20VC: Anthropic's Monster $6BN Revenue February | OpenAI Kills Sora and Hits $100M on Ads Business | Oura Going Public & Whoop Raises $500M at $10BN Valuation | Manus Founders Trapped in China Post Meta Acquisition

21:51Harry Stebbings:Speaking of declining 30 % and being in the hole, we touched on it earlier, but obviously Mythos leak hammered cyber stocks. Crowdstrike, Palo Alto, Zscaler all down 6%. Octon, Netscope down 7%. Tenable down 9%. Was this a justified dip or Or is this an unjust reaction to Anthropic news? I'm going to say it's not a justified dip. And I was listening to the names and there's different aspects of security. And some of them I can say, yeah, maybe that overlaps. And then some of them I go, that's just a different thing. And when you listen to all the names being thrown out, you say, that's just baby with the bathwater.

22:27Because step back, how does Anthropic make security better? At the code development stage, they can look at code and find security flaws. So there are companies that upfront do something like that and application security companies. And you could argue that this is a different way of doing that. Maybe some of those guys will be impacted. What they're not doing, for example, is real-time perimeter defense. They're not in a real-time basis blocking people like a firewall. Nor are they doing what, for example, Okta does, which is single sign-on and authentication. That's simply not what they do. It's a different thing.

23:00And the fact that those kinds of stocks sold off says it's just a kind of knee-jerk reaction rather than anything thought true. It will have an impact. If you were doing application security or security code review, you're probably going to have to either incorporate how this works in your analysis or you'll be redundant. Just as GitHub had to roll in complete models and figure out how to adopt it, right? So for some of them, this is really going to matter. And then for others, it's just a different thing. Stepping back, I think we're in the panicky stage, right? I think we're in the stage of because these companies are doing so well, because they're private, no one sees the numbers, because AI is so sexy and so potentially amazing, we're at the stage now where anything can cause a panic.

23:42Harry Stebbings:Robinhood was down like 10 % because Elon didn't potentially give them the tender and was going straight through E-Trades. And that alone was like a massive hit for them. Obviously, there's a panic in the market. And the question is, is the panic justified, right? The panic is that this revenue is not durable, right? That's the panic. The cybersecurity one's really interesting. In my experience and opinion, this is one where it's just back assed backwards. If you're in the agentic world, this is the golden age of security. The number of security threats and issues is going up orders of magnitude.

24:14Claude leaking its source code. It doesn't matter. The number of apps exploded. Like there's so many mobile apps that App Store is like, it's like a month to get your app reviewed versus a week. It is, everything is exploding. These apps are being built by agents. They're being built in unpredictable ways. Folks aren't looking at the code. The pace of features being shipped, products being shipped, corners being cut. This is a golden age of taking any mature category and acknowledging good news for us. There's more threats. good whether i don't care whether it's application level perimeter and like the good news is threats are exploding the whole shtick in my whole lifetime has been you've got to constantly buy new products because new threats keep emerging like this is there's been a golden goose of cyber security that has allowed new entrants to come into a conservative category someone like wiz will show up and say guys we know how to do this on the web and people are so terrified of new threats they'll take the meeting right this should be the golden age for new and existing investors because the threats are terrifying and you can't stop the rogue engineers that vibe coded something that accessed your data.

25:19This should benefit everybody. Like everyone should be a rocket ship, like everybody monetizing GPUs is a rocket ship. And the fact that the market doesn't see it shows, in my opinion, we're in a true panic, which is hard to predict a bottom. It's hard, but I don't get it. Everyone should be benefiting when you see an explosion in application production and a change in the paradigm. The change in the paradigm is good for everybody except Windows Defender from 1996. It probably doesn't help that product or whatever the hell they have, but everyone with engineers should benefit. I broadly agree with Jason.

25:50I mean, there are more than Windows Defender 2006 that might be impacted. As I say, some of the application security code review stuff could be. But big picture, Jason's right. Instead of having people trying to get into your firewall, everyone is now downloading an agent, giving it full root access to their computer and telling it, have a go. And as Jason just pointed out, work overnight. It's funny, my colleague, who does a lot in the security, we've been looking at a lot of these companies. No one yet knows the exact approach that we're going to have to take to defend against agents running within the organization.

26:23But everyone 100 % understands that this is an emerging mega threat because of the velocity adoption times the power of the solution. So I agree with Jason. It mightn't be the old guard that takes advantage of it. I mean, one of the things I admire about the security companies is the CrowdStrikes, the Palo Alto networks of this world is they know damn fine that when a new trend emerges and a new solution emerges for that threat, when an earlier winner comes out, you better spend your 300 million bucks, your 500 million bucks, and just swoop up the winner and add it to your product. So I think there'll be a ton of fast acquisitions as agent security solutions emerge.

26:59And people would be doing, if they're smart, and I think those two companies are extraordinarily smart, they'll be doing acquisitions long before it's, quote, certain, because you're going to have CIOs come and talking to you. One thing we're mentioning on that is, it was interesting, again, and somebody leaked information from Anthropic. They're masters at selling fear. One of the things they're doing is they're releasing the Mythos model first to CISOs within companies. It's kind of like, oh, it's so scary. We're going to give you this model and give you time to figure out how to use it. Of course, part of that time will involve giving a million bucks to Anthropic.

27:34So it's just great marketing. So they're actually leaning into that and saying to the CISOs, you're going to have to figure this out. This is the new terrifying weapon we've invented. Please give us a million dollars and we'll let you defend yourself with it also. Great marketing. But it speaks to how correctly afraid every security CISOs should be, given the pace of agentic AI adoption of the enterprise. The golden age of cyber. It should be. How hard is it to get a meeting? Whoever you are, if you have any established brand, we've got a new Agentec product. We're going to help protect you from this.

28:05You're going to get a meeting that afternoon.

28:07Harry Stebbings:Wish I bought them over Figma. That's a depressing chart that I'm looking at. You need to let go, Howie. You need to let go. I'm down 30 % in a month, Rory. It's hard to let go after 30 % in a month. Okay. No crying in the casino. Move on. I do want to discuss revenue kind of questionability. We've got Anthropic recognizing revenue in a very different way to open AI. And then you also have questionability around emergent labs. And is it okay if ARR is kind of questionable in sorts of how it's accounted for? How do we think about that? You can choose which one you want to take. Let me just, can I just, maybe Rory can dig into it, but I'll tell you, there's one startup I invested in that's over a hundred million ARR.

28:45I own just enough to get the investor updates. It's not, I'm not on the board and I get three numbers every month. Three revenue. Yeah. Just two other things on the league. Just for this trade-off, you know, I'm dating myself, but when I was at Adobe, we were an early customer of GitHub. And so we were putting source code in the cloud. And that was banned at Adobe at the time. It was banned because the source code was their crown jewel. It remained. It was pretty easy to make a crappy PDF reader or a crappy image generator. But to do what Photoshop or Adobe Acrobat did, all the exceptions, all the tens of thousands of words was the crown jewel.

29:22pipe which is complete bullshit so everything we got the first exemption and then there's life so first of all stepping back to be fair i'm a topic and open ai they have a very clear and agents that can sleep and self-presume without any prompt what they take is they take the last the average of the last four weeks to smooth out times to without any because there are 13 four week periods the autonomous agent which is more sensible than talking about because you have these varying months what they're saying is realize revenue for the last four weeks and you know The average of the last four weeks, 10, 13.

29:55That's obviously the average of 10, 52. Basically, it's actual gap revenue. What can we bill for the last four? The average calculator cost the last four weeks taking account how this is. That's the run back. It's not committed to running to bullshit kind of higher level stuff. It's actual money flowing through the system. And Topic is roughly at 19 billion based on that kind of trailing four-week metric. And OpenAI is around 25. But now let's talk about your thing. There was this whole meme of OpenAI reports net on their partner revenue and Entropic reports gross. And what they're saying there is if OpenAI sells through Microsoft and Microsoft takes some money off the top, OpenAI only reports the net amount.

30:40If Entropic sells through AWS and they sell$100 worth of revenue, they report the gross amount and then they give$20 back to Amazon as a cost of sale. So there's two different methods for what look like the same revenue kind of mix, same revenue approach. I thought you were going to extend that. I thought part of where you're going was to Michael Cannon-Brooks point on the show was that a lot of this revenue is getting double or triple counted because of how it's being recognized. And not only does this happen, then Cursor is selling it again and recognizing the revenue, right? People keep reselling these tokens again and again and recognizing them as their own ARR, how many times do we get to resell these poor little tokens?

31:18I think that's actually a great point, Jason. I hadn't got to, but you're exactly right. No, it's like everyone's got amazing revenue growth, but it's the same little token going, I just can picture this little token. I mean, if we all agree to have essentially 0 % gross margins, an infinite number of us can keep reselling tokens to each other, can't we? This is our new 20 VC scale SASTR demo day. We all resell a million tokens to each other on the first week. So everyone in batch OO1 has a million ARR its first week because we just resold our tokens to each other. The VCs don't mind. You're exactly right.

31:50And the sentence that you added in passing is the key one. Until we all have to get profitable, all this can continue. And then at some point, that's why I said, I think you're starting to see it. Someone's going to have to say, assuming we want to have a net present value and a cash flow, what's going on here? And then all this becomes more clear. I didn't comment on the emergent labs fastest to 100 million.

32:10Harry Stebbings:Jason, you actually tried it, didn't you? You thought it was good. I did. I thought, I mean, listen, it's hard for me to know the criticism, right? Some folks in the press in the India B2B environment tried to make this some sort of scandal, right? And in a sense, fair enough, if you go to Emergent Labs, and Emergent Labs is sort of an Indian competitor, Replit and Lovable, which I'll show you what I learned in a minute, right? And if you go right now to the homepage, they say zero to 100 million, I think, in eight months. It's right there. It's the biggest banner. So in all fairness, if you're going to put yourself out there, not just as a tweet, but if it's going to be right there on your website, one would expect 70 % to 80 % accuracy in that number, ideally higher, right?

32:47So if it's lower than that, I think it's fair that some daggers came out. But I don't actually know what happened. Is it triple counting? I can tell you one thing that I learned, which I don't love, and a lot of AI startups do this. So this is not unique to Emergent. Instead of getting used the free version, they try to get you to immediately do a free trial instantly that says it's$0 and$20 a month thereafter. Now, so many folks do this. It is not unique to them. It's probably best practice in most accelerators. But I'm pretty sure that means they recognize$240 in ARR that first month when you're paying zero.

33:21And they trick you because you don't even – yeah, you do have to click on the stripe link, but you almost think you're just using the free product. So is that if I do a$0 a month product that's discounted as a marketing cost and I churn after 30 days, does that count as$240 of ARR? I think for a lot of startups, it does. So that's a fair criticism. I'm not saying this is what emerges, but a lot of startups will instantly recognize that as$240 in ARR, which is how they rock it. Otherwise, you can't get there that quickly, right? So they clearly did that. I will say what was interesting is overall, I think the criticism is probably unfounded because I thought the product was pretty good, much better than make like an order of magnitude better than the disaster of make.

34:01Because I do a five part test, a six part test. The first part is awareness test. So I ask it to redo the Saster.ai homepage. Actually, of all the platforms, it did the best job. It beat all of them, all of the leaders, because I redid this recently. I redid it. And they're all good at it. Repet, lovable, v0. They're all good at it. They all passed the test. but it actually was probably the best and it passed a bunch of the other tests. So I'm not going to switch to emergent labs, but I would say it's in the top 10 % of vibe coding apps. That's pretty good. So that tells me it's a legit business.

34:33Like they did, they did the work. The truth is if you play with a lot of these, even from leaders, like makes not the only one that's crappy. Okay. Because they're basically relying on the fact that Claude code does 90 % of the work for you, right? They're just putting the simplest wrap around this. And so they did a good job, but I really didn't like the way they do the billing, but we'd probably have to shoot half our portfolio companies that do PLGAI because I think it's a sus practice. I just don't like tricking you with this$0 for the first month when you think you're using a free trial. That's the sus part.

35:05I don't love that kind of gray art, but the product's pretty good.

35:08Harry Stebbings:You know what I don't like when it comes to confusing? I was wondering whether to go off on one in this show. And then And I thought, fuck it, let's go off on one. It's been a long day. I'm pissed off by these tranched rounds. I see them all the freaking time. The amount of Sequoia rounds where it's like, oh, X raises money from Square at 5 billion. Trust me, Sequoia got in at one, but they just club it together and then announce the sum and then the latest valuation. And it's just very misleading. The tier ones get in early. A tier two, tier three instantly marks it up. Same as crypto, isn't it?

35:39Harry Stebbings:For years, what's the difference? We'll give the Andreessen Crypto Fund, you know, essentially 80 % off the token. What's the same thing, isn't it? You're paying for the signal. I think if you break it down, first of all, just so everyone's on the same page, because interestingly, neither Claude nor GPT was on the same page and didn't know what a tranched round was. And they gave the old conventional venture, tranched round based on performance milestones, you know, BS from back in the day when we actually ran businesses, right? So didn't have a clue about this. So let's be clear on the practice here.

36:11The practice here is when a company, a hot company, raises a round where there are effectively two different prices per share. Let's call it a first close and a second close, even if they're at or near contemporaneous, where the first one might be at 250 pre and the second one is at a billion pre and the headline is they always at a billion pre. There's two impacts of this. First, let's do the simple one where there's just a single participant in the round. That's where if I'm the new investor, I want to pay 600. The company wants a headline of a billion. And to win the deal, someone says, okay, let me put some money in a 250, some money in at a billion.

36:49I can do math because I'm paid to do math because I'm an investor. So I know my overall basis is 600 million. So I'm getting what I want. And the company is getting what it's want, which is a headline number of a billion. It's silly, but that's all that's happening in that case. That's the single participant tranche deal. If a company wants a headline, that's what they get. Generally, those things come back to bite you because by definition, if you're the company, just as the investor can do, Matt, presumably you can do, Matt, if you accept that combined deal, you're implicitly saying, I know I'm only worth 600, but I'd like the optics of a billion.

37:20You better be damn sure that your next round, you're at one and a half billion. Otherwise, you'll have the optics of a down round. And if you're an optics believer, that's probably worse than the uptick. So that's the single participant version. The much more annoying version that Harry clearly was getting on his high horse about is when you have the same structure, but access to those rounds where the lead investor maybe does all of the 250 pre-round and only half of the billion round, and then some new investors just get to do the billion round. So literally at the same time, the lead investor is investing at$600 billion, and the follower investor, less marquee investor, is investing in the same asset at a billion.

38:04And I don't believe there's right or wrong in money. There's just money. That's where, at the minimum, you have to look yourself in the mirror as the other investor and saying, wow, that's the price of being cool. That's the price of access. I'm paying 50 % more because I just can't access that deal. And that feels like a pretty invidious thing. to, I mean, again, going back to the comment, if you think about, and again, trying to avoid morality and saying, oh, it would feel shitty. I mean, you really would feel like a loser if you did that. But let's play it out. This is a situation where the lead investor, let's say it's Sequoia because everything good and strong should be Sequoia.

38:38They are admitting it's only worth 600 on average, and they're just doing this fakie transaction. The company is admitting it's only worth 600 on average because they're taking the money at a blended cost of 600. So what you're saying doing it a billion is you're either saying either I have a lower cost of capital and I'm willing to take a lower return than everyone else, or the only positive spin you can come up with is the company thinks it's worth 600. Sequoia thinks it's worth 600, but I am smart enough, even though I don't have access, I am smart enough and clever enough to know that it's really worth a billion and I should do it at a billion, even though I can't get to 600.

39:11And I'm willing to put up with the upfront tax and foolishness look because six, 12 months from now, it'll be obvious that I bought at a great price and maybe I look like a genius. Yeah, but we've entered an era though where so many founders are obsessed about headline prices, obsessed. They're obsessed coming out of demo day. They're obsessed once they cross a billion, which I think should be a moment to take a pause because of the M &A options. They're obsessed about driving to 11 billion and 9 billion and one-upping their competition. And they don't think through any of the ramifications of the valuation they're hiring.

39:46They don't care. And I'm not even saying that's bad. I mean, I think burning the bridges is a good way to have a big outcome, but it's become utterly gamified on many levels, right? It's just become gamified. And so this 11 teen tranches in a round is just part of gamifying it. It's been true of YC since I started investing. There was always a cheaper price before demo day, if you're reasonably hot, a higher price at demo day, and then a 20 % or 30 % after demo day. So that version has just become institutionalized and so be it if it's what the founders want. If they want to gamify it, so be it, right?

40:17I just don't think raising at five or eight billion when you're at 80 million or 100 million of suspect ARR is the most exciting accomplishment in the world. I'm going to send a few thumb emojis on the email, but that's about it.

40:27Harry Stebbings:It goes back to your point though on Emergent Labs and the graph doing the eight months to 100 million. The gamification of like the race to 100 million, I'm not choosing Emergent Labs. Listen, I think they built a good product. I think, I'm sure they've been overly lambasted because whether it's 100 or 80 or 60, I don't care. It's pretty damn good, right? Whatever it is. But if you're going to do that, you deserve the daggers to come out when it's not 100%, right? I agree. One that I thought was fantastic, exciting. I always like to see a potential IPO or to IPO shortly. I thought this was fascinating.

40:58Harry Stebbings:It's been an incredible journey, actually, from like, you know, Scandinavia, these founders building this business has had a couple of CEO changes. The business is actually in incredible shape, both actually, and we announced today that they raised, I think it was 500 million at 10 billion. fitness and health data. Do you know what, actually, Rory, Jason's annoyingly right again. I don't know if you remember his predictions, but he predicted, if I'm not wrong, that 2027 would be the year for human healthcare data and longevity. Yes. And it looks like it might even be 2026. And the great thing about both stories is Johnny Iverside, very defendable from, and this is not an AI envy story.

41:37I mean, They use AI in what they do, but these are fundamentally standalone products with a clear consumer value proposition. They're not going to be cloud coded on Friday. I totally see it. And they clearly have had critical mass in terms of revenues. I think it's awesome. I think the question, listen, the interesting thing for these products, you know, going back to the topic of ARRR, these are recurring revenue products, right? For the most part, right? Fairly expensive subscriptions. And they're exciting until like Peloton when they aren't, right? Now, there's not a$2 ,000 cost here, and I'm not being critical.

42:10I think that they're exciting, but there's also a faddishnessism. People can switch. So what multiples do these companies deserve what it is? I'm not smart enough to know, but the acceleration is a force of nature, right? I'd love to be a seed investor. Don't get me wrong.

42:24Harry Stebbings:Do you think there's a faddishness in the same way? I think we ascribe - I think you can switch from - Harry, you're into fitness. I'm not so much, but I run 360 days a year, five miles a day for 10 years. so if they're a better treadmill a better device a better thing i would switch and whatever you're you're fairly fit harry like if you're if you are or and you love it but whoop is is better and you care you're gonna switch so it's not it's not service now error right it's not you will you're loyal but there's just some disruption like look at peloton when peloton blew up but actually as the world changed even though people love peloton right super high mps they remember the Peloton addicts of 2020 on Zoom.

43:05They loved it. But when the world changed, the simple answer to Peloton is they just switched. And Whoop is different than Aura. And there could be a Whoop or Whoop Aura. And maybe one is your ankle and it has your AI rock from Johnny Ivan and we'll switch. Two comments on this. One disclosure, we are lucky enough to have a small investment in Aura through the acquisition of one of our companies. So I don't have a ton of information, so I'm not going to breach any confidentialities, but just an abundance of caution, I'm not going to comment on numbers at all. Great products, right? But to your point, Jason, on it's not ARR-like service now, let me be direct.

43:41Get the fuck over it. Not every business on the planet has five-year design. And if you're running a bar down the street, every night I can go drink at a different bar. If you're selling Coca-Cola, every day I can switch to Pepsi. If you're running Amazon, consumer, every day I can go and search and go on Walmart. Not every business is going to have enduring long-term lock-in. And that's obviously, you'd prefer to have lock-in, but there are lots of business that have been around for 50 years where every day they have to earn the right for the consumer to go to them. There's no doubt in my mind that any kind of consumer hardware, software combination product has some residual asset from the subscription.

44:16But then, yeah, that every new device has to be awesome. You're in competition with other awesome products. It turns out capitalism is hard. If you want to make 10 billion in value, you got to deliver value for your consumers. And I think for what it's worth on Peloton, I actually think what really happened to them, it's a little like the Zoom story, is demand that would have been wonderful. It would have been the greatest stock ever had that demand been spread out over five or six years, increasing at 20 % a year. We'd be talking about the Peloton compounding machine. Instead, everyone bought the damn thing at the same time.

44:47They staffed up to meet that demand. The market was wildly saturated, and then the stock went down and broke the narrative. So I do agree. There's nothing you can do to make a market big on what it is. But I think they got whiplash by virtue of the COVID demand spike followed by demand fall off. The meta question for venture is, you know, the classic Peter Thiel zero to one competitions for losers is what Dr. Thiel said. Competitions for losers. Competition destroys profits. Monopolies drive innovation. You want to invest in monopolies. That's just my meta anxiety is if these are unmonopolizable markets, are they good ones for venture or not?

45:29And obviously there's two sides to it, but I would feel more comfortable investing in things that become monopolies. I mean, it's a better landing place than investing in bars.

45:38Harry Stebbings:And you can't ascribe the same durability of revenue to this as you can what day? As much as I love. But on the other hand, you can ascribe super high growth and you can ascribe big time. You're right, Jason. Look, if there were enough monopolies to do even one good monopoly a year, I'd be in. And speaking of the founders are about to get the all-time prize because they invested in the space monopoly and 20 years later, they're going to cash in their chips, right? Monopolies are better businesses than competitive markets. But I do think you can still build many billions of dollars of value from a high good consumer product.

46:10And there are lots of prior examples of that. And yet we all understand the dynamics of, I mean, actually for what it's worth, I think if you look at consumer products that flame out, like the GoPro, it's much less, and I'm doing this on the fly, but it's much less a competition issue. It's not like GoPro died because the competitor to GoPro emerged. It's that saturation is as big a problem as anything else. Well, DJI might disagree with you. I mean, there was a whole step function in the industry that they got left behind, right? Would you prefer$2 billion in consumer hardware revenue or$2 billion worth of five-year contracts like Palantir?

46:47Yeah, I'll take the contracts with the 90 % gross margin and the five-year lock-in, please. You're a starter for 10. I think maybe the more interesting question, Rory, that you brought up, because so much has changed. This is our 50th show. So much has changed, right? When we started this show, durable public company revenue, despite slowdown in the top line, was the gold standard, right? It was the best revenue out there. Fast forward to today. do we give a crap what type of R it is? Because the durable software stuff is trading lower than the S &P 500. Maybe I'd rather have ring revenue with a somewhat suspect customer lifetime value because the software value is so low.

47:22Maybe I don't care where my R comes from. Totally. Right. It used to matter. It used to matter, right? We'd be in board meetings where you would torture companies so that they would have more ARR and that they would have less variable revenue. I mean, that seems like archaic today. Yeah. And I remember doing that. I remember telling people not to do that because I'm a big believer is you should sell your product the way the customer wants to buy it. And I agree. One of the things I hated about venture was when people would say, oh, make it all recurring revenue. And then the fun one that's actually really relevant right now is you remember everyone would say, oh, it's a hardware product, but all the values in the software.

47:55So we're really like a software company. And now hilariously, everyone's going, oh, thank God I've got hardware because hardware is defensible, not software. Right. A big picture comment is you should conform your company around your customers and your model, not your VCs. Because I agree with you. This kind of pretend it's ARR, but then next year we hate ARR. It's just a total waste of time for entrepreneurs. Things are what they are, and you do best in business if you actually say what they are and just live and die by that. Most consumer products have high volatility associated with them. You better have a damn good R &D function and continue to build great products.

48:28The one question I would have about an Aura IPO, just thinking about it. We looked today, this week, they also talked about how I think Allbirds, was it acquired for less than$30 million?

48:37Harry Stebbings:Yeah, I was literally about to bring this up, Jason. It was acquired by Almex for$39 million. So my question is, if a company like Ora goes public and you see weakness in a quarter, should you dump this thing instantly like Allbirds versus forgive a little bit of weakness in a sales force or service now? I'm going to avoid any specifics. Genuine comment here, right? Because it's not appropriate. it. But I would say something, unlike the other two guys, I've run a textile manufacturing company 30 years ago. The technology required to make an all birds or a shoe is not the same as the technology required to make a modular electronic device that sits on the human finger and measures blood.

49:13Either of these kinds of consumer electronic products, they're not a monopoly in the same way NVIDIA is, but it's a pretty rare number of companies that can do that. Go down, put it this way, Jason, I'll name a wearable, you'll name a wearable, and then I'll name a sneaker and you'll name a sneaker. We'll be done with wearables long before we're done with sneakers because there's a lot of different sneaker companies. And yeah, it turns out sneakers are easier to make than wearables, which are easier to make than NVIDIA GPU chips.

49:39Harry Stebbings:Speaking of like, do we care? What do we actually care about? I don't know if you guys know this, but I have wonderful partners and one of my partners is much more intelligent than me, which Rory, you're going to make some form of gag about, but he helped me put together some of the schedules too. And he was like, whoa, I had no idea about this. He was like, whoa, Epic Games laid off 25%. I didn't even hear about that. Yeah. And then I had Mark Andreessen on your last pod, sort of laughing about how we all over hired in 2021. Well, Mark Andreessen was very clear. He thought that we were all using AI as an excuse.

50:13Harry Stebbings:We were all overstaffed by 50 or at least 75%. But point being, point completely under the radar. And to be fair to them, they didn't try and do an AI bullshit story. They basically said daily active use of their Fortnite game and their games is down. So your revenue is down. So you take your expenses down. Struck me as a no bullshit layoff announcement. It's like, we sell less stuff. We have less people. It sucks. And again, I really do try never to be cavalier about people losing their jobs because every one of those has to put food on the table. They're not earning the kind of money we're earning.

50:46And now they got to go out and find another job in a shitty job market. It sucks. But the lesson is, and that's why I respect them. It's like, we're selling less. So we got to do what we got to do to keep the company profitable.

50:56Harry Stebbings:Guys, we keep talking about these layoffs and these big numbers. I mean, it was over a thousand people laid off in this layoff. A thousand. Numbers are relatively meaningless. And we've had so many of these conversations. What happens to the labor markets? Well, one thing on the Epic thing, and the Wall Street Journal did a good article on this this week on the permanent decline of Hollywood employment. It's permanently in decline. It's in decline because fewer movies and TV shows are being made. TikToks and YouTubes are doing it. And it's in permanent decline because every other country provides larger subsidies.

51:28And so there's this permanent decline in Hollywood labor. I think entertainment is sort of shows us the future. Epic Games is entertainment too. And they will absorb as much AI and technology as they can to adapt. And it's just early. It's just early. They've had to adapt to YouTube. They've had to adapt to social gaming. We talk about these, you know, a thousand people that last year or whatever, but I think Epic Games is just, it's, I think it's a more interesting view of the future than block. We talk about folks might vibe code a B2B app, but content's already being massively disrupted. And some part of that is, as you pointed out to me when I got it wrong a few episodes back, AI related in terms of recommendation engines.

52:07But I think a lot of it is just, you know, a very competitive attention economy. You're right, Fortnite was the game everyone talked about. Now it's not. It's the nature of the gaming industry. So yes. It's the Fortnite circle coming for everybody at the end of the game. Coming for everybody, even Fortnite. The Fortnite circle has come to Fortnite itself. It's surrounded itself. Poor Epic Games is in the middle of its end game of Fortnite. It's just it and content creators shooting it out at the very end. It's coming for all of the, the Fortnite circle's coming for all of us.

52:36Harry Stebbings:The other one that kind of relatively was, I think maybe a little bit overlooked is reports of Manus founders. Manus, obviously, for context, being bought by Meta recently. Manus founders trapped or kept in China. So just again, give people context and then put out one question mark there. Manus was a company originally based in China, had some Chinese investors. Then we domiciled to Singapore, benchmark invested. Effectively, we founded it as a US-Singapore company. Meta acquired it. I want to say, and I use the word past tense, acquired, because my understanding is the transactions closed and the money's moved.

53:11Though, interestingly, not a chachy, pino, and tropic, we're clear on that. But my understanding is that's what happened. But then now the latest thing is the Chinese government takes a dim view of this because they don't want Chinese talent leeching overseas and going to the US and effectively not being Chinese anymore. And they feel it as a brain drain. So they did something that was pretty coercive in the sense of two of the key founders of Manus, I think, were either in China or summoned to China, they're no longer able to leave. So those are the facts. Yeah, of course you care. I mean, I think that starting from scratch, I mean, that sucks.

53:46I wish them the best because that's not a pleasant place to be. I mean, I think you've had the Jack Ma thing at Alibaba of effectively going, as it were, under the radar for a few years when you kind of incurred the displeasure of the administration. You also have people who've had significantly worse consequences than that. So let's start with the basic. You wish them all the best. I don't think another deal like this would happen to you. I think this whole Singapore washing thing is over. It's over. I totally agree. That's where it's going to go with that long preamble. I'll tell you who did notice.

54:15Maybe no one in America spent any time thinking about it, but every Chinese founder who was thinking about doing this is going, hmm, I don't know how I feel about this. I don't know if I can do this deal. I do know if I do this deal, I am never going home again. But I'm with you, Jason. I think all these other China-washing deals, they're put on pause or they're put on re-evaluation or this next thing is going to sound harsh. It's a fairly coercive regime. If your family is not out of the country, do you have exposure there? It just shows, I mean, authoritarian governments can take pretty drastic steps to impact our citizenry if they want to.

54:47And I agree, Jason, it makes it really hard to imagine doing another one of these deals without being worried about this consequence. And hopefully they'll kind of go, nor do you, pay 50%. Like, you know, California makes it hard to leave too. But if you pay them 13%, they'll let you go to Nevada. Yeah, hopefully it turns out to something like that. And please God, it's not something more coercive. But I agree, Jason, wouldn't do another one. In venture, you take risk, right? It's part of the job. So we've all had deals where there's some rule, some corner that was cut. And we talked ourselves into it's okay, right?

55:18Something weird about this company. And we convince ourselves as talking to some mediocre lawyer or asking an LLM today that it's okay. So like the Singapore washing must work. They've moved to Singapore. It's got to work. And you convince yourself and you talk to a few people and you take the risk. And it appears to have bounced the right way for benchmarking friends, right? It appears they've gotten their money. But you don't do the next one, right? And there's 242 millionaires in Singapore. The majority of the inflow is Chinese. You don't do the next deal. Maybe other capital does the deal, and that's fine, right?

55:50Capital is fungible. But you just can't do the next one like this. It's too risky.

55:54Harry Stebbings:What do you do if you're Meta? Part of the asset you're acquiring is the team. $2 billion is not a lot for Meta, and they have the product. Yeah. What are you going to do, Harry? What would you recommend? Getting angry at the Chinese? That would work well for them, right? I mean, I think it'll be yet another acquisition that looked clever, but in retrospect, wasn't amazing. Well, listen, for Meta, I'll just say one thing. I only have a tiny bit of information, but appears to me, Manus is running mostly smoothly as an application in a company. Now, I don't know if the founders are working at it.

56:25You know, certainly feel strongly when you lose your founders, you lose your heart and soul of your company. But in the short term, I don't think it's a big deal for Meta outside of the founders because it's running smoothly in the short term. It's not down. The team's functioning. They're running. And but it's crazy. And at the risk of being Pollyanna, but also wanting to assume the best of people. I would hope that the meta management team and board, to the extent they do have any influence, can help these guys come to an amicable end. And if it requires a tax settlement or whatever, you don't want to leave people you just acquired in limbo.

56:57At some zoom out level, when you listen to the rhetoric on both capitals, you just have to realize that trying to tread

57:04Harry Stebbings:between these two countries is pretty hard right now. We have China hawks in the US government. They obviously have a whole ton of US hawks or whatever the equivalent is. There's a real perception of competition. You know, we don't let them buy the Nvidia chips, et cetera, et cetera. You're playing with fire on that thing. And sometimes it bites you. I just think overall, it's natural in given the outcomes in AI and given the growth that I think it's tied to taking the highest levels of risk we've also taken because the playoffs seem to be there. And when this deal happened, folks kind of thought this was aggressive.

57:36Benchmark's never done a deal like this. Why are they doing a deal like this? It's not even very cheap, right? It seems a little crazy. And they're like, well, we've never seen anything grow like this. And The team's incredibly talented, right? So they took a little bit of risk and they made their profit. We're all taking more and more risks. Folks, now it's a week of revenue at a demo day. I did a million dollars my first week. It's amazing. What about the second week? I don't know. But as long as it all works out in the aggregate, and I think this is why nobody cares, to Harry's point. I cared about Manus.

58:02I added it to the list. I don't think anybody cares. We're all focused on getting a million dollars our first week. Just good realization that the worst thing that can happen is not just, oh, you lose your money. There are worse outcomes than that.

58:14Harry Stebbings:I mean, speaking about cooling their shot and making billions of dollars, Steve Jervison, he's tied his career to Elon very smartly, so that's not in any negative way in terms of the investments that he has. Plowed, trebled, doubled, quadrupled, everything in between. Leaves California, buys his most expensive home in Incline Village. And these were Jason's notes. Will anyone with liquidity be left in California? What if California is structurally bankrupt? It's not a great sign when they keep leaving, is it? It's not a positive. But Rory's staying, Jason. I mean, look, first of all, you're exactly right.

58:48All credit to Steve and more power to him. I've known him intermittently for 30 years. He made a brilliant call to align with SpaceX, been on the board of Tesla and SpaceX. Tesla for a while and then came off, obviously, for those back in the day. But SpaceX, too, yeah, he's put his money in a compounding machine. And now he's clearly hit the DPI moment. The truth is this. Ultra high network people have a high degree of mobility. And unfortunately, if you put the hammer up too high, they can leave and choose to go across the border to Incline Village and save 13 % on any realized gains. Plus, as we pointed out, 5 % on all gains if this wealth tax passes.

59:27At the margin, why wouldn't you? It's not like you need to be in California to be a Tesla board member or a SpaceX board member given they're down in Texas. The actions have consequences. Well, it's interesting also this week, Washington State did pass their 9.9%. state income tax for millionaires. And the governor said, well, they just deserve to pay more. And that may well be true. It may well be true. I don't want to debate that. This is not political, right? I'm more concerned about the tipping point when we kill golden geese. Washington and California, and to a lesser extent, New York have been the golden geese.

1:00:01Washington said they're going to lose money. They're not going to make money on this. It appears that most folks that are neutral or right have said California will lose money on the billionaire tax. Everyone's left. And the tax itself assumed massive amounts from Larry Ellison, who's been gone a half decade, right? So no one's, it's just, I do worry they're all leaving. Everyone that doesn't work at open-hand, anthropic. You know, on this show, we've done it 50. And I said in the beginning of this, that you'll leave after the series B. And now I see that used again and again by these folks who are on the right on it.

1:00:32They say all the founders will leave after the series B, but it may happen by show 100. And I think one of the arguments I make is, The truth is this, articulating the argument to the activist on the other side as being you're being mean to the billionaires is of genuinely no interest. And being mean to a billionaire is actually a feature. But I think the real articulation is this. If you actually are losing revenue that won't be available to California, and the marginal dollar in California probably goes into payment for homelessness, payment for your kids, payment for foster homes, payment for marginal social welfare services that are easy to defund when times are tough.

1:01:09And by choosing to obtusely tax without any attention to ability to collect that money, you've actually reduced the revenue that's available to you. And that's the argument you have to make to someone on the other side of the table. You have literally chosen something. Instead of getting, pick a number, 50 million from the Larry and Sergeys and the Jervisons of this world, you went for 200 million and now you're going to get zero. And what that means in real terms is somewhere down the line, long after all these changes have been made, somewhere in Sacramento, someone will zero out a line item on the budget.

1:01:39And let me give you a clue. It won't be payments to the teachers. It won't be payments to the firemen. It'll be marginal services to marginal people that your craft stupidity and desire to make a political point has ended up costing them money. And that's the only argument that moves the needle because it's true. And you're right, Jason, you're saying is that it will have a net negative return. Now do you feel good? Rory, if you were Steve, would you have left? I think from my perspective, I'm just so glad to be in California. It's so wonderful. I've moved around a lot early in my life. I have my friends here.

1:02:09I have my life here. At the margin, the whole point of having money is to be able to do what you want. And for three or four or five or even 13 % of your income, do you really want to leave? Now, I will say that's why you can tax income relatively highly because it comes all the time and you can't control timing. and therefore you have to uproot your whole life for the rest of your life to avoid it. And I don't think it's worth it. So I wouldn't move to avoid income tax. Conversely, if you have this pending capital event where literally in one year, you're going to sell, quote, all your SpaceX stock and realize a$2 billion gain, and you're going to pay an extra 13 % of that in California, just$260 million.

1:02:49Maybe you turn to your wife and say, honey, for the next two years, why don't we live in Incline Village 165 days? I'll pay for the plane. We'll go back every week. You won't lose contact with anyone and we will save$260 million. And you go, hmm, that's real coin. And that's the point about, that's not the life I live. That's not the situation I'm in, but that's the argument you make. It's like, it's not crazy. Is there any story that I haven't hit on guys that we should hit on? I just have to bring up the Ron Conway, Matthew Prince one, because I highlighted that one on Twitter. It was just the funniest thing in the world.

1:03:24Harry Stebbings:Do you want to provide some content? Yeah, I don't know Ron Conway, but he's certainly viewed as one of the Silicon Valley gems, right? Seed investor and so many leaders, always out there as an advocate everywhere, probably could have retired years ago, right? Very founder centric. And he wrote that he had helped Cloudflare navigate some very significant issues earlier in the day, I think on Jack Altman's podcast. Yeah, on Uncapped. And they asked Matthew Prince, CEO of Cloudflare, the question he said, well maybe I don't remember any of that and it's just it's not and he wasn't mean Matthew can be fairly uh sharp as as Harry knows these days it wasn't meant mean the tweet was not mean he literally just meant he couldn't remember getting any help from this beloved VC and I think it just said so much to me about VCs adding value but also VCs thinking they add value VCs possibly adding a modest amount of value but founders not really thinking that modest value was consistent with the bravado of the VC, it just crystallized the whole value add idea to be in a single tweet.

1:04:23It wasn't mean. It's just, I don't remember any of, I don't remember Ron helping, but maybe he did. Yeah. You're right, Jason. I did laugh at that. And I think actually my bigger heart to your point is both to some extent are right. Is that, you know, as a, you know, we all want to have agency. We all want to feel we help and, you know, want to be good people. And you look at and go, Hey, I spent some of my time helping the CEO. I feel I helped. But from the company's perspective, they're founding a company, they're doing a million things. On one or two things on a 10-year journey, you helped.

1:04:51You remember that vividly. They're like, dude, it just fades into the background of a hundred things. And you know better than me, Jason, they have to do every day. One of the proofs of this, an interesting way to check it is I often read business biographies and business stories of great companies, venture-backed companies and how they're formed and what happened. And you know what I notice in them? Every single one of them, very few little mention of VCs. If you just read them, you eyeball them, says, oh, that's a biography. Yeah. And they crop in and come out a couple of times. And I think that's right because realistically, in the journey of what's going on, the only significant things we done, I said this before in the podcast, we put in the money and we put in more money when they need it.

1:05:30We decide to hire or not hire and fire the CEO. We agree the broad strategic direction and anything after that is at best an assist. And if you read the biographies of businesses, What you generally see is the only time the VCs come in is on some version of those. And it's five pages of the journey early on, interspersed around 200 pages in the first five chapters. And by the time they get to the IPO, it doesn't even rise to the level of a thing. I was reading the OpenAI biography, a bunch of them recently, and that's just the way it is. Microsoft, same thing. And the VC can feel those five minutes of impact were amazing, and they feel really good about them, and you feel warm and fuzzy.

1:06:04But the only thing founders really remember for better or real is, oh, my God, our backs were to the wall and no one would put in money and they put in money. They remember that. Sometimes they even forget that. But to your point, Jason. At least half the time they forget that. If they forget that, they're definitely going to forget the time you made that phone call to help them connect with XYZ and that helped them do something because that's something that happens 100 times a day. No, you're right. We're not the stars in the drama. We're bit players who get well paid for our part. Boys, as always, the most humbling 90 minutes of my week.

1:06:34I have faith you'll get more. You'll be humble tomorrow.

1:06:39Harry Stebbings:But before we leave you today, I run 20VC Fund and I get this question from founders all the time. Harry, I can't find a good.com. Do you have a hookup? Let me tell you now, the answer is always going to be no. I don't have a guy or gal for that. I do have a recommendation though. If you're building a tech startup, get a.tech domain. Techstartup,.tech domain. It couldn't be more simple or obvious. As an investor, I appreciate founders who put thought into their branding. When I see.tech in your name, it tells me right away that tech is at the core of your build. It'll say that to your customers, too.

1:07:11Harry Stebbings:A clean and sharp domain like.tech pays off in the long run. Look at the companies using.tech. Nothing.tech, 1x.tech, Aurora.tech, CES.tech, Ultra.tech, Alice.tech, Neon.tech, Blaze.tech, Pi.tech. Great tech companies. They all use the.tech domain. These are my two cents. If you're building a tech startup, don't overthink it. secure your.tech domain from any registrar of your choice. While.tech gives modern companies a home online, Checkout helps that home convert by turning traffic into revenue. Over the past 15 years, Guillem-Pozaz has led Checkout.com through what he calls the velocity years, a period of hyper-growth with relentless product building.

1:07:52Harry Stebbings:The lesson? High growth is a gift, but it demands ruthless focus. As his mother put it, play the game you're good at. For Checkout.com, that game is digital payments, obsessing over data, chasing basis points, and compounding learnings over time. And that discipline is paying off. 2025, Checkout.com processed over$300 billion in total volume, up 64 % year-over-year, and returned to full-year EBITDA profitability. They now support over 1 ,000 enterprise merchants globally, including 63 that process more than a billion annually, with brands like eBay, Vinted, Amex, ASOS, and Tmue. Guillaume's message, though, it's pretty clear.

1:08:27Harry Stebbings:They've earned the right to win anywhere. Now, they're investing in innovation across marketplaces, issuing, financial experiences, and agentic commerce. If you want payments built for what's next, talk to the team at Checkout.com. That's Checkout.com. While Checkout powers the moment money changes hands, Invisible powers the people behind the work. Why don't we hear more real AI success stories from big companies? The models are insanely good, but implementation's the problem. It's really, really hard. There's data all over the place. There's legacy tech and manual workarounds. It's a Ferrari engine in a shopping cart.

1:09:02Harry Stebbings:Meet Invisible. Invisible trains 80 % of the top models and then adapts them to the messy reality of your business. Take the Charlotte Hornets NBA team. Invisible took years of game tape and analog scouting notes to go from uncertainty to a draft pick and Summer League Championship win in weeks, not seasons. Get the data in order first and suddenly AI can do almost anything for you in the enterprise. If you want AI that hits the P &L, go to invisibletech.ai forward slash 20VC.