20VC: Benchmark vs a16z: Why Stage Specific Firms Win | Windsurf Sells For $3BN | Decagon Raises at 100x ARR | Do Mega Funds Win the Future of VC | What Does Harvard's Losing Their For-Profit Status Mean for VC

23:09Let me repeat that, Baker. So let's call that an average of two. They've assembled a 20 and it gets right back to your comment about the firm that has chosen to be most successful on one stage Had a hit rate of 10 % across 14 years and the firms that have chosen to do everything have a 2 % hit rate That's probably not a coincidence what it said to me is Contrary to the thing they just been talking about the focus firm pulled it off better Let's and let's stipulate all of those firms are amazing and all the people there are wildly smart Let's just stipulate that it's, therefore, we're just comparing strategies.

23:41And then we have to figure out which is the best. Your benchmark did something like 63 theories A's and had a 10 % hit rate across 15 years. And recent, did a 454 theories A's and had a 2 % hit rate across the same period of time. Now, in absolute numbers, they had 10 5 billion hits and benchmark had 6. In those numbers is exactly the dilemma of the megafon versus the focus one. it's all right there. The focus fund is better at hit rate, has more as a percentage, and lower as an absolute number than the guys cranking through 454As. That's all you need to know. It just shows clearly that if you scale the thing up, your quality does slip, but the aggregate numbers keep going up.

24:26The only question therefore is, which of those strategies makes the most money, you know, and does the larger volume strategy, which your 5 or 6 other firms are pursuing as well, Is that going to pass the return threshold? And if it is that bigger strategy works, that's the gut to the question. It was great and as I've never met this guy, but I printed it off, I read it for like two or three hours, I'm like, there's a ton of information in there. Those deals also were a while ago too, right? It was such a different time, and I'm not saying they won't reproduce it, but when I look back, that was when I started to invest.

24:56It's nothing like today. Like, there's nothing in common. There's nothing in common, 2013 to 2018 when I started. Nothing. You're exactly right, but there's potentially two consequences of that. Let me give you the first is to say, hey, it wasn't as easy as that, right? It's going to be harder now, agreed? Yeah, for a lot of reasons, for a lot of reasons. But if it's harder now, let's move from hit rate, which is how many times you got it right, to what percentage of the best outcomes you got? In a less competitive time, the best firm in terms of percentage of total outcomes was in recent. They got 10 % of the good outcomes, benchmark .6, and everyone else bunches into 2, 3, 4, 5 % rate.

25:31In other words, when there was less money than there was today, the most aggressive firm only, and I say only with Perenz, because it's an amazing algorithm, got into 10 % of the great numbers of the great deals. Now you circle back to the Josh Coppelman thing and you realize it's really hard to build a fund that says in 2026, you're going to get into 20 % of all the good deals. Then I say to you, Andreessen, the most aggressive firm in the less competitive market only got into 10 % of the deals and all the other firms did less than that. It might be possible for one eight billion dollar fund to be fricking amazing.

26:06It's going to be very damn hard for six or seven eight billion dollar funds to be fricking amazing at the early states to the extent required to make the math work. It's just about the multitude of trillion dollar companies that will exist. And if there's two, then you're right, that fact. If there's ten, there's a movement. I totally agree. to the extent that the big strategy's work, it won't be because they get more series A's than 10%. They won't get better market share in 2025 than they did in 2014. It will work exactly what you said, how to be clear. The deciding between does this strategy work or not is other companies that compound from 100 billion to 400 billion in the private markets before they go public.

26:49And right now those two, there's SpaceX, there's OpenAI, you know, if you have four, or five more of those, the math works for everybody. Provided you had them. Can I ask you a really simple question on this? I mean, Harry's trying to count how many dozen trillion dollar exits is gonna have and commit to his LPs. The global economy, the world domestic product. What's the acronym here? The global economy is 100 trillion, okay? I don't know what revenue multiple we put on everything, including grass and dirt, but how many, I have 100 trillion, how many trillion dollar exits can we have in a hundred trillion dollar world?

27:20Like, excluding Mars. I'm gonna go on this in fact, is how he uses trillion because that's his how he, right? The US GDP is around 30 billion, the US stock market trades at roughly 2x GDP, so 66 .65 billion. No, it's meant while the great piece are not conflating income and market cap. But around 60 trillion, the more important point is every decade does roughly, does roughly a trillion dollars per decade of new value created plus or minus. And that's been true in the past. And the real question is does that one go to two? It's roughly of that order of magnitude we're dealing with here. Help me do the math.

27:53If half of all tech labor forces replaced by AI, which I did not believe 90 days ago, now I'm 100 % convinced of, how much trillions does that create for tech companies? Like if half the knowledge workers are turned into AI, which I think is going to start to have a next year, like so fast, how many trillion dollar startups do we get out of that math? I think talking my trillion dollar startups is not useful. Even though let me make the following sentence, there were six companies with a trillion dollar a market cap, all of them but Berkshire were founded by VCs and founded within my lifetime at least.

28:23So to the extent of $1 ,000 ,000 is possible, it's only possible in venture. That's just as a reminder to all our PE friends that in the end we are better. Let's not focus on the trillion because it's just too public marketing. I think a hundred billion is the kind of mental high end of good. So now to your question on can AI look, if you're selling the thing that allows your company to be more efficient and allows the rest of corporate America to be more efficient, it's It's got to be pretty good for you. I mean, simple economic says, you're selling the thing that can cut costs and make companies more efficient.

28:54No, I look AI and the ability of AI to unlock value is clearly the big lift. I mean, witness the acquisition we started talking about. Yeah. But these mega funds, I think they're predicated on this. And Vinod's been saying this for years, and I didn't get it until 90 days ago, 690. Until we ran our own AI with 130 ,000 conversations through it, I didn't get it. Now I get it. Half of these knowledge workers are going to be gone and 24 months and can software capture 10 % of that? 5 % of that, because what does it average dollar worker worth? $200 ,000 a year? And how many of them are there at times point 1?

29:26I'm gonna take the counter on that. I think that the past is the best predictor of the future. AI's exciting, there'll be lots of savings. It's the new new thing, we're investing in it. As you had economics, it's hard to move macro dials. If it lifts the GDP growth from one of the half to two, you'll barely notice. It's like gonna be like PCs in the internet. It takes a long time to show up in the numbers. So it's not going to be some step function change, but that doesn't mean you can't make many multi -billion dollar outcomes from it. I don't buy the math unemployment in 12 -20 months. I'm not smart enough to even know what's going to happen to GDP.

30:00In fact, I'm pretty skeptical that most software that increases efficiency really contributes much to growth. I mean, come on, we've all seen CRM, all this stuff, it hasn't really, but I got to tell you, Rory, we do not need SMB sales reps next year. We do not need marketing managers. We need almost no one in customer success. We need no mediocre QA engineers. We need almost none of the mediocre product managers. I will bet you all $100 ,000 that more of these people are unemployed 12 months ago than you think. 100 grand. It's already happening. I mean, I'm slow. I don't get it. I mean, literally, even at SASTRA, we've gotten rid of five people in our team in the last 90 days to do the AI.

30:37Five people off our team. And it's not just efficiency, Rory. It's better. and two, they don't complain about the job. They don't complain about the job. As soon as AI's even 80 % as good as a human, they'll all be gone. No one, you can't get anyone to work at these boring SaaS companies. Literally, I talked with an old marketing manager I worked with that's not even that senior. Okay, she's been out of work for six months, Rory, six months. She says, I need to make at least 300K. I just want to attend meetings. That's what she said to me. I've noticed her fears. I want to make at least 300K in tech because that's what she did in 2021.

31:07She went to meetings in May 300K. I'm like, I'll keep my ears out is what I said to her. I'll keep my ears out for that 300k meetings only hands off keyboard roll. They're all going to be gone in a year They're going to be gone. You love it. You're correct. It'll take longer. I predict you even your business I yeah you're saving a bunch of op -x and I think you're doing you'll be super focused on this You'll save a bunch more and op -x, but it's not even op -x Do you know what the problem is there's nobody to do the virus gonna agree with me? There's no one to do the work That's the problem, Rory, that VCs are missing.

31:38It's not OpEx or CapEx or XX or NexxX. We are missing the fact that no one wants to work. And this is an honesty that people are not, like, you know, who says it? Fiverr, Shopify. Like, if you squint at what these emails, that what they're really saying is no one wants to work. So you're out of a job. Rory, you're a better investor than I'll ever be, but at least Harry and I are managing teams that aren't just investors. I can't pay somebody $150 ,000 to do anything It's a story. They will do strategy. They'll write a memo that takes 90 days. They will do something late. Okay? No one wants to work.

32:11And look, there are a whole bunch of jobs that will be happily automated by AI. I agree. You know, I'm not fighting that trend. We're investing in that trend. I don't think your profits are going to quadruple. Take Clana as the public example. I mean, they talked, well, be listen. And they probably did save those people. But I think in the end you'll discover it will have roughly the same profits as other the lenders, it'll be more efficient, it will be a step function change. I agree. I think this is a misnomer. I think what's happening is we just can't hire people that are worth it. So we're just gonna turn the AI on.

32:42No one wants to work. Even every worry, like my son goes to a school for founder, privileged children. 10 % of the boys in his class just didn't want to go to college or work. It wasn't that they had a trust fund. It's just, they were just fine doing nothing. You go out LinkedIn and you know that little circle that says open to a job, talk to one of those people, they're unwilling to work. Okay, I know this is gonna make some people mad, but that circle means I'm unwilling to work. I need 300K and I'll do three meetings a week. That's what that blue circle means, open to work. I'm not gonna argue with grizzled cynicism for the fun.

33:13It's not so, you think it's cynicism. I'm actually bullish on it. I'm excited about the future now, because I'm burnout trying to hire people that want six figures to do no work. I'm burnout on it. Roy, I think, you know, I actually agree 100 % sorry with Jason. and then come to London where it's even harder. It's not working. It's even harder. As we know it has a baguette culture according to Jason. Or a red wine culture, whichever one that was, that went down well in the European office. Thanks Jason. But you use the analogy of a PC and the internet. There is fundamental installation, infrastructure, hardware that goes into that era of technology adoption.

33:51We'd now press deep research on a model that we were already using and we can get rid of three researchers. There is no installation, there's no fiber, there's no PC buying, there's no implementation, it's completely different. I think the timeline to seeing value. I'm just going to say, Zoom Outcome, and first of all, I simply don't take you correct. I think GDP growth and productivity growth has been roughly 2 % since the dawn of the industrial revolution, and I'm willing to lean into the fact that it'll be 2 % for the next 20 years. We all like to think the era that we live in is exceptional.

34:22in now, we're just 250 years into compounding free market capitalism. Thank God. And while I think deep research is cool, I'm well -to -bad that if you compare it to, oh my God, we don't have to pump this water out by hand. We've got an automatic pump and we can help pump out the mind with steam engine. Or, oh my God, we've got electricity. We can now don't have to work in the dark. I think it's probably at best the inventors are equivalent. That's kind of my macro -common that I can prove in detail, but I know I'm right on. Now, to the specifics, to your point, yeah, you're right. You're going to, those researchers, deep researchers, amazing.

34:56Just love it for what we do here. Every time you're looking at a deal, if you're not running that out of the game and doing a whole bunch of really great queries, you're toast. But we're not going to get rid of all the associates. We're going to make them more efficient, and you're going to be able to say, we can look at more deals, we can know more, we can get some leverage from it. And maybe you lose one or two. So my point is merely it's a great trend. It's a wonderful trend, but it's not going to be the step function change. It takes time to diffuse any technology, even AI. It will be interesting to see the adoption of AI in enterprises over the next three to five years.

35:28If you had a step function adoption, then you guys would be correct. If everyone went into space of 12 or 24 months from pre -AI to top of the range, all it can do, AI, then maybe be right. I think humans just don't work like that. And there's still people running DOS PC software out there. There are, but there's no question the overall adoption curve for AI in deep enterprise is going to be slow. The thing is the early adopter phase is so large in AI and two, all of tech is becoming an early adopter. When we started investing, tech was not the largest segment of the economy. Today it is. So if these old manufacturing guys take six years but all of tech fires half their team, I mean Mark Bannyoff, you know, the greatest generation said, I've got 6 ,000 people in support.

36:15I plan to repurpose them into sales. I love Mark, I love all of it. How you repurpose 6 ,000 people from AI, right? The first part of that comment is really great. The second part is really great and fun. Let's wake it up. I will give you that. I think what you're right is the sectoral composition of the US economy in 2024 means that the early adopters are now a bigger percentage of the total. Obviously, we have a administration that would much prefer assaults. We'd manufacturing toys at home, so our kids could have three dolls. But given that we're not making dolls at home in America, you write, it's tech, it's biotech, there's a bigger percentage of the US GDP that will probably lean into AI more quickly than say in the 1980s and 90s, a more manufacturing centric economy leaned into computers.

36:55I will give you that. So you write, as I think this true, you probably have some accelerated returns to scale from AI that you might have seen in the PC or the internet. It might be boomer quicker. I will give you that. Yeah, I don't know how to draw the curve, but that early adopter plus tech is so large that in our industry It's going to lead to massive human disruption just as many founders just as many VCs But man if you're a hands -off keyboard middle manager You're you're gonna be gone any year and closing the lobe because I am a nerd is what you probably will see is Massively productivity in those sectors and then you'll have the ball mall disease of inefficiency in health education and some of the other stuff if the overall GDP remains and I'm correct a 2 % And you might have massive productivity gains at Salesforce and utterly no productivity gains at healthcare, maybe education, maybe some government sectors.

37:46So I think that the adoption within the tech sector will be super fast. Now to your second point, yeah, what happens to those 9 ,000 people? I don't know. I think you might. The node said this so many times, EF did a demo day out here and I watched the node again after building RII with 130 ,000. He said, half these people are gonna be gone. There will be no jobs for them. So taxes will go up. we have to pay for them and we will all be better. And you can laugh at this, but when I heard this say a year ago, I'm like, this is the guy that invested in OpenAI. Today I see it in my own AI. Like there is no, those 6 ,000 people at Salesforce with benefits and taxes, they probably cost six figures, there will be no jobs for them.

38:22They may have to work its subway and it's terrible. There's no tech jobs for these roles. There is no job. And every CEO that I know that's at growth scale has some version of a hiring freeze going on. Unless the growth is insane and it's all, You can hire, but you gotta get rid of somebody. It's all AI first, so it's even worse for these folks because everyone's got some sort of soft freeze, even if it's just a quality freeze. And so who's gonna hire these people? To what extent is this not just like Adam's missing visible hand, which is one of the biggest shortures in labor markets today. It's ambulance drivers, it's fire engines, it's truck drivers, it's plumbers, it's roofers.

38:57I agree, I was gonna say, again, always willing to change the line when it here to a data thinking about what you said. I saw the journal article, I'm just graduate unemployment creeping up. You know, there's definitely overproduction of some skills and under production, as you say, how are you of some of the more vocational skills? I do think that's a thing. I think Peter Theolcredit 10, 15 years ago, he said, I think the return on college is pretty good for the good student. It's pretty good for the STEM student. But the marginal return on the marginal entrance to college in the last 10 years is profoundly negative.

39:30You've got to set a skills that don't have a market value and you're 150 grand. So I do think you're right there and those folks are looking for the soft jobs. That's soft as in easy but soft as in marketing. It's not STEM skills and it's just really hard. I buy that. That said, if you've got three really smart friends at STEM and you can crank out a visual studio fork, you too can have $3 billion in 24 months if you can just get shit done. There's always going to be room at the top, baby. There's a limited element of college that's already UBI. Like, Harvard's $200 ,000 a year or less, you don't pay in Stanford, I think.

40:02They raised it from 100 to 200, you pay nothing. That's it. You know, Harvard, even though maybe come for profit soon, they can pay for this. But when every college is that way, it's just it's you be I. You got to do something with these kids. Well, that's where we're going. I can ask you guys, you mentioned that Harvard might be a full profit. I mean, that was absolutely in the news. I put it as one of the number ones. When you look, we're going to be taking away Harvard's tax exam status. It's what they deserve. Trump posted true social. Listen, yes, I care about Harvard. I like them very much.

40:29They're great to work with. I also worry intensely that this is going to happen to every endowment fund and if it does what happens then help me understand is this the start of a much bigger wave and how will this impact commitments to venture? The end of civilization. What does it mean for me to know how he's studying? Which by the way I actually totally respect because if we go off into some kind of blather about you know what we think about Harvard I'm no more qualified than you or any of us to yeah I'm just a man in the street when it comes to that was it right when you think about who listens No one cares what we think about Harvard Unfortunately going right back to the first thing is if it turns out that there is pressure on Endowment this is gonna be huge pressure and precautionary cash planning and all the endowments and going right back to our discussion at the start.

41:19Unfortunately, those are the LP of choice for the small early innovative funds. It's another thing that's going to reinforce, you know, the big will get bigger and it'll be harder to be new. It's not a great trend because, you know, if you're raising a billion, you've long since stopped talking to Harvard in a meaningful way, you're actually talking to pick yourself and well fund. If you're raising 150 million for your first fund, those are the people you'd be going to. So it's bad news within venture investing. And then I do think we're in the business adventure of funding the things where the US has a massive comparative advantage.

41:53And that comparative advantage is typically caused by high intellectual property, high knowledge worker industries like biotech, like software, like robotics. That won't be possible if we don't have a well -funded higher education sector. So we can talk about all the old dumb things Harvard did and did not do over the last 10 years, and protected with that report that came out on 97. Those are the times they have to be ashamed of. But sticking back on my venture hat, avoiding trying to be Mr. Political for our industry, one of the non -negotiable ingredients is a strong and vibrant technology, a university system that generates graduates and research that have kicked out of the whole thing.

42:37So I don't want to lose Harvard. They may be arrogant asses. They may do this whole opposite school and Boston thing. Whatever, they turned me down 30 years ago. I'm still going about that. But I don't want to lose them. You don't want to kill the Golden Goose. We have a good thing going here, Inventor, and a huge amount of it is the smart, talented young people that come out of these colleges educated and ready to go. Don't blow it. One piece in use that really struck me was, and it kind of went under the radar, but I called it an aqua -ouch because I remember one of the hottest companies at the time, a couple of years ago, was Census.

43:08This company was super frickin hot. Everyone wanted to invest. Sequoia did it. They did a next round. And they got acquired by 5 -tron, super under the radar, that raised 80 million from sequoia and pollution. And I was like, wow, that didn't happen. How we planned it? And I guess my question to you is, how did you guys think about this? And is this the wave of a series of companies that was supposed to be high -flyers just getting bought for cents? Well, these are deals for what it's worth or as a seed investor, I'm that guy that you talked about at the beginning. I'm the grouchy guy. I'm the grouchy guy.

43:41The last guy, whatever, but for me, where that was my high flyer, that was my fun returner. And now I'm getting like eight shares in five -tran. I'm like, I'm not so happy. I have one of those deals I was pretty grouchy about it. Now I have shares in the deck of corn, right? That will never IPO, hooray. But it looked great on the press release. I was that grouchy guy. For good reasons, for good reasons, I'm like me, I don't know the deals of this deal, but yeah, that's where it makes you, you put all the time, and it does. If you're in it for a year and showed up as a board observer, it's not your only hot deal It's but as a sea guy makes you grouchy.

44:09I mean, I don't know how to break it to you, but some deals don't work I mean it sucks Maybe it hasn't happened yet, but when it does hold a thought you asked what I thought of that honestly I didn't even notice because it's going to be one of five six hundred of these that's going to have to happen You know, there's somewhere between 800 and a thousand unicorns and a couple hundred We're gonna get public and the rest of them are gonna have to be scrunched into other companies and this is what that's gonna look like. You know, the craziest one, even though it's not brand new, was lacework, right?

44:38It seemed like it was as hot as Wiz. Especially me, I'm not a real security expert. I thought it was like the number two. Just behind Wiz. And when I was at a reinvent, and it had 7 ,000 squared out, like a $4 million booth, I'm like, this thing is, it's neck and neck with Wiz, right? And then it sells for nickels, right? You know, I do it for play against that bowl. I think yes, for nickels in terms of the enterprise value, but I think it was a significant portion of cash on the table. the investors maybe rightly maybe wrongly I've heard both sides. Look at each other and said, you know, if we can get 50, 60, 70 cents on the dollar back from the cash that we put in here, rather than keeping going, maybe that's the right thing to do.

45:13Now, I don't know. I don't have the specifics, but it wasn't like they took a billion and a half and burnt it all up. It's that they just said two years ago we thought this was awesome. We've reflected. We spent a hundred million. We have eight hundred left. That's just call of the day, which might be a true call. I'm sure it was is objectively. It's just again, the stress for different folks in the investor stack can vary. So some folks would be like, whatever, I'm on 20 boards, I don't care. And for someone it could be their only winner. It's just the impacts are varied, right? It's never that great for the employees though.

45:41Speaking of investor exuberance, we saw that with census. I'm sorry that you didn't notice it, Rory. You're clearly much busier than me. I'm just a humble potcaster. What can I say? My question to you on the back of that That is, we also see Decagon then raising at 100x in a similar style to 2021. It was even 15 million of error at 1 .5 billion. My question on the back of that is, how did you guys analyze that? Returned 2021 incredibly strategic. It's not wholly crazy at all. If you run through the logic tape, is that if you look at the top two or three use cases of AI, the number one is just personal chat.

46:20the number two is coding and the number three is customer service. Of all the areas to Jason's point earlier, it's the one where the ROI hear me out. The ROI is the clearest. In the sense that, you know, we talk to people who said, and I had an investment in the space pre -GNI where the resolution rate was roughly 30 -35 % in other words, one in three calls got solved. We did a bunch of references around this space and around the impact of GNI and the conclusion over and over again was which GNI you can get that resolution rate to 60 to 70%. In other words, you can handle most of your calls without humans.

46:56And customer success, customer support is a massive, massive, you know, people sick. So it's just a great big market. So you start with that. Then the only question, therefore, is, is it going to be a winner take most market? Is there going to be more winners? And that's where it gets kind of tricky. I think Decagon's done an amazing job. Which Sierra, they've established an interesting need in the kind of, I think it's going to be a lot more competitors than that. But it wasn't crazy. You're leaning into growth. You've got a lot more runaway ahead of you than many of the 21 companies. So I don't think it was wholly crazy.

47:27I don't understand it. I'm sorry. I know Dez train a very well at Intercom. A fantastic product guy. Intercom is an amazing story to not a huge enterprise value today for 17 years. I know two billions a lot. I know it's a lot, but they're fucking brilliant and it's taking a lot of money and a lot of time and they are one of 10. You mentioned Sierra. You want to go against Bratt Taylor? Oh, good luck. And Neil made a bankroll in him. And then you want to go against the 50 others coming out of YC, all for individual verdict -close solutions. Seriously? Yeah, that's the calm case. You're exactly right.

48:03We've agonized about this mark on a lot. You're exactly, you have the pre -gen AIP, but I think you're exactly right. Intercom is by far the best of those. They've done an amazing job of adding AI, the little thing. If there's anything that a pre -GNI company could do to get relevant in Gen AI for customer success, I think in a cum have done it. So they get an A++. So no Irish, that gives me double votes. I think that the problem is whenever you're one in the moment, but true of it, you're encumbered by facts, right? You have a scale, you have a growth rate, but you can kind of project off that.

48:36If you're doing, I don't know the numbers. I've got to put 400 million going at 20 % whatever you can value that and it's kind of bounded when you're selling quadrupling and 5x in year on year From you know 3 million to 15 or is it 5 to 25 people just are more willing to lean in and say the futures unbounded You can travel for three more years and suddenly the math works and your work one and a half I know how it happens venture guys love new shit with option value over all shit with intrinsic value It's as simple as that. We don't do intrinsic value. You know why? There's no upside -in intrinsic value We are upside junkies.

49:11Can you just break that down for those that don't understand? Why is there no option value in intrinsic value? Because if something is growing, it's only 400 million growing at 20 % and it's been doing that for the last three years You're probably going to grow at 20 % for the next three years. Plus or minus? Now, there's a price in which you'd love that asset, but it's not going to trade at that price It's going to trade at six times today. It's going to go or 20 percent and it's going to trade at six times when you exit So it's a pretty bounder does no magic pixie dust upside if you buy it six times and sell it six times You can double your money if it compounds for four years or 20 percent with low growth There's just no way to tell a story where something magic happens Conversely a new deal that's one or two million dollars three million going to 25 million Well, shit maybe it'll five x next year as well maybe it'll go to 50 followed by 150 followed by 300 and oh my god that's still worth 20 times it could be the next fill in the blank that could be worth 20 times 300 which is 6 billion we can pay one and a half billion now there you got your forex because you're selling futures and you're selling upside -up now people may be massively mispricing that up which is what you're saying and you could be right in other words the probability of that working might only be one in a hundred and they're pricing as if it's one in two we know the pricing it as if it's certainly going to work and in fact it just might work.

50:28And that's where these kind of bets go up. One of the hailed pieces that I always go back to is Bill Gurley's 10X piece. 10X, right? Yes. Yeah, and you know what? He said there about kind of global GDP and you know, two X. Yeah, well, you know what? 10X. And I look at that and I'm like getting to 150 million an hour from 15 is, that's a journey. You're paying for it. It is a journey. We had some internal discussions. Should we be one of the 100 people pleading to put money into Dachigan at one and a half? and we had some interesting discussions. That is not a scale deal. No, it's not. That was my comment.

50:59But my point is merely, you know, we, we, look, going back to the thing that you said, Harry, is the market is changing so much that if every day you're not saying to yourself, are we doing it right? Are there things we should be thinking of that feel unnatural to us? And if you're not even asking that question, you're missing the point. Conversely, on the other extreme, if you start drifting off and doing every new thing, you'll probably also screw up because you'll lose what you have. But that's the challenge of being an investing manager in 2025. If you just stick to the same old boring shit, you could be done.

51:27And if you lose the plot entirely, you could blow all the money. And you got to print the needle. I've just let a deal for a vertical, sass, fadantist, rory. So I'm at the cutting edge of AI. Thank you very much. You know, good market. They have the whole imaging stuff. Oh, yeah. I'll show you the A because you're so nice. You're all sweet. I know there has to be something good come out of this. You know, the one about Decacon, the meta question I have done a lot of invested in support and know a lot about AI in it. It's just like this, true of Windsorff too, but the defensibility is confusing.

51:58But I think what they're good at is doing strong enterprise deployments, like getting it done, doing the heavy lifting, I think, is I just tried the one on Notion and Substack were on it. It couldn't answer my generic question, but that's not, it's not a strength. Right, I asked Notion how to embed my AI in Notion and it said the team will get back to you in a day, okay? So I have a lot of the data. I'm on the board of this company called Gorgeous, which is the biggest support in e -commerce. And I see all the data, and they have all the data for all the vendors. Gorgeous biggest challenge is that objectively, they are the best, but the gaps are narrow.

52:31The gaps narrow, and I, and listen, ripping out, support does a big deal. It's not gonna happen in the enterprise every year, right? But I do this Moats versus Momentum thing, even though it's venture, nomenclature, I think about this a lot, Moats versus Momentum. Decagon is cool, but if QuadraCon or Doe Decagon is better next year, I don't know. I just don't know right I hear you but the idea I'd make is this there are times when market windows open And there's a couple years where you scary through and there's no mode at that particular point in time But momentum begets its own mode. I do believe let's just say fast forward two or three years I'm gonna argue the following that the state of the customer service market will be like this Gorgeous a one or two of the old guard will add enough AI and be really relevant Indocharm gorgeous a few of those.

53:18There'll be 50 new companies trying to do it, but I'm going to say Deca Garnancy era We have observed in the phone side of it to a three of them make critical mass and explode I think at some point when you become the safe choice windows shut and the opportunity to walk through it So I don't think that those companies will get eroded because I don't think three years from now Deca Garn will be at a hundred and new coal will start taking the death stuff away I think this is a point in time like Salesforce where you have the chance to grab a 10 or 15 market slot. It's not that I don't think you can get them a minimum today.

53:49What I worry is just that when there's so much competition, I think everyone's going to be less durable. It's not your 10 -year -old SaaS company that is seeing less durability. I think this is new, this less durable revenue. And I don't see any reason why the new guys, if you listen to Verrune at Windsor, he's like, our only mode is working harder than everybody else in speed. He's not claiming he's building any mode. This product didn't even exist 90 days ago. You exactly right. I do think in enterprises the truth is once you're installed, it's hard to take out. For exactly the reasons you said the shit doesn't work so well unless it's trained and tuned, you just have a bias to be there.

54:25And then the other thing is once you have the perceived leader, you do have all that kind of positive reference value. I mean, I don't think Salesforce was winning in 2010 because it was the best theorem. It was winning because it was the default option. Yeah, but I just worry that with so much great competition, it's not just that your revenue is going to go to zero. I just worry there's gonna be more churn, more downgrades, and harder to win deals. Like those benefits to hitting scale, I think, are less than they used to be. Even if the budgets are exciting, and I just, I don't know how to predict where the future of anyone will be.

54:55There's gonna be so many shiny pennies in AI and so much change that like these chat apps are great, but when chat, voice, bots, like, you know what's just starting right now? It's just starting is having real digital people join support. Not dumb cartoons, or bomb by the audio, that doesn't match the video. I'm talking about people better than a human joining it. Now, maybe that's not Sierra or Decacon or Intercom or Gorgeous or Zendesk. It may come from another place. And then these spaces, it's not once a decade disruption, or once every five years. Now it's literally every five week disruption.

55:32So this lack of stability is where I think that the Decagon revenue growth justifies 100x. It's the stability that I worry about. If it's stable, I'm all in. If one to fifteen and twelve months, I'm all in. That is fair in the sense that you have to significantly more variance in product market fit in these AI products than you saw in SaaS. I would still assert that enterprise grade big installs with lots of integration will be way stickier than most. They'll also be slower to build than most, but yes, you think across the board in AI, how are you looking pain, say it? Well, I'm just saying AI is the greatest fran for verticalization, which is like we We love the series, they're for a company called Solv, it's AI for patent lawyers.

56:12If you think patent lawyers are switching software tools often, you are high. It's a once every 10 years switch, difficult thing to do. There is no way the churn is what it is with horizontal developer audiences like it would be with Curlor or Codium. And I agree. But I think there's a bit of VC old -school hubris here, which is that it's killed versus named. I think once you're embedded in a workflow, once you're core, once you're core, it could be an SMB, it could be Mid -Market, when you're core, it's hard to rip out, okay? It takes time. But what happening with AI is people are looking more often and deals are more competitive and there's more pressure on pricing at downgrades.

56:53Anyone that says there's not, when some new AI competitor comes in and says we will do this at half the price and it's 10 times better, even if folks take a look, everyone thinks their sales team is so great at resisting pricing pressures. You know what happens when they cancel? They'll do the deal for half price. It's just these, we're missing the fact that AI can name leaders, even if it doesn't kill them. And that can take them off the IPO track. That can destroy venture investing. Instead of 50 % at 500 million, you're growing 30 % at 300 million because you got maimed. You didn't die, but man, you no longer can IPO.

57:26That's terrible. And that's what people that are hiding their ostriches in the dirt, I think their startups are gonna fail because they're not realizing they're getting these knife, these knife cuts. I think it's more the obstacles are hiding rather than people hiding their obstacles, but I didn't get the metaphor. That decade gone 15 million came from somewhere. It might have come from Intercom. It might have come from Zendesk. And if it and they notice, right, you'll notice. I hear your point. I do agree that, yeah, the board competition and churn are significantly greater now. Because like I said, I think the world is in flux.

57:59It was locked in for 15 years in Sassland. It's been in flux for the last two years and for the next two or three years in Enterpriseland. But and this is where I could be wrong, but I'm just going to put it out there. I think that what a successful center of products at AI starts to gel over the next couple of years and the people who are in the lead at that point in time get a similar 10 year run, the 10 year runs you and I bought benefit and from in SaaS, Jason, and that risk of churn, and that 60 people shakes out to three or four, and in the end, market formation evolves in the same way as it did in the enterprise space, which is, you know, typically any enterprise app's marketplace tends to be a modest dollar gopally of three to four players where, you know, you have steady market share.

58:44That's the vision. If you're wrong in that vision, then these assets are worth 10 times revenues, they're only worth five times, and everyone is so hard to be wrong on my headhurt. I at least think it's much riskier than I thought 100 days ago much riskier not being binary I'm saying it's much riskier that there isn't this stable state at the 14th electron or whatever it is like that the stable state no longer exists I don't believe it exists anymore. I hear you and I will say I'm on I'm lucky enough to be on one board with an Exactly I won't name him but he's a very senior technologist and one of the model companies and really understands and I just shut up listened to that and really you would say really do I shut up but I just shut up and listen to him talk what he talks about you know model trajectory and his common over and over again is you just have to internalize what the models are going to do in the next two or three years and you might be able to do that because it's going to be done for you.

59:34So that is the argument on your side Jason which is is that the more the model can do the more of that software stack gets sucked in. So I do agree into countervailing force. I don't have clarity on it. But until you get a handle on that, you're right. You are at the risk of more disruption than we've seen in, you know, past 15 years. I just, I just think we should be honest portfolio companies founders. If they're seeing a little bit of elevation in turn, more pricing pressure on renewal, decogawning a couple of deals, whatever it is, okay. They should see this as a canary in a coal mine. Their CRO should not come to the board meeting and say, it's just a Yeah, we lost a couple.

1:00:11We're seeing a little pressure on downgrades. Like this is not a bump. This exponential change in terms of risk. And I just think of nothing else. Maybe VCs will take the risk, but Fadr should jump on this. Like when you see a little bit of the start, you better be all over it because I'm literally talking with Yamani Rangan from HubSpot last week. This is HubSpot. She said now at HubSpot with Cursor, they are pushing out so many features they can't put them into production anymore. She wasn't kidding. They're, they're, they're, they're, they're 50 % more productive of it, HubSpot's a big F and deal, okay?

1:00:42The fact that HubSpot now is develop more features than they can push out. Think about that when you think you have a stable state in your 50 person startup, or that you can rest at 50 million ARR. HubSpot has more features than they can put into production for the first time ever. And she's not dar mesh, but I'm sure it's 100 % accurate. I mean, she's looking at her. And she's measuring this by code commits. It's too much business process change. You know, it's just that, HubSpot was so stable for years. Oh, well, I'd CRM at 100. I mean, where are you guys invested? It was You know, a generation of it.

1:01:10I'll add zero to 100 and I'll add service at 300. And I'll just keep layering this beast and I'll drive NRR from 85 to 100 to 100. And it was just this check the box. But if they can build more software than they can push out, what about everybody else? Can I just touch on one final element before we were? You mentioned like, may not kill there. And we've said about the companies that maybe derailed in going to IPO. Oh, low. The public company now for sale. The reverse of what we're talking about of struggling to get companies out, a company that needs to sell. How did we think about and analyze this one?

1:01:44I think I'd rather be seven rooms, which Dordasht just bought for 1 .2 billion. My advice to folks that are being eclipsed today is take the offer. Take the F and offer. I'm not an expert in seven rooms, but I think seven rooms conceptually has the same challenge Olo is, which is you're focused on the enterprise end of an SMB market. Although, great founder, trying to do big chains of restaurants, but restaurant is as a VSB space. Not even SMB, it's very small business. Seven rooms is the same thing. You know, complex reservation management software for chains. And I think they got the money. They got the 1 .2 billion and OLO didn't.

1:02:18I mean, at some level, it's true. It may not literally be true. So my only thing I can say is if you're losing, this is always true in venture, right? But especially these moments take the deal. I mean, the crazy announcement today will actually deliver. through. It's also getting bought by Dordash for 2 .9 billion just to put that in contact for you guys and I don't mean that rudely but I'm sure you're not aware of public markets in the UK. It was valued at between 1 .4 and 1 .5 billion. That is a 1 .4 billion dollar delta between how Dordash valued it and how UK public markets valued it. And it may well be and I can say this is how it lives in the UK.

1:02:56Maybe that you guys as it just crap at value and tech companies. I mean, and is the genuine comment? I agree. No, don't dash this to the machine. They're there, I don't know, 60 Bill, $1 market cap. They've done the US, you get out the little map, you start coloring it and you say, oh, Western Europe, we can pick this one up and we just be done. You pay in premium, it's in the noise and you win. I mean, once you have the US domestic market as your core starting point, you just end up with the biggest version of everything except possibly something that's domestic China. And then you can just pick off your acquisition from the other time.

1:03:26Tony makes sense. We're not going into China. I don't want to upset. No, we're not going to China. There are other podcasts that will happily cover politics until we're blue on the face. Final, final one. I do just have to ask it. Coppillmann's Adventure Arrogant School. What did you guys make of this? I totally understood it. Yeah, we won something. I wouldn't call it Adventure Arrogant School, but it's the right question everyone should ask. Is there enough market share for me to execute my business model? What do I have to achieve to achieve my business model? I mean, you're taking away the arrogance comes, which is just just joshing for, I think josh is amazing obviously.

1:03:59He's done really well. Clearly, when you get towards the tail end, you can have a quick snare at everyone. But the analysis itself was spot on. Every single firm should have to say to himself, is there enough deals of the size and stage I want to do to make the math work for me? And obviously, if you're $150 million seed firm, you know without even doing the math that you're fine. There's lots of companies out there. You just gotta make sure you find them. What is implicitly saying is it gets back to where we started, And if you have a five or 10 billion dollar for what percentage of total value do you need to make the model work?

1:04:32And that's why when I was preparing for this, that's why I got that other analysis I talked about much earlier on, the Coe Ratman stuff about is somebody is you take Josh's analysis on what percentage of total value do you need to make the math work? And then you take Coe's historical analysis on what people have done in easier times. And the conclusion is no one has achieved the market share that it would require to make this math work for venture investing. You look at that and you go, that's a sobering statistic. Now, I'm not saying that model doesn't work, because Jason said the right answer, which is you won't get the one doing more series A's.

1:05:05Let me repeat, the best firm got 10 % of the series A's, the next best got six. So eight firms aren't each going to get 10%. So the only way all those firms can call it make their model work is stuffing huge amounts money into late stage deals, which gets back to the same thing every freaking week, which is if people go with the state private for longer, then you can own and compound these assets probably at a lower return, but probably over the hurdle rate. That's what the bet is. I thought it's comment on duration was amazing. Yes. Being that two acts in 10 years is relatively similar in terms of our odds of the four acts in 17.

1:05:39Yes. Time value money is a bet. Yes. It was spot on the analysis and you know you should know for your firm and we even go one level down to, okay, this is what you need. How many of them do you see? How often do you get the picking right? They got to exist. Then you got to multiply that by how many of them you see? Then how many are picked? Roy, are you doing a coverage play? Everyone's doing a coverage play. It's just the question one kind of coverage. Some people are trying to cover just a 10 -bass deal. Some people are trying to cover 100 bills to win them. But everyone at some level has to monitor some version of coverage to get there.

1:06:06I think he said one thing and then we can finish, but he said one thing. I did disagree with. He said like activity in terms of deals drives relevance. And of course he's right, but it felt relatively binary and it actually missed for the fundamental reason why I do content, which is content is the most effective way to stay relevant. Now, I mean, to put dollars out the door in deals that you maybe don't want to do. Yes. And even though talking with you isn't fun, Harry, I'd prefer to talk to you than piss away 20 million bucks. There we go. So you see, Rory, even though you have to do this on a weekly basis, at least is better than pissing 20 million dollars out the door on a Dekker Gun 100 X.

1:06:41I'm not gonna conflate those two things I think Deckergon is genuinely an amazing company, but I agree with you. And I think Josh is so shrewd. As long as firms have a lot of money, they can do a lot of deals. The person who does 10 good deals a year struggles to be relevant versus the person has 100 good deals a year. Josh is exactly right. We've all got to pick our way to win in this market, because it ain't going away soon. This is the game on the field right now. It might not be the game that is a stable long term equilibrium. We might find ten years late or some of this was a horrible mistake and some of this money gets withdrawn But it's the game on the field for the next five years.

1:07:14So quit benching and play it and now I got to go chase and deal on that note Rory I know you love our visuals that we do for each show and the visual that we're gonna do for this show Thanks to Jason is no one wants to work these days With my face right in there you are not doing that look I I was telling Jason this before you got on. I have even switched from a PC to a Mac to make this work. So I'm trying my best, Harry. So come on. Rory, I think you're doing a brilliant job. I think the world is learning. I so appreciate you. Jason Manard, so lovely to see. I cannot tell you the fun we have in those shows.

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