to be Sam. So he has lots of compute. and who's the more careful guy and might underspend, it's Dario. And I don't blame either of them in the sense of the sums involved. It's not just that the business is capital intensive, that there's$4 of CapEx for every 1x of revenue, but it's also 10xing in growth.

24:56Yeah, the combination means you have to bet four or five, eight times your current run rate revenue in CapEx just to meet demand. And you've got to do that every year. I'm sitting here going, all these stories, I want shopping screwed up because they don't have enough compute. Dude, if you can predict two years out what the demand is, let me tell you, you can join Leopold in a special situation, in a situational awareness trading game. It's really hard. So that's my big aha, which is the compute intensity means the capital intensity and the growth means the spread and the risk of that capital intensive bet is just huge.

25:29Yeah, I don't think it's a huge deal. But if OpenAI really missed last year, and I think some of it's definitional what the miss is, right? We're reading an information report. and again, I don't think this is a huge deal. It's possible you look back and see that as the first disconnect from compute equals revenue because the risk mitigation to Rory's point is as stressful as this is, all the spend. If Sam's right, that really compute equals revenue one-to-one, if there's a perfect correlation, then it all kind of works out in the end, assuming that capital is available. If that breaks for any reason, right, then it just adds a level of risk to the model that's even higher.

26:04And I'm not saying that happened for sure, but superficially it seemed to have happened, right? Superficially. Jason, you're exactly right. I mean, I think it's a fucking stupid statement by Sam, right? It's correlation. It implies causation. It's just correlation. Let's rephrase that statement because the Altman statement is compute equals revenue. Not true. I mean, I can tell you what is true. No compute equals no revenue, but compute and a shitty model also equals no revenue. See Grok for details. The truth is to succeed, you need to have enough compute to meet demand and a good enough model to generate demand.

26:36And you got to do both of them in sync. It's hard. So I agree. The correlation, everyone was making that causation argument that compute equals revenue only because while they were making that argument, the demand seemed almost infinite. But the minute your model underperforms a little bit, it's not quite infinite anymore. The good news is if aggregate demand is growing up 5, 10x per year, these air pockets are just going to be air pockets for both sides, right? I mean, I think, because zooming out, Jason, the big picture comment is agents, I mean, what do you think? How many more tokens does your agent use per day than you did, Jason?

27:12Our Salesforce bill went up from$12 ,000 to$22 ,000 a year, and our seats went down from 10 to 2 plus 1. So there's your math. What about your token? I'm actually - I don't know the noun. It's derivative of it. It's like your data center number, like dramatically up. They're using dramatically more tokens. That's my point. I think they're using literally, I saw a number like it's 50 to 100 times more expensive in terms of tokens to serve an agent than a JSON. Actually, probably 10 times than a JSON, 100 times than a Rory, because you're pounding that. Well, it's because it runs constantly, if you let it.

27:44So the good news, and that's why you don't want to get caught, lost in the who's winning, who's losing on a kind of weekly, monthly basis. The good news and the reason these guys can all take these risks is in the short term, the compute equals revenue is not always true if your model's not there. But the big picture trend is over the next, as agents kick off, the demand for compute over the medium term will be there. So it makes sense to lean in, but you should also accept you're leaning into a thing where there's going to be wide short-term swings. There's probably going to be six months period where you're like, I'm an idiot.

28:17I don't have enough demand. And then six months later, I'm an idiot. I don't have enough compute. and it's just going to be the journey.

28:23Harry Stebbings:What's easier to rectify? Is it easier to resell excess compute that you have or is it easier to emergency buy compute that you don't? It sounds like it's, again, hadn't thought of it, but the problem is if you're one of the two big guys, you are so much, what are you going to do? Can you imagine it? You open AI, you have half a gig of excess compute, and Tropic is desperate for compute. The hell you sell it to them. Hi, Daria. Oh, you want to buy it? Oh, sure. I mean, it sounds crazy, but like Samsung would build phones and then sell its components to all its direct competitors, right? Totally.

28:57That's fair. I mean, you get zen about it at some point. We're going to have two divisions. We're going to have our compute division and our application divisions, and they've got their own P &Ls. What's more like, remember, you don't have that. The truth is you actually have the compute on a long-term contract, but Amazon, Google, Microsoft, CoreWeaver, Oracle will actually, quote, have the compute. So maybe the way to phrase it is, if foundation model company A can't take their take or pay, the hyperscalers will probably take that compute to foundation model company two and say, hey, guys, I got some cheap short-term compute.

29:31It's like a sublet. Yeah, just a$10 billion sublet. So yeah, there will be some kind of market. De facto is that's happening right now at a kind of macro. Remember that whole core wave, the reallocating a data center from company A to company B? That's this going on in real time. Remember that forecasting problem I articulated. On top of that, there's a two-year lead time. So it's not like you're forecasting next month's demand. You have to forecast two years out, bet 10 times your revenue on CapEx, and hope you're right. It makes running an airline look easy. It benefits Google, too. Google's the big winner here.

30:03Well, first of all, now Anthropic's deeply tied to them, right? So Google wins whether you use Gemini or whether you use Anthropic now, right? Two, Google has infinite capacity because they're the largest provider of traditional web software. So they have all this capacity for themselves that they can allocate even better than Microsoft. Do I want to give it to my own compute? Do I want to give it to Anthropic? Do I want to give it to them? They have the surplus, to Rory's point, to your point, Harry, that they can route between their customers and themselves and others. They win-win here. They have Gemini, they have Amazon, and they have the capacity, and they have the ability to rotate it when they want.

30:40And they have the cash flow. They have the cash flow to manage it all. So Google, win, win, win. And to stick with the more ways to win, we forgot Harry's original question on NVIDIA. Yeah, the last shoe to drop here is both Amazon and Google have chip products they can bundle into the equation. And for context, GPU spend is roughly 50, 55 % of total capex on any build out. So if you're building out a one gig data center and your estimates range 30, 40 billion dollars, $20 billion of that is compute. And NVIDIA's gross margins are 70%, which means$14 billion of that per gig is raw profit to NVIDIA.

31:19That's what Google and Amazon are trying to do, which is substitute that for their chips. Now, Jensen will make the argument, as he did on the podcast, dude, it's a mistake. Our chips are better. They have more support. And you got to be in the weeds on that to know the exact answer, especially for specialized use, like Google and Amazon would say, that the NVIDIA advantages aren't as good on specialist use, but I wonder myself. But nonetheless, that is what's happening, which is some attempt to bundle. Neither of those two chips, the Google chip or the Amazon chip, are widely available on a standalone basis.

31:54So what both of the hyperscalers are doing is effectively bundling their chip with their capital and their equity investment to convince Entropic to continue to run on their products and just take more of the gross margin, arguably with, as NVIDIA would say, a substandard product. But there's many examples in tech of substandard bundling products succeeding. See Microsoft for details.

32:17Harry Stebbings:Mini quickfire round. Google hit$4 trillion. NVIDIA is a$5 trillion company for maximum value gain on a per dollar basis. Which one would you invest in today? Okay. Not the question I was expecting. Maximum dollar gain? It's a bad question. I'm not doing my thing again. I think risk-adjusted, I would do Google, reluctantly, because I think if you just wanted the upside, you can paint an NVIDIA as a more single-threaded story around raw CapEx demand. But I think risk-adjusted, you probably would do Google. Because to Jason's point, the biggest advantage NVIDIA has is if this thing happens, if this one thing happens, which is CapEx explosion, they get it all.

33:00The biggest advantage, Google, but if it slows down even a little, they're really in a different place. The biggest advantage Google has, it has multiple ways to win. It can win if AI adopts fast. It can win if AI adopts slow. It's kicking off cash, so it's got a bunch of steady businesses. Provided only one thing can go wrong, provided ChatGPT does not erode Google search, which is the mother load of cash, they're golden. So risk adjusted, I'd probably reluctantly buy Google. No, you got to do NVIDIA. Okay. Despite the fact that it potentially has reached its market share ceiling with Anthropic deals and others, it's the best pure play into the AI vector.

33:40Yeah, you are. So you don't want to minimize your risk. Just put it into VTI or bonds. If you want to bet on AI today because we can't buy Anthropic or OpenAI, just buy NVIDIA. That's how you buy AI today. Just buy NVIDIA. Don't even think or spell it. Just buy it. For what it's worth, that's totally fair. And I think if you're just going for max upside. Yes, if you wanted to create your AI upside exposure, it's NVIDIA and then a bunch of other weird things we can talk about another time. Yeah, don't even buy CoreWeaver or these crazy things. Just go back the truck up to NVIDIA. And if NVIDIA loses, AI stumbles.

34:13It's okay.

34:13Harry Stebbings:I want to be a long-only manager. Fuck it. Buy NVIDIA. Buy Google. Done. Go home for three years. Seriously, this game is great. I wish a long-only seems like the place to be. Rory, come on. Charge your fees and commissions and just, well, it looks good today. I think NVIDIA looks good this week, boys. Let's buy NVIDIA. And I heard good things about Google. My friends use it. Let's go buy some Googles. This broadcast show was shit. Yeah, we love Janssen. Go, Janssen. Yeah, let's be quiet. Look, the data says most managers, I mean, we all know, underperform the index. And then especially if you adjust for beta, they underperform the index.

34:49So, no, it turns out to be remarkably hard, Harry, but keep telling yourself that.

34:53Harry Stebbings:I think that's because they don't do Google and NVIDIA. I think it's because they try and have a diverse portfolio. Yeah, no, great. Yes. And when you're non-diversified, you're either right or wrong. I mean, yeah, survival bias here. But yes, move on. Yeah. Is there anything else on Anthropic or OpenAI that you want us to discuss? I mean, there's a couple of things being Mythos, the ads. No, we're happy to move on. Yeah, I don't want to be all Anthropic all the time. Right. Let's do it. China blocks Meta's$2 billion acquisition of Manus. This was a surprise. distributions have been made to investors.

35:26Harry Stebbings:The company is a Singaporean company. The people aren't in China. This feels like a regulatory overreach. Well, Benchmark has their money, all right? Who cares? If I own 20 % of Manus and got my 400 million out, I would love the boys. I'd want to help get the boys out. Don't get me wrong, but I don't care if I got my money out. I ain't giving it back. I'm not accepting the service of process. I'm hiding from the service of process provider. I'm keeping my 400 million. I'm taking my 80 million and carry for myself and I'm hiding. Dude, I don't know if you can hide in Woodside from the CCP. It is a real risk, but I ain't giving my money back.

36:03If I'm benchmarking France, I ain't giving my money back. I don't want to trivialize it only because there are humans at the heart of this who are at risk stuck in China. But I do agree your assessment is the investors who've gotten their capital out, the chances of them having to or being willing to return that capital of zero. So when China says they want to unwind the transaction, I actually don't think they're talking about the money as much as I think the leverage point is over Meta, where they're really saying, you have this technology, we'd like it back. And let me give you a clue. If that had happened to Tesla, where they have a massive car plant in China, they'd be coming to the table right now with the Chinese government and saying, maybe we should unwind this transaction because you've got a lot of leverage over me.

36:45If you do a lot of business in China, this ruling is going to start a discussion. If you don't do a ton of business in China, no one's going to be pursuing the venture investors. To some extent, it's going to be pushing on Meta. And then obviously, the more human thing is some of those teams are still based in China, and they're not going to be able to get exit visas. It's less about getting this thing back than it's preventing it from ever happening again. That's the first, last, and only one of these deals that anyone will do. unless literally as before you wire your money as a venture investor, you know, the night before you put everyone in a 737 in Beijing and say, dude, we'll wire the money when you hit Singapore and bring your family.

37:23It's just not going to be a thing. So I think China is just sending a very clear. And look. Like Meta loses then? Just because they've lost the money.

37:30Harry Stebbings:They've paid and they're not getting the tax. No, but they have the technology other than some of the funds. They have the technology and any of the team that's based in Singapore, they have, right? There'll be some resolution. As I said, I go back, I don't remember how much business Meta does in China, but if they do a lot, they'll have to settle. If they don't do a lot, I can't even remember. I know Google didn't for the longest time. I just don't care what Meta does in China. Neither subject interests me and the combination interests me less. But I think that if they do, they're going to have some, they're going to feel some pressure.

38:01As I say, just like if you were a big US manufacturing company or Tesla and the Chinese government took this position, you'd have to take it seriously because they'd say, otherwise, We're just going to register a 4 billion judgment against you and exercise it against your local plant. Have a great day. I think it's just a blip. Human issues aside, to Rory's point, I don't mean to minimize them, right? I would just take my carry and hide. I don't think the service providers will come from China. It will be a minor blip in some upcoming AI war between China and the U.S. that is difficult to fully understand today, how this war goes, right?

38:33NVIDIA is supporting AI to China, right? Let's do more. That's in their best interest. Others are against it. It's clearly a war at some level, but I'm not smart enough to fully predict where it will go. But this will just be the start of, oh, not the start, but one of the first expressions beyond this NVIDIA chip drama of where this war will go. It's a war. I agree. And I don't love the war word because I think that implies actual violence. But I think you're right because it's funny. You often have to step in the other person's shoes. If you think back, if you're looking at it from China's perspective, there is someone going to go to prison somewhere, I think in Singapore or the US, for selling NVIDIA chips to China in breach of the sanctions.

39:09And they're probably sitting there going, well, if you won't give us your chips, I'd be damned if we're going to give you our researchers. And it feels a lot more balanced from their perspective. And you evil Westerners are putting this dude in prison and all he tried to do is sell us some, you know, black wall chips back off, right? The sanctions we're exerting on them probably feel problematic to them. Now, I remain on Team USA. I live in Team USA. I'm with Team USA. But just put yourself in the shoes of the other side and think, well, what they're probably sitting there going, we'll show you with Manus like you showed us with NVIDIA.

39:39All makes sense. It's at least slightly tied to DeepSeek finally raising outside financing at 20 billion, right? Maybe war is the wrong term. I think there's two great battles that will come before this pot ends, right? That are subtle, that we won't hit everyone. One is just China versus US in AI is a battle that's happening. And the other is just the social dislocation from AI. It's already happening. I think there'll be more revolts and issues as layoffs happen. I think the California will pass its billionaire tax and the exodus will continue. I think New York is trying to pass its penthouse tax, which is already leading to wars with the Citadel founders and others.

40:15So there's going to be this theme of social unrest and this war with battle with China over AI that won't bubble up each week. But I think at a meta non-political level, these are the two big things, I think, that we can ignore in our quest to get rich fast. And we're going to have $3 trillion IPOs, who cares? Who cares about the little guys when we have$3 trillion IPO? Who cares? Yeah. But I think that bit at the end sounds mean, Jason, but I think what you're saying in the rest of it is it turns out the non-trillionaires or non-billionaires can see that the billionaires don't care. And you're right.

40:47I think the political climate has shifted. And yes, this is going to be a continuing social drama. It's not the thing that preoccupies my day because I'm just trying to do my job. But you're right. If you were to zoom out and write a social history of the 2020s, 30 years time, I think you're exactly right. I think the two historians will talk about the revolt against inequality and AI, and they'll talk about China. I think it's a very good framing. I think those are the two big social slash political framing things here, provided we don't blow up the world. I haven't seen the polling on the billionaires tax.

41:17My rule of thumb used to be California de-elected is quite sensible. They elect Dems, but they're pretty profoundly right-wing at heart, which is what no one ever talks about. Polymarket says mid 40s now that it passes. Interesting. Because normally they vote down any tax because they're like, no, we've learned. Just vote no to anything. Yeah, we're Democrats in our heart, but we're Republicans in our pocketbook. But if it's 40 % already, that's interesting. I haven't paid attention because unfortunately, it's not a billionaire. I'm not in the price bracket, but duly noted. In the venture game, we have a lot of zeros.

41:48Harry Stebbings:In the PE game, it's rare to have a zero. home at bravo hands medallia to creditors 5.1 billion equity wipeout it's the first total loss there was 3 billion in debt that seems to all be going and it's just very significant because you never or very rarely see an asset of this scale being handed back to creditors and it's the first of its kind might be second behind plural site depending on how you define it it might be the second big one we just we just we just weren't as focused on plural site but plural site died under debt too, under massive debt. What was the size of that, Jason? You're right.

42:24Harry Stebbings:I'm wrong. Misspoken for me, but yeah. It wasn't as big. It was a couple of billion. No, you're absolutely right. I misspoken. So I'm sorry for that. Can we just confirm though on this? Because when I was reading it, I didn't quite get it. Are Toma losing money here? Did they recoup back money? A hundred percent. They're losing money. I mean, from memory, 2021, the deal, I think, went down in 21. It was a$6 billion transaction or whatever, and$5 billion of it was equity. So it was not wildly overleveraged, right? Maybe 1.6 % of debt, the rest of equity. So not wildly overleveraged. Fast forward today, they have more of that debt than that now.

43:00So it could be there was a minor dividend recap and they took some money out. Maybe they got 20 cents on the dollar. But the big picture here is this. And it's terrifying, is that this is a company, I believe, with a couple hundred million dollars in EBITDA. If you look at it from a cap structure perspective, it was 80 % equity, only 20 % debt. and that should be pretty safe. But when you way overpay for a company that now has way underperformed, and for reasons we'll talk about vis-a-vis AI, has very significant terminal value questions, then even though you've only got a small amount of debt, the stunning thing is with less than a couple of billion, did you say it was three billion of that?

43:37I thought it was closer to two, but that's okay. They basically said the debt smothers the company, even though it was fairly under-levered. What that means is at$200 billion, they basically realized that eight, nine times adjusted EBITDA, it wasn't worth putting any more equity in. They've massively overpaid and the deal's underperformed. It's a business that looked like nothing could go wrong in, which is enterprise software. And people would have said, if something does go wrong, it would be, oh my God, you way over-levered it. They didn't way over-levered it. They just way overpaid for it.

44:08That's the important insight that I think is missed, right? Pluralsight was both, right? Vista apparently lost$2 billion, but it was very levered. This is not heavily levered, but they can't afford the$300 million of debt service, or it's not worth servicing the$300 million, right? Actually, that's the thing, because I'd say relative to the, and I wasn't precise here, in terms of the transaction size, most of the consideration was equity. So in that sense, it wasn't over levered. But relative to the size of the company, I think the medallion was doing a billion. You can service$2 billion plus of debt on a$1 billion low growth company with a pre-AI story that has to transform to AI.

44:43You simply can't. And that's the big scary aha across all these other companies. It used to be the only way you'd be like, you muddle along, you do 10 % operating income, service the debt at low interest rates and refinance it. You don't have a chance to do that now. There's nothing good about this because they don't have an AI story. They'd have to invest a lot to get one because this is a medaglia stepping back is kind of in the measuring customer engagement, customer happiness kind of survey business. It's not a major system of record like ERP. It's fairly easy to transition to a next generation product, and you can totally see a whole bunch of AI first, very much better products in the space.

45:26We have an investment in Unwrap. It's a small company that does analysis of customer sentiment. There's a whole bunch of much, and I don't push our own product, there's a whole bunch of way better AI first products in this space. So they're looking at an asset that just doesn't have a story that's relevant. It's a full rewrite to change it. And it's just too hard. And this is a full write down. And that's not what this business is meant to be.

45:50Harry Stebbings:I mean, that sales quota attainment was 21 % reportedly. And the other problem with Medallia, and I'm not sure it's true of all the ones that are at risk. There's some big ones at risk. Coupa, New Relic, Anaplan, even Zendesk, Avalara, Smartsheet, they all look like they may not be able to fully repay their debt. My limited understanding of the problem with Medallia, it's just, it's one of the ones that CIOs want to reduce. It's just that simple. It's not even whether it's a system of record, that's an ultimate threat, but why it's already struggling to even retain 100 % of its revenue is you sit around the room.

46:24Under discussed is the amount of vendor consolidation that's occurring at the same time as AI growth. You know, whether you look at Gartner's numbers, 30 to 50 % of AI dollars are coming from consolidation. Medallia is a top target. Do we really need that half million dollar a year dated survey product? Did we really learn that much from it, guys? No. So it gets cut before you cut your workday or Salesforce, right? Agreed. It's just prioritizations. I think for venture, the question is, and Rory would be the expert here. Sorry, Harry, you're the boss, is does it matter? And what I mean is, okay, So Tom O 'Bravo is going to take a$5 billion hit here on like, I don't know,$20 billion fund, right?

47:00That's not expected outside of the bound, but it happened, right? Even if all of these died, Medallia, Proofpoint, even Qualtrics, Alterics, Cornerstone appears to be potentially going under. Koopa, New Relic, Anapline, does it matter? Because we got to just move on into the AI age. Does it really matter? Well, it matters a bunch of different dimensions. And I'll say it to save Cornerstone ringing and yelling. Don't say anyone's going under because that pulls you into saying things that may or may not be correct. Multiple term loans underperforming, apparently. That's exactly right. They're already underperforming the loan.

47:33It's not a great sign, right? Yeah. I mean, look, the horsemen of the apocalypse are, first of all, the debt starts trading well below par. And then the second thing is the debt starts doing kind of payment in kind and kind of activating the toggles that activate when you need more time. And then when the refinancing cliff happens, that's when you face the music. So that's the movie. And I'm not commenting on any of those comments. But you're right, Jason, every one of them in the category of highly levered 2021 deals, which means high absolute price. So again, back to my comment, even if the equity versus debt mix was fairly unaggressive, the debt as a percentage of current revenue, which is what you got to look at now, because the evaluation you paid in 21 is irrelevant, the debt as a percentage of current revenue was probably pretty high.

48:14And you're right. Does it matter if half of these go? I think it matters in three ways, right? A bunch of different ways, actually. First is a lot of LPs are going to take a lot of losses if this happens. and we share LPs, this looked like the other part of a balanced private portfolio. And PE was always, this is the safe part of the business. And venture, we always said, was risky, which is why you had to have the better return to justify the pain. And now if the safe part of the business takes some significant hits, it's definitely going to reduce the appetite for risk. But just to challenge that, is that true?

48:49And the reason I only asked the question from ignorance, for example, most of the LPs I talked to pre-boom, AI boom, we're like, well, we're expecting the 2021 funds are going to perform terribly. We've just got to move on. Okay. They were terrible investments. The LPs I talked to be like, we just got to give them a mulligan on the 2021 fund. It's done. It's time to move on or we got to quit the asset class. I think a lot of LPs had internalized the 21 vintage was a tough venture vintage, right? Typically smaller dollars of risk, right? I think the mental model was, But the PE guys, in return for never giving me that 4x, 5x upside, they've been consistent 2x earners all the time.

49:26And now it's one thing when your speculative early stage seed fund blows up. It's quite another thing when your safest houses$500 million commit to mega PE fund, A, B, or C, ends up with a subpar performance, right? And there's a lot of co-investments in there. So if a bunch of these names that you articulated, Jason, do lose money, it'll be significant. It won't be fatal, but it will be significant. In general, I've observed with people, including myself, that you can seem calm and phlegmatic about the prospect of loss, but when it actually happens, it hurts, right? So I do think there will be some element of loss there.

50:03And then the other thing, just to put it out there, is there goes one of our exit routes. Well, that's effing for sure. That's the biggest impact, right? There it goes, right? Yeah, I mean, you can wander around the Toma Bravo all you like and say, you know, and yeah, they'll say they're still doing deals and they are, but the bar is going to be much higher. The automatic, you can't build a company big enough to go public, strategics don't care. So you can sell this thing for 3x revenues to fill in the PE from. That's not going to be true going forward. And that has significant consequences in particular for your older companies, you know, your 2015 to 2022 companies where if they don't have an AI story and they're tracking, they don't have a strategic outcome.

50:43And if they don't have a strategic outcome or an IPO, what are you going to do with a$100 million revenue company going 10 % even if it has no leverage, even if it's not blowing up from a performance perspective because the buyer of last resort is no longer in the market?

50:57Harry Stebbings:If the three traditional assets were sell to a strategic technology provider, one of the large incumbents, IPO or sell to PE. If the sell to PE goes, and we all agree that smaller IPOs, aka non-massive IPOs, andurils, or you name it, do we only have one exit route left? What's that? Secondaries to each other? I missed the route. What's the route? I think there's no exit. Selling to a strategic incumbent. Sell to Google, sell to Nvidia. But here's the thing. They don't have the appetite. PE is a much better buyer for most, at least B2B plays. The volume isn't there at these guys. And more importantly, what they want is very specific.

51:36It's very specific. You can't count on anything. I can tell you when I was a VP at Adobe, you would say, oh, Adobe should buy these companies. It's the perfect fit. I'd be in the meetings. They never even heard of that company. And it didn't matter if you had a buddy, unless your buddy was shot new. It didn't matter. They didn't care. It's more narrow than you would ever imagine. It's narrower than you would ever imagine.

51:57Harry Stebbings:What is the exit funnel of the future? I think it's really true. I think, first of all, you're exactly right, Harry. It's like the IPO has not gone away. They just have to be big. The strategics haven't gone away. They just have to be super targeted. And the PEs have gone away, except at very low prices. What it says to us is, in our perspective, is, and this is contrary to someone that received wisdom out there, at the stage all of us are investing at, which even though it's slightly different between us, all to a rounding error is early. And I now define early as anything before you can squint and see an IPO, which is now $400 million minimum.

52:28I mean, your portfolio construction has to reflect the reality that we call it internally fewer but bigger winners. Instead of having a bunch of companies exit early, you're going to have a bunch of companies taper out, maybe get so-so exits. And then the one that goes the distance and gets to$400 million in revenue could have an even bigger outcome than you've seen before. It's the corollary to the statement that we're having some of the biggest exits we've ever seen. And that's true. Both things are true together. The exits that you're going to have now are going to be huge. there's going to be a lot less of them.

52:59And therefore, from a portfolio construction at the early stage, early broadly defined, you just have to have a higher end count because your probability of getting one right is lower. Now, at the late stage, and by late stage, I now mean when you're investing in companies that could already be public, right, above 400 million, then you don't have that risk, that risk, and it won't make public scale, right, because you're already at public. There's many things that can go wrong with Stripe investment, but it's not going to fail to be big enough to go public. So therefore, at that stage, you see this massive concentration because there's only a small number of companies big enough, right?

53:30So that's why you really, there are two venture businesses now. There's the, as I say, early, which I think pick a number below 100 million ARR, where it's have a pretty diversified spread, except it's fewer but bigger winners and have diversification. And then there's late where it's, you know, Thrive puts 3 billion in company A, 2 billion in company B. But as I think one of the guests on your show said from Thrive, partially it's easy because there's only 40 names you even have to think about. It's just a different business. The number of places where you can park a building is few and far between.

54:00And they're both sides of the same coin. The business has totally... I remember when I started the business in the 90s, there were years where there were 300 IPOs a year. And what were the valuations? 50, 100, 250, 300. It used to be basically the Series C. That's Harry's average A round right there. The point is this. The public markets had an appetite to be part of the IPO process by a process of regulation and a whole bunch of other reasons. And that's no longer the case. And the trend, which I thought would flatten out in the kind of 2015, 2020 level has even further accentuated. It's a different game.

54:34I literally had this discussion at a board meeting the other week with a company that just crossed 100 million. And I'm like, great. And you're cashflow positive. You're in control of your destiny. Let's be clear, though, to achieve your outcome in today's market, you need to hit a billion in revenue, probably growing 40%. The room went silent, okay? Because 400 million growing 30 % is not good enough. I think you'll still get it done. Yeah, but they're all failed. Navon, Figma, SailPoint, Netscope, they're all broken, crappy IPOs. I'm not saying they're crappy companies. They're great companies, but the IPOs are crap.

55:07So the bar has gone up even further since the IPO. And there was just no answer. One of the things I think is going to happen is unless Tom O 'Bravo decides these are all AI enhanced winners it wants to buy in Vista, which could happen. Actually, we could talk about it. I don't want to spend too much time. It could happen. They could come back into the market for a variety of reasons. If they don't, and the BART IPO is a billion growing 40%, I think what's going to happen more is they're just going to give the company to their friends, CEOs, founders. Okay, and what's going to happen is, let's say I'm at$100 million in revenue, and my best friend at my peer, he's my best CEO.

55:40We're great together. He's at$200, okay? We're both growing 40%, okay? I'm done after 10 years. It's not that I don't care, but I don't see any path to that IPO. I have not gotten an M &A offer from Google. Harry said it would come. I've never gotten an offer from Google. I used to get PE calls. I haven't gotten a PE call in three years and I don't see it anymore. So I'm giving the keys to Rory and I'm going to give a third of my company, right? Because I don't see any exit and the founder gets out, right? The emotional weight, the heaviness, the VCs, I guess, get to roll over this into a fake company where the valuations line up, but no one really gets anywhere, right?

56:18There's no distributions to the LPs. You haven't achieved critical mass. But this is a micro trend that I think is going to accelerate this year is founders giving the keys to their friends. Not completely quitting like eight months after an accelerator that didn't work out. But I mean, it's just I'm at 40 million, 50 million, 20 million, 100 million. I'm not going to get there, guys. So Harry, let's merge our companies. I don't know if Grammarly is taking any more mergers. So I'm giving the company to my buddy, Harry. It sounds like I'm kidding, but I think we're going to see this happen all the time, is give the keys to my friend that's bigger and better than me.

56:50Just give the keys away. There's just a huge amount of rationalization that's got to happen. Because look, these numbers are big enough. I mean, if the total privately held FMV is plus or minus$6 trillion, and if the big three or four and the other guys who can comfortably get out is$3 or$4 trillion, then the world of everyone else is$2 or$3 trillion. Let me tell you, no one's going to just walk away from$2 or$3 trillion. But at the same time, it's not obvious what has to happen. it. And capitalism works. People are going to come up with solutions. But Jason, you're right. It's going to be some guy who's a mid-career operator who's willing to take the pain is going to say, I got this.

57:25I'll take these five software companies, all broadly speaking in the systems management space. We'll put them together. I'll run them like a hard ass. We'll get to 20 % growth, 30 % EBITDA, and just compound our way because I'm a mid-market manager. This is a chance for me to make 50 million bucks as the CEO. We won't have a ton of stock-based comp because only me and five other people are getting stock. And there'll be a whole bunch of tough, hard acts that will happen because people aren't just going to say, okay, you caught me. It's$2 trillion. I don't want it. I'm not going to walk away from our older companies.

57:56We have value there. My LPs have value. And frankly, I have value. But you're right, Jason, there's going to be a fair amount of industrial, non-glamorous work involved in converting that stuff into free cash flow or to distributed cash flow.

58:09Harry Stebbings:Before we move to venture, just final thing on this. This is not exclusive to Toma. You can go from Francisco to Vista to EQT. Everyone's got that. Genuine question. What happens to this as an asset class, as a cohort of funds? Do they just raise the same size funds and inshallah we move on? Do they move away completely? Lee, my rule of thumb is this. Whenever something looks incredibly easy and it looks like it always works and everyone who does it make money and everyone says that everyone who does it makes money and it becomes the conventional wisdom that everyone's going to make money, it's going to blow up in your fucking face.

58:43And that's what happened in PE. It was like, well, you're going to make two X regardless. So whatever. And then let's talk beyond that. And it's going to happen eventually. You know, when you get whenever someone says you can't lose, you're just about to lose money. By the way, the fact that you had 20 names all doing the same thing with exactly the same strategy, that was probably a clue. We're pointed out in venture too. Tom O 'Bravo and Vista in particular are like, we're all in on AI-enhanced B2B. In my own portfolio, I've only seen one soft offer this year, but it was from a PE firm that was exactly that.

59:12A startup at scale that is not growing at astronomic rates, but growing at really good rates that is clearly AI-enhanced in the AI category got what I would say a decent soft offer. Okay. So those deals are happening, not at the rate they were in 2021 or even 2023. That's the current, seems like the current playbook is near as I can see it. So they're reviving that play and they've been clear. You know, Orlando Brawler has been clear. That's what he sees. That's the playbook today. The meta question is the whole B2B thesis broken because it's just not a stable category of software anymore. My sense is everyone's talking to their game to Rory's, to use Rory's language.

59:49I think they're kicking the can on this issue because I don't think most of these P firms have a reason to exist if B2B software is stable. Now, if it just means they need to evolve to a new category of B2B software, no problem. Raise another$10,$20,$30 billion. And if these AI-enhanced candidates exist that are affordable, you just buy them and you do the same thing. But if it's not, not to use the trite term of durable, but there is an argument that classic B2B market is just broken. There is an argument that even the high flyers may not, the ones, you know, the one that Kleiner just did in a billion for voice agents, for plumbers or Lagor or Harvey, we may find they're not durable.

1:00:25I'm not saying I have the answers. If they're not durable, then the whole classic P model is broken, right? This massive amount of software. And that's the crack in the debt market was it doesn't appear durable. So I don't know, but there's a chance it's all broken because AI has rendered it all non-durable. That would be what the Yahoo's that think Claude destroys everything would say is none of it's durable anymore. It doesn't matter if you're great or grinding or struggling. It doesn't matter if you're Legora or Medallia, none of it's durable. It's a great point, Jason, because in that world, and I'm not sure I believe in that world, but you're right, people have deposited, if the AI-first venture-backed startups that exist adjacent to the foundation models can't make it with equity dollars only, then they sure as hell can't make it with debt on top.

1:01:07So what you're saying is there would just simply be no compelling investment opportunities for PE debt-type firms.

1:01:15Harry Stebbings:It's like the most depressing realization ever. But basically, exit markets have gone. B2B markets have gone. I do think that the exit narrowing is a little depressing. OK, and I think it will solve itself. I beat myself up. Rory and I first met when I sold my last startup. And the post I wrote just a couple of months later was, did nothing to do with the timing. It was an OK decision at the time. OK, but I didn't know about this PE market. I never would have sold at a million in revenue if I'd known PE would come to the rescue and buy me for two or three times more a couple of years when I had 140 % NRR and was profitable.

1:01:50But it started just a couple of months later and a friend of mine called me up and he said, hey, Jason, I just got an offer to buy my company for 100 million. I'm like, this is just no way. I love you. You're a little bootstrap company. Who the hell's going to buy you? And it was the start of the PE wave. And so it opened up this wonderful era to Rory's point where we had plan Bs. Everyone had a plan B for your investment. And I do think it is depressing. I think it'll work itself out. The big exits will solve it, right? The whizzes and the, I mean, we thought whizz was big. Now we have cursor.

1:02:18Now I'm going to win the bet of a hundred billion dollar exit in the next year, right? So in the aggregate, it'll work itself out. But I do think for the average person, it's a little depressing. It's a little depressing that there may be no exit for so many companies that there used to be exits for. I think it's stressful as heck. It was stressful for me just before the PE wave came in. I was like, God, I wish I hadn't sold just for this reason only for PE I wish Ed sold. It's entirely plausible in a world of super big exits that 10 super big exits cover the entire nut from the LP perspective, such that it's still a good business.

1:02:50And they literally nobody cares about the fact that the other 96 companies wither off on the vine, right? And the 96 other VCs wither off on the vine. This is why many of the big firms are trying to get bigger, because they see this and they go like, if there's only a small number of slots, and if you're in those slots, you make a billion dollars. And if you're not in those slots, you make zero, then do what it takes to be in those slots. I totally get the logic. It's Darwinian. It's firms trying to adapt to that reality. I don't think it's quite as stark as that, but it is definitely on that trend line and you have to adapt to it.

1:03:20Okay, guys, we're going to do privates.

1:03:23Harry Stebbings:There's a lot in privates. You guys, you choose. Maybe choose one with a positive slant. Sorry, sorry. My fault. What are the choices? There's Thrive. There's Chamath's numbers. There's Gary Tan on bullshit ARR. There's SBF, the greatest ambassador of our generation. I think the Gary Tan one's worth a quick discussion. We've hit it before, but I appreciated that he called out these issues. Can you provide some context, Jason, just for those that missed it? I think it was started by a guy at this legal tech startup. What are the... Spellbook. Spellbook, who pointed out, kind of made too much of it, how there's a lot of bullshit ARR.

1:04:02OK. And for example, I've got one investment I made that's north of nine figures in revenue. I get three different ARR numbers each month, three different definitions. I can't at least at least they're trying to be honest. Right. What's like core software ARR, what software plus variable usage and what's like committed revenue. OK. And there's a massive delta between these. The point was like it's just so what startups are saying they're doing in classic real revenue, gap revenue, certainly versus what a non-gap number has grown. so great it borders on fraud was the initial point. Okay. And rather than say no big deal, who cares at the seed level, like YC, who cares at the YC that was so early?

1:04:42Gary's like, no, man, be truthful and precise about your revenue. And he laid out five points, which hit most of the issues. The ironic thing to me is even I felt by the time I got through Gary's whole memo, I didn't even understand what revenue meant anymore. It was so correct, but also so confusing the way we've rebooted revenue. and I don't know what you guys have seen, but I got burned once on this in the old days, right? But everyone's kind of been burned on this that's done a deal quickly. And I personally found if it's sort of mostly disclosed, it's been okay. If it's been hidden, I ain't gonna make any money.

1:05:16I ain't gonna make any money when this is bullshit, which is to Gary's point. And obviously, frankly, the fact that he had to say it probably suggested it is rampant at the seed stage or he wouldn't have to say it. That's my experience is that it's rampant as well. that people radically, like, how can everybody get to$3 million in revenue by the end of demo day? Maybe everyone can't. Maybe only a couple can. I think it was simultaneously really good and really shrewd. The really good comment is pretty obvious. It's necessary. You're right, there's this all ambiguity about revenue. Young founders are overstating things, at best, suckering people into doing investments they shouldn't do, and at worst, ending up in litigation and potential fraud allegations down the line if they mistake things.

1:05:57So some guidance is really good and helpful. And I predict if it sticks, the shorthand version of the seed stages will be, does this conform to the Y Combinator revenue guidelines? So that's why it's a good thing. It needed to be done. Let me tell you what's a shrewd thing. Because if you own a market, you want to make sure that that trust in the market remains. It's a little like the way De Beers policed the diamond market for years. You want to know that people can transact in complete confidence, right? Y Combinator has a dominant market share in the seed market, 25%. It erodes the value of their product if a whole bunch of people start thinking the numbers are bullshit.

1:06:32So not only was it a good thing, it was a shrewd thing because it's now basically saying, if you look at these deals at the margin, you know, you want to say you've got the Y Combinator. Here's how things are calculated correctly, steal of approval. So I think, again, it was good and shrewd. And as such, it's going to stick. Some version of it's going to stick. It's a good point. They're a market maker. So you want to have this level of transparency. One in 20 NYSE stocks lied about the revenue. At some point, the NYSE would say, we need to fix this thing here, people. Let's get the auditors in a room.

1:07:03And that's just what happened here.

1:07:05Harry Stebbings:On the slightly other end of this venture spectrum, Thrive Eternal. Josh just continuously bringing out new products and new packages for his investors. Thrive Eternal, I didn't want to say this, but it looks remarkably similar to Sequoia's Evergreen Fund in terms of the whole periods. I think you misread it because I understand that the verbiage looked the same, hold companies forever. And you were saying, is this an example? Because, again, for context, folks, in 21, late 21, Sequoia correctly said, over the long term, our very best companies continue to compound. And if you held all the companies, even the bad ones, the good ones would have swamped it because you'd have Apple, you'd have Cisco.

1:07:43And the analysis is entirely correct. And it's like the old analysis on any equity return business. over any 20-year rolling return, it's positive over 10. Most are positive over five. Some are positive. I know every once in a while over one, it blows up in your face. And unfortunately, Sequoia opted to do the eternal hold every stock forever in that one year where it blew up in your face. So they felt a little foolish about that, though I think over 10 and 20 years, their analysis will still be correct. If you build enduring companies, even in the public markets, the compounding will happen. That was the Sequoia comment that Harry was referencing.

1:08:16But I think the Thrive product is actually very different. If you read the perspectives, or at least the information on it, it's much less about holding up public stock forever. It's actually, it's interesting, kind of very marketing and positioning around different kinds of assets that aren't impacted by AI that are going to be eternal. It's an entirely different form of investing because I think their first investment is in one of the San Francisco teams. I can't remember which one. Is it the Giant? I can't remember. Was it the baseball team?

1:08:42Harry Stebbings:I think it's the Giants. Yeah. Again, in other words, it's actually just a totally different product line. They're making the big picture point that there are assets beyond the digital that are enduring and can't be replaced in any way, shape, or form by digital. Because they're right about that. There's no amount of automation. It's like that stupid people who say, oh my God, the robots can run faster than people on the half marathon, therefore it's over. Well, as someone pointed out, a Toyota Corolla can drive faster than people, but we still watch the marathon, right? What they're saying is this group of assets is so different than AI that they're enduring long-run media assets.

1:09:16And at that level, they're correct. I don't know if the average venture investor would be a really good buyer of sports assets, though history would say the Warriors has been a great deal. It's a different bet than the Sequoia bet. It's a different asset type. And, you know, if their LPs want to do it and they can pull it off, the guy's showing great taste. Good luck to him. It's outside my pay zone.

1:09:36Harry Stebbings:Well, this is totally off script, but we do business of sport, a sports show where we interview the biggest owners of sports teams in the world. The business of sport is dictated largely in Europe, at least. I don't want to speak for America, but by media rights. If you see the personalization of media, whereby everyone gets very independent media that they consume, whether it's games, TV shows, they can customize, craft to their own preferences. and it impacts slash, to Jason's point, maims the consumption of sports, then you have a significant impact on the digital rights package that teams get.

1:10:07Harry Stebbings:That is very, very significant. And so if you wanted to paint a world where AI changes content consumption patterns, that has the ability to significantly maim digital rights for these sports teams, which would significantly impact their revenue generating ability. That would be the bear case. You're right. In the case of sport, you're right, you have the individual personal journey. And you're right, you're seeing a bunch of that at the margin in sport. You know, you're seeing it even at the high school and college level where the athlete's personal journey is a large part of it and they can monetize that.

1:10:39And in fact, the way Lionel Messi monetized being Lionel Messi when he came to America is an example of that. He extracted the value, which by definition means that value that the sports team owner didn't get because he was able to get it. So I do hear your point at the margin. I mean, I still think, you know, if you own the entity that's playing the game, you do have the marquee asset. And especially in the U.S., the NFL economics have been widely compared. The U.S., in fact, has been even more successful at creating sports money printing machines than even in Europe. But so I do hear you, Harry.

1:11:13Mind you, I will say something I said earlier. You do go back to that comment I made earlier, which is when something is so obvious that everyone thinks it can't lose, that's just a time when you do. doing. Sports has been a home run win for 20 years, maybe 30 years, right? It's been the one irreplaceable asset. I'll give you one fun example. When Ryan Smith sold Qualtrics, I think he made about a billion dollars after 20 years or so. And I believe that billion, most of it went back into the Jazz and it has quadrupled. Absolutely. Sports teams go up. Quadrupled. Now he needed the billion, of course, to lead that takeover, but he's up three billion on the Jazz or something like that versus the 20 years.

1:11:46Harry Stebbings:Just to be very clear, this is a very, this is a super US-centric perspective. Sports teams do not go up. Tottenham are on the brink of disaster. Harry, Harry, I want to just get very, because I can comment on that. Actually, sports teams in Europe do go up in a sense of one key difference is some of the best worldwide assets are some of the European sports teams. One key difference though, in England in particular, you have the concept of relegation, which our American friends mightn't understand, which means in the NFL, you're always in the NFL. And no matter what happens, you're in the NFL.

1:12:18Same thing in basketball. In English soccer, if you're the bottom three teams in the bottom of the division of Premier League, you get kicked down one, right? And your economics go to shit. And as Harry pointed out, Paul, Tottenham looked like they're going to be relegated. Leicester's been relegated twice. So it is worth noting that Europe, the alleged socialist capital of the world, has a far more performance-oriented sports culture than America, where it's a nasty little oligopoly. I mean, the NFL and all the American things have been constructed, partly because they're the only three businesses that have an exemption from antitrust.

1:12:51So they're all constructed as nasty little oligopolies where there's no penalty for failure, which is the definition of socialism. And Europe, in general, from an American perspective, which is meant to be the home of mollycoddling socialist wimps, in fact, has a brutally accountable soccer culture, whereby if you're at the bottom of your league, you go down and your revenue goes down 5x. I actually think it's one of the best things about the English Premier League and the English league system in general. It's like there's real penalties for failure and Wrexham could go up. 100 % aligned, Rory.

1:13:23Of course, it's worth pointing out it's the only part of Europe that has accountability and we have it everywhere else. But okay, it shows what you think important, Harry.

1:13:30Harry Stebbings:Although I have said, I don't think anywhere hates billionaires as much as the US right now. Maybe Norway does, but I wouldn't say you're exactly pro-capitalism, are you? Jason, you can choose one more. Rory delegates decision-making to us on topics. Maybe a happier one? A happier one. I do wonder, I think the last one that would be interesting, and then the next show will be all happy, all good times. The one maybe that is mixed at the end, but maybe it is good times. I just think it's worth touching on. Is Robinhood Ventures 1 and the AngelList USVC fund, are these good, bad, ugly? Should I put a couple hundred grand into each of them?

1:14:05Can I put them on the Saster Fund website if I do, the underlying entities? Are these good investments, crappy, or are these just play investments for a token amount of your portfolio and it just doesn't matter? I mean, I think for a step back, it's catering to a need, which is that public investors have been denied access to these products and want to do it. So it's a way to say I got an investment in SpaceX, Atropic, and OpenAI. So first of all, at the level of symbolic, I think they'll get some action. And as proof of that, I felt this morning, I put literally the lowest amount possible in the VC product.

1:14:39So I am now an individual investor in Anthropics, SpaceX, and OpenAI. And even as we speak, I'm adding the logos to our website. Okay, we have to add a disclosure at the start of each show. Rory is an investor in all of the shows companies discussed on today's 20VC. Rory, what was the minimum? 500 bucks. You cheapskate. You put in 500 bucks. I just thought I genuinely wanted to process through the thing this morning because in anticipation of this, I try and use the products. By the way, wonderfully easy flow took 10 seconds done. And it uses Plaid, which we can talk about in a second. But the serious comment is, are they worth doing?

1:15:13I mean, I think 30%, 40 % of it is those three investments. It boils down to if you think those investments are good at 1.8, whatever it is, 1.75 for SpaceX. I don't know what the stated value is. Because look, for 500 bucks, I'm not doing the analysis. would you put 1 % of your net worth in there, which is kind of what the level of diversity. Step back. I've been looking at this. If the big three go public around$3 or$4 billion, it's about a little under 5 % of the S &P. So if you're 60 % equities, 40 % bonds, and you wanted to get that action a little earlier, putting plus or minus 1 % of your net worth in a vehicle that offered those things privately would be kind of logically correct, which is different than saying it is correct, because I haven't looked at the valuations.

1:15:59Before I put 1 % of my net worth in there, I'd want to do a lot more analysis. But that's the product they're offering. If you think those valuations are correct, it's a little like the logic for blockchain. Do you put 1 % of your assets in Bitcoin? Do you put 1 % of your assets in these high market cap companies? I personally would be angsty about the valuations on aggregate before I'd put 1 % of my net worth. But I get why the product exists and it's probably going to do reasonably well. Let me ask a question that I'm ignorant on, Harry. Sorry, you're the boss. But there was some controversy on Twitter.

1:16:31So Angel List charges 3.61 % a year to manage this fund, right? I'm confused. On the one hand, for a mutual fund that's going to destroy your returns, right? If you charge me 3.6 % a year to manage the S &P, not only is it expensive, but over 20 years, it just destroys your capital, right? Their point was our cost to deliver this product, this complicated venture product and managing these funds, it is 3.61%. In fact, we're subsidizing that because it's not even 3.6. So is this a high load on a mutual fund or a cheap way to get into the underlying managers and underlying funds? Well, I think what it proves is that it's the argument for companies going public, because first of all, you're right.

1:17:12If these companies were public, to look at the system as a whole, the companies would have to pay 5, 10 million a year more kind of compliance costs, but individual ventures could buy in mutual funds that are paying 50 bps or less versus 380 bps. So it would be a lot cheaper. Looking at, on the other hand, from the venture side as a private asset, 3.81 is high, but let every venture, let he who is without sin cast the first stone. The average venture investor is charging 2 % and then 20 % of the profits, which typically turns into, if you're successful, a 4 % or 5 % drag between gross and net.

1:17:48So it would be hypocritical of me to say, oh, 3.8 % is awful. If we're successful, our fee drag should be around 4%, including carry. I guess the counterargument, you're better than me, the counterargument might be for, it's a fund of funds, so it's expensive for a fund of funds, right? Yes, but the only reason you can pay in the long term 2 % to VCs and 20 % of the profit is because the gross returns have to be high enough, 25 % plus, that the net return is still 20%, which is so far above the Ibbotson small cop return of 11%, 12 % that it's worth doing. If your gross return is only 10%, 15%, and you put 4 % fees on top of it, then you would have been far better off in the public markets.

1:18:29So the question is, do these companies still have 15 % compounding returns from here? The bigger you are and the closer you get to the public markets, the harder it gets. Now, it has to be said, the companies that have proved every sentence that I've just uttered to be incorrect have been Entropic and OpenAI, where you've had 10x returns at 60 billion in the case of Entropic. And that's why these products are taking off. There are some companies that even at 60 bill have demonstrated wildly great returns over an entire business cycle across all the investments of that size. Will it return 10x?

1:19:03I doubt.

1:19:04Harry Stebbings:The lesson is, Rory, to your point. Who made money from Medallia? Ultimate ones. Sequoia, baby. Who makes money from Anthropic with a 17 and a half percent carry and a 1 % upfront fee? Goldman. Be Goldman or be Sequoia is the takeaway. You know what a related lesson from, yeah, Sequoia owned like 40 % of Medallia, right? It was basically bootstrapped, right? I think a reminder lesson is, and you don't want this to be true, but when a top fund doesn't go all in on an investment, it's such a bad signal. Not only is it bad if Andreessen does your seed and doesn't lead your array, that's the classic discussion we could have done on 20 VC in 2015, right?

1:19:42But the subtle one is when you do the growth round, when you do the billion dollar run, when you do whatever, and you don't see the big fund lean in for the super pro rata, I just think it's a terrible sign in today's world. I know people are going to challenge it, but it's my experience. Like if they've got the billions to deploy, they're going to put it into your winners. And if they don't stick you in the side of your chest with an elbow to get super pro rata it's a bad sign i'm gonna be so

1:20:07Harry Stebbings:honest i just couldn't take for the last few weeks it's been gnawing at me so much my figma and duolingo positions i was like you know what i've just had enough i've had enough after this conversation i'm selling them all while you guys were doing my skydio i just sold figma 40 down harry no way to run your money it is the agents don't need i do i'm up 24 rory um you know i agree but it just seems, yeah. Okay. Do you know what, Roy, the big lesson I have? Don't wait for the shit to come up. Just sell it and redeploy. I agree with that. I think that is very true. I've spent so long waiting for Figma and Duo to come back.

1:20:42Harry Stebbings:Don't. Just sell it. It is, by the way, as a random comment, it is the big difference between public investing and private investing. You do as a private investor, you end up, especially when you're on the board, and you end up dismantled. We're working this out together. And the whole beauty of public companies is, no, dude, you're working this out. I'm leaving because I don't know how you're going to work it out. And it's just a different mentality. And it's why I think, it's one of the things why I think venture investors can be mediocre public investors. And I talk to the best. I remember talking to Brad from Altimeter.

1:21:10You can tell that's a guy very dialed into. Every position has an exit price. And it's a discipline that you need as a public investor. So maybe I cancel my comment. My version of your thesis is, if you don't have an active reason for holding the stock and a belief it can outperform the S &P 500, which you can get access to for 20 bips, then why are you holding it? If you don't know why you're holding it, you shouldn't be holding it. So yeah, you're probably right. Jason, sell me this pen on Figma make. Honestly, I just don't know. Our agents will work with Figma because they have to, but they don't need it, right?

1:21:45They don't need it forever, right? They definitely don't need Duolingo. So I can't. I want to see the turnaround story for the agentic figma i do want to see it i'm just it's may i'm just gonna leave on the jeff bezos's

1:21:56Harry Stebbings:project prometheus establishes ai lab in london king's cross baby we're back boys thank you as always a wonderfully uplifting episode every week you have to have the feel-good story from 20 vc i'm voting for a new addition to the show we compete for the feel-good story of the week i like this new edition. But before we leave you today, are you a founder working nonstop to raise your next round? Are you an investor doing all you can for your portfolio companies to help them stand out? Funding and scaling a vision is challenging. Banking should not be. HSBC Innovation Banking caters to tech and healthcare founders all over the world who need a really great banking partner that matches their pace, offering fast onboarding, product packages designed for your business and capital solutions built for high-growth startups and the VCs investing in them.

1:22:48Harry Stebbings:With HSBC Innovation Banking's rapid onboarding, you can get access to your new accounts and facilities quickly, so your team can stay focused on building and scaling what's next. You'll be paired with your own dedicated team of venture ecosystem veterans who have the network and experience to guide companies in your specific sector, at your specific stage. And behind that Support is this real strength. HSBC's$3 trillion balance sheet and global network that provides this stability in international reach needed to grow your operation with confidence to see how HSBC Innovation Banking can support you.

1:23:24Harry Stebbings:Whether you're on day one or day a thousand, visit innovationbanking.hsbc to learn more and connect with an innovation banking specialist. That's innovationbanking.hsbc. While HSBC manages your corporate banking needs, Deal helps you build the global team behind it. Founders scale startups faster on Deal, grow without borders. Deal handles the hard parts of global hiring, so you can stay focused on growth. Set up payroll for any country in minutes. Hire anyone, anywhere, and get visas handled fast. Deal takes care of onboarding, HR, IT, EOR, benefits, and compliance. Everything your startup needs to scale quickly.

1:24:04Harry Stebbings:all done fast in one place. It's why more than 40 ,000 fast-growing companies like Airwallex, Eleven Labs, and Intercom trust Deal to move fast and get back to building. Visit deal.com slash 20VC. That's deal.com slash 20VC. Deal handles the global team and Framer handles the front door. A website should help your business grow, not slow it down. If updates to your dot com feel harder than they should, Framer is the shortcut you've been looking for. Framer is an enterprise-grade, no-code website builder that works like your team's favourite design tool and is used by companies like Perplexity, Miro, Mixpanel to move faster.

1:24:46Harry Stebbings:Designers and marketers can fully own the site with real-time collaboration, a robust CMS built for SEO, and advanced analytics that include integrated A-B testing so you're not just shipping pages but you're maximising what works. And when you're ready to ship, changes go live in seconds with one click. Publish. Without relying on engineering. Plus, Framer is built for scale. With premium hosting, enterprise-grade security, and 99.99 % uptime SLAs. Whether you want to launch a new site, test a few landing pages, or migrateyourfull.com, Framer has programs for startups, scale-ups, and large enterprises to make going from idea to live site fast.

1:25:27Harry Stebbings:Learn how you can get more out of your dot com from a Framer specialist, or get started building for free today at framer.com slash 20VC for 30 % off. 30 % off a Framer Pro annual plan. That's framer.com slash 20VC for 30 % off. Framer.com slash 20VC. Rules and restrictions may apply.