20VC: Brex Acquired for $5.15BN | a16z Companies are 2/3 AI Revenues | Anthropic Inference Costs Skyrocket | OpenEvidence Raises at $12BN Valuation | The IPO Market: EquipmentShare, Wealthfront and Ethos Insurance

26:54They've got 30 million left in the bank. They're break even at 40, 50 million ARR. Now I'm competing with Decagon or Lagora or whoever, and I need 20 more million of inference this year. It's game over because I can't compete because the way I've deployed it is great, but it's$2 per interaction, Rory. It's$2.50 per interaction. I need 50 million interactions this year. That means I need a hundred million. Now I bring it in 50. What do I do, Rory? I can be competitive. You told me to, you told me to get break even. I did that. Thank you guys. Now you told me I got to be more AI. Thank you guys.

27:30Now I built it. How am I going to fund the 50 million inference? Open evidence has the money. You have the irritating habit of asking exactly the right question. I'm mentally thinking of some companies that have gone through that. You're exactly right. It's like, hey, your SaaS com product isn't enough. Let's get profitable. Okay, you got profitable, but nobody cares. You need an AI product. Oh, my God, you've delivered an AI product. Your customers love it. And now you're at the next shoe to drop is, how are you going to finance this thing? Because you're up against people who can raise$200 million on a dream.

28:00And I acknowledge that. And rather than telling you, I have the answer, it's an issue I'm wrestling with. I can think of two boardrooms in the next two months, right? Maybe one month as we do annual planning, right? How aggressive can you be in this market? Because if you play deep, I mean, if you try and meter it to your cash constraints, you're going to get left behind. So the gut level comes, and this is how capitalism, I suppose, is meant to work. The gut level test comes if your customers are getting value from your AI agent that they can't get anywhere else, and you can make that value clear, then you can charge enough to pay for your tokens and yay you.

28:33If you're not giving value or if you're locked in a war with someone else who has infinite capital and is willing to give it away longer than you, then you're probably going to lose and you should figure out how to exit now. And to some extent, you know, the mid-year kind of coding wars where, oh my gosh, Windsor looked to exit. There was a little bit of that dynamic going on. Is this war escalating with a level of token intensity that you just can't keep up at? And I acknowledge that at the app level, as I say, a couple of my companies are wrestling with those issues right now. Yeah, I'm just, I'm honestly worried.

29:04We We talk about his ass dead or what's going on. I worry this is the next final act is that you, you checked out, you did all the right things, right? I did everything you told me to do. You did it. You did. You're not growing 0%. Your customers don't hate you. You built an agent. And the final nail in the coffin is we just can't afford the inference. We just can't build a competitive product. And even, you know, earlier on this podcast, in essence, even Canva, which will be one of the great IPOs, even Cliff teased at that. I could build Gamma, but I can't burn the way Gamma burns those tokens.

29:36Now, maybe he'd say something different today, but it was the same point that echoed in my head that now we're seeing across boardrooms, across B2B companies. I think it's the final nail. Is there a way out there? If you can't raise the money to compete, but you can't not spend. Well, Rory hit the way out. There is a simple way out, which is you build an epically good agent. Typically one, maybe that's, let's say your product's$5 ,000 a year,$10 ,000 a year, and you're able to charge$20 ,000 a month for your agent,$10 ,000 a month, because it replaces 20 people. It's that good. It's not pretend that good.

30:10It's not that good on a sales pitch. It's literally so good that the ROI is measured in weeks, right? That's your way out. But the problem is a lot of B2B companies, they're just struggling to get parity. The bar is so high. And so it's exhausting because it was so much work just to get here, to get to profitability, to get to agent. Now you have to beat the agent that Open Evidence, Lagora, Harvey, whoever we're going to talk about, you have to have a better agent than them to earn the 20 grand a month. Your team better be the best. To take another example, that probably applies to even a large public company like Salesforce, who, yes, has infinite money, but also doesn't want to dip in the red.

30:47or you make sure that a combination of you have the advantage of the data that you possess to make it a better agent, to make it a more efficient agent, maybe you have to do less processing. Maybe another thing is I've seen some of these companies using the open source models for a lot of it. So you can leverage that and get cheaper processing. Yeah, you got to do all those things. But more than anything, I think, Jason, you're right. You've got to deliver value such that you can charge for it. But in the end, I mean, look, the dirty little secret is in the end, everyone's going to have to deliver value.

31:15They're going to have to be able to charge more than the amount of money it costs to make the thing. I mean, OpenAI may get to do that for longer than anyone else, but in the end, the wheels of capitalism do grind fine and we're all going to have to pony up and cashflow positive. Listen, I don't have everybody's numbers for sure. The other advantage that the new entrants have is that if you have the best agent and you have the kind of market demand we see, then for you, your inference costs are a marketing cost. The established players don't have that luxury. They're already spending massive amounts on traditional sales and marketing.

31:47versus, you know, if, I mean, Harry's had Harvey and Lagoran. If Harvey went to 200 million last year, open evidence, 100 million a year. Often they have no sales and market, very little sales. Maybe Harvey does, but I can think of plenty of AI leaders that have four people in sales. And I can think of some that just hired a marketer at 200 million in revenue. So inference is your marketing, sales and marketing team in essence, right? Because you just throw all the money into making the agent great. Salesforce is one of the few that can do it with its resources. And even there, it's stressful.

32:16If you talk to folks at Salesforce today, they'll tell you this is the most stressful time they've ever worked at Salesforce in the history of the company. One of the ahas from this is just the demand for inference and just by extension the demand for compute and what does it say about it, right? And I always think, it's going to sound cool, I always discard, not discard, I always apply a certain discount factor to what people running the large AI model companies say about demand because they're talking their book. and even the poor fools like Oracle who are investing to chase that demand and sell them compute services.

32:50I'm like, maybe you're getting fooled by these other guys. But I always think the guys running TSMC are sharp. And they've been around a long time. They're cynical, which I'm sure you all saw that piece about 12 months ago. They were fairly skeptical when Altman's talking about we're going to need to raise a trillion dollars. They're like, yeah, yeah, yeah, go away, AI boy, right? They just did their earnings call. And the comment was, basically, demand for compute is effectively infinite right now. And they're raising their CapEx. And remember, these are not kind of, these are folks who say, I'm going to spend$50 billion.

33:24Peak before was$40, so low was$22 billion two years ago. They're raising their CapEx budget for next year. And they're basically saying, we think the demand is real right now. And to me, that's the, you know, because there's been a lot of, and we've all been wrestling with it, is there going to be a day when everyone says, we're not going to invest as much anymore, we're going to slow down just a little, because you're so far out there on the, going back to the Brexcommon in 21, we're so underwriting hyper-growth that even the slightest slowdown would be kind of pretty brutal for the markets. And this was the biggest tell of all, because these are the guys who spend the CapEx with a two or three-year lead cycle that services NVIDIA, that services the hyperscalers, that service open AI, that service the AI company.

34:07So it's the first step in the AI pyramid. And the guys running that are saying, we're going to need a whole bunch more CapEx. And it was just interesting, because I think keeping an eye on TSMC as the people who would own the problem if they over invest. You can cut employees, you can turn off your GPU. But if you dig a big deep hole in the ground in Phoenix and a big deep hole in the ground in Japan and put a fab in there and no one uses it, you know, you're out 20 billion bucks. And they're leaning in right now. So that inference demand is pretty clearly there, according to all the tells. For those that think about the AI bubble, does that not completely denigrate those risks of an AI bubble bursting?

34:46When you look at them, when you look at the improvements, when you look at Dario coming out today saying, hey, when you look at the improvements, we'll be replacing everyone's job in under five years? Not every statement that says it's going to go on now has to be equally correct. A bunch of people who have the money, starting with the foundries, going to the chip companies and going to the hyperscale, all said, we're going to spend this money this year. So I think it's highly unlikely that you can. This is not going to be the year where people get terrified and say, I'm not going to do it. At some point, I think they will, because I think we probably are over-investing at some level.

35:19But right now, people are saying, I can see logic to this thing for the next 12, 24 months. Despite the massive gap between the, you know, the huge, the CapEx is now 600 billion. The app's revenue, you know, squinting is 100 billion. So you're still, you know, 500 billion a year in the hole. But right now, people are saying the return is there. That's all you can conclude right now. If you knew when it was going to happen to the day, you'd be trading NVIDIA puts and you wouldn't be talking to Harry Stokes. I'm so sorry. I'm the least intelligent on this call, which is why I love doing it. When you look at the cost of inference, maintaining its high price, and when you look at Jason, and I think quite rightly saying that inference will be running 24-7 for more and more of the knowledge worker population.

35:58Why is that not just continuing evidence that NVIDIA has so much more room to run and is actually underpriced today? Because, I mean, take, for example, that statement, the cost of inference, the cost per token goes down enormously quickly, and it's just that demand expands and just people use more and more tokens to get the same dollar amount, right, just to be precise. I think the only argument against what you're saying is some version of, as the numbers get bigger and bigger, you start encountering, oh, GDP-type limits. So your total US CapEx is X, and you're now 30 % of the total CapEx. Can we really stop building tractors, buildings?

36:33Can we put all our money into great big data centers? And some people articulate that vision. There are people who articulate in the trillion-dollar data center. Well, maybe. I'm not sure that happens, but I don't think I have to solve that problem now. All you have to say is, does it look like... I don't think you have to believe in the trillion dollar data center or the all human beings are going to be unemployed by AI to believe in the at the margin for the next 12 months. It looks more likely than not that people will continue on roughly the same investment trajectory. Those are both statements that have the same conclusion for the next 12 months, but are very different in terms of their grandiosity.

37:06And I'm not making the grandiose statement. I'm just saying, let me make it really tangible. At some point, NVIDIA ports will be a great buy because every semiconductor cycle for the last 40 years has ended up in a massive downswing. I ain't buying them today. That's when the rubber hits the road, when people are done talking and they want to say they believe. And I don't have that conviction yet because people who have money and conviction are saying they're going to spend. Look, we all know that some version of the bubble will pop, even if it's well after SpaceX IPOs and we have a thousand data centers in space, which is Elon's dream.

37:38and there's so much interesting things coming, 24 seven inference. It will pop someday. If we can't see it reasonably popping in the next 24 months, I don't know that as investors, as employees, as management team members, we can have dinner conversations, but I'm not sure there's much we should change. And I guess we all got caught around December, 2021, where 90 % of tech thought this was going to last longer. And then bam, we got, it just bit us right into like the HashiCorp went public and then it just stopped for two years. this is different. And if, you know, there's just, there's no upside in, in, in betting, this is going to slow in the next 24 months.

38:13There's literally, at least for 99.9 % of us, there's no upside. To ground it in practicalities. The only thing you can advise people is think about a scenario plan. Think about, would you have a plan if it were to change? Think about your funding strategy, especially if money is cheap to make sure going back to the next thing, you're really glad you raised that money in 2021, right? All you can do is play to the current scenario, but have a plan that if the world changes, you'll know how to change and that you've raised money to be able to survive that. That's all you can do. We're playing the game on the field.

38:43We mentioned them a couple of times. Open Evidence raises at$12 billion, led by Thriving DST. It's a 12x valuation step up to where they raised at a billion dollars from Sikora at the start of the year. Revenue growth has been amazing. Pharmaceuticals ad spend in the US on media is$22 billion a year. If you think about the transition of that to their business model and assuming a reasonable take, you can see them being a$4 to$5 billion revenue business. And that alone doesn't feel crazy. But then in other aspects, it does. How did you guys read this one? I think it's Start. It's a great company.

39:18It's a perfect use case for AI. eye. It's one of the use cases where the general models are good, but the combination of specific relationships with Journal of New England Medicine and all that, plus restricting access only to medical professions, plus HIPAA compliance means you've got this really nice product to allow doctors to do decision support, which is go and check online, what's the recommended treatment for some obscure disease I haven't seen, right? And then the obvious thing you do with that is you sell them ads, right? And the obvious people to advertise to those doctors are the drug companies because they want to sell to the doctors, right?

39:56So it's a perfect business, and they've escalated to, I believe,$150 million in revenue. So I was actually impressed that you led with the market size. So the things that are clear here is they're the winner in the space, right? Doximity is the old pre-Gen AI competitor. But in terms of thinking about doctor media a mind share for doctor-like things. Doximity helps you a lot with thinking about salary, thinking about job. But I have a medical question to which I want a highly technical medical answer. They appear to have commanding market share. So you've won that business. So the only question is how big is the market?

40:27And you're right. You can say total drug companies spend on quote-unquote drugs, drug advertising is 20 to 30 billion. But Harry, a good half of that is TV ads to consumers. So for a lot of these drugs, especially the long-term conditions, the advertising is not going to the doctors. It's actually going to the individuals who are wrestling with the disease so they can build consumer preference. So that halves the market. And on top of that, if you look at pharma companies spend on trying to reach medical professionals, actual direct-to-doctor advertising is to a$3 billion marketplace, which is now getting a little bit smaller.

41:03And you then have a whole bunch of these infamous pharmaceutical reps. So a lot of this marketing is done in person. So, you know, you have the folks just calling on doctors, bringing donuts, saying, hey, here's a sample pack of my nice new arthritic drug. Give it to your consumers. So for open evidence to get to that valuation, what they have to do is one of two things. Either A, they have to blow open some of that budget away from pharma reps calling on doctors and move more of that budget online, which, by the way, is a totally credible thing to do. But that's what they have to do. Or they have to expand into other services to doctors.

41:35And just like I think Doximity, for example, Doximity, a product they added that was a really clever product is a scheduling app with a kind of phone number that doctors could use that wasn't their personal cell. Because doctors want to give out their cell so people can reach it, but they don't want to give out their personal cell. So some nice little doctor products. So to get 3x from 12 billion, you probably have to do some significant time expansion. It's credible they do it, but they got to do it. You got to be at$5 billion in revenue, don't you? On a 7x multiple. To 35, yeah, that's where it's open.

42:07Based on what I do know about Open Evidence, if the deal was priced right, anyone would want to do it. Yeah. It's got the market share. It's very valued by physicians. They haven't figured out the true TAM, but the notional TAM is about as big as it gets. Of course, you'd want to do this deal at the right price. If you were a growth investor, would you do it at 12, Jason? This is the back to hubristic fundraising in the Brex round. Who at Open Evidence is going to do the Brex round at 12 billion at Open Evidence and 11 Labs and Lagora and Harvey? When is that round? Is this that round? Or is it the round in March at 30?

42:39Because this is a hubritic fundraising. Open Evidence will probably do a round at 30 or 40 next year. I'm actually going to suggest that Thrive is very smart, and they've probably done the math, and this is the right insertion point for them, and they believe in it. And someone else is going to do it at 30 to 40 next year as it goes to 400 next year or 500. Someone's going to do that. who does the$12 billion Brex round here where nothing but greatness, but gets caught with the tail end of hubristic fundraising? The first line really resonates with me. This is such an obviously good deal in such an obviously good market with a wildly quality founder who's had a win before.

43:15He sold Kenshu to S &P, big brain, PhD, AI native from his first deal, which was a financial AI company. This impeccable background here, great connections. There's nothing not to like here. And so you're right. Let me give you a clue. You're not going to find a discount here, people. But you don't think this will be the$12 billion price round at Brex, where the music stopped and it's that last time, right? It's always a tricky question because if you played back, remember, they had a round at three and I think a round at six. So this is the fourth time in. And every one of those rounds, you'd have said, maybe this is the one that's going too far.

43:50But when you step back, they 10x revenue this year and they 10x their valuation plus or minus and the sort of revenue multiple is the same. That's the market we're in now. And at some point, someone's going to be left with tide. You're right, Jason. You're running the Brex risk, which is the tide goes out. It's still an amazing company, but maybe you're doomed to a 1x. And is this the round that happens? I might have said the$6 billion round was, just given the core time market size. What's so hard is, in the moment, it never feels that hubristic. And like we just said, it's a no-brainer deal.

44:23Great market, great market share, great founders. likewise i remember with brett's i had henrique and pedro on the show back in 2020 2021 and they were talking about amex and the fragility and how they could build a hundred billion dollar business and 12 billion did not seem that crazy hubris is like that i mean and even more these late stage deals of great companies they're very easy to talk yourself into when times are good when times are tough they're still hard to talk yourself into but i mean times are mixed today but the good stuff is so good. It's so easy to walk into the partners meeting and advocate for open evidence, isn't it?

44:55It's just so easy. Yes, it's a little expensive at 50 ,000 times revenue or whatever it is. But I mean, you can't argue that this is a generational company. And Marc Andreessen says we do generational companies at any price. We just buy as much as we can. They only go up overall, not all of them, but they only go up overall. This is a generational company. I know it was 12 billion last week, but I propose$1 billion at$35 billion, guys, this week. It's a generational company. You said Marc Andreessen proposed that. They released a report this week, which I thought was astounding for a couple of different things, but most importantly, one, they put out$8 billion invested in 2025.

45:33This is Andreessen's report, by the way, so to give context, Andreessen did a report. Incredible slides, I thought, actually. I thought them and Avenir did great reports this week. But in Andreessen's, they said about$8 billion invested in 2025, and the stat that blew me away, two thirds of private AI revenue is generated by Andreessen-backed companies. OpenAI, Databricks, Cursor, Harvey, Replit, list continues. I was astounded by that. I don't know if you have takeaways from it, but I thought it was interesting for the audience to hear. I thought it was an excellent report. And I thought there's a lot of substantive, good economic analysis up and down the report.

46:11I thought that slide was probably the least astounding one when you think about it for longer than clearly you did. Because it was a great soundbite. And those guys are the best market. It's a great soundbite, right? But objectively speaking, if you kind of add up all the AI revenue, you're going to get$13 billion for OpenAI,$4 billion for Entropic, and everything else is in the noise. $200 million for Harvey, whoop-de-doo. They're amazing companies. They're going to be great. And then actually, if you were to lump a third one in, it would be Databricks, which they have a massive market share.

46:41And so that's, so to a rounding error, another way of saying the same slide is open AI, we have money in open AI and open AI is 40, 50 % of total revenue. I'll tell you what I found interesting about it. This, and then Gary Tan again, saying that venture should be 10 times bigger, smart guys, right? Is this really an asset class? Finally, you know, the classic take in venture is it's not really an asset class. It's a weird niche of PE. Yes. The top quartile, certainly the top decile perform, but the rest is a disaster. So it's not an asset class if the bottom 75 % isn't even worth getting out of bed for.

47:14If Andreessen has proven this penetration and AUM is repeatable, right? Like clockwork and YC is doing it at the low end. Is venture finally an asset class? If it is, that's Gary's point. Put 10 times as much money in. We have access to the early stage funnels, right? Andreessen's saying we have two thirds of private AI revenue. There's an asterisk and a dagger to Rory's point, right? Because it's weighted on two names. But still, the point is, if it is an asset class, then you can deploy the maximum amount of practical capital into it efficiently. I could agree with your conclusion on it being at some level an asset class.

47:52I might even argue two asset classes. I'm not sure that I agree with your conclusion that therefore you deploy more. Well, Gary said that, not me. Got it. Actually, at the Gary level, I agree, right, to be clear, because now we're going to jump in a lot, but let's digress off on the Y Combinator. The slogan of Y Combinator from day one is to make it easy for startups to start, right? It's some more elegant version of that, right? At the margin, there's no meaningful capital cost to giving someone 250 grand or 500 grand to have a go. The more people who start and try and do companies at the margin, it's a great thing for everyone, including the people involved.

48:28Worst case, you know, people talk about risk, but worst case is you do it for two years, you fold up and you go back to your mag-sat-up job. Back to college. That's exactly right. And you're golden and you're fine. So as far as my accommodator is concerned, and encouraging startups, the more the merrier. Where I disagree with you is in terms of, I think venture is actually two asset classes. It's the traditional early stage venture that's existed for 20, 30 years. And this new late and later stage venture asset class that used to be called small cap growth and is now, it is now privately held.

48:57So it's two asset classes. I don't think in either case they benefit from excess capital because I do believe that, you know, Martin Biggs has said it before. There's no investing business so good that excess capital won't ruin it. Right. And I do think that excess capital will make this business harder and to some extent erode the returns. And you're seeing that. I mean, it's funny. They said that, you know, 2021 was a very active year. I think 25 % was the most active year since 2021. We had a reasonably active year in 21, not nearly as different. and we do roughly the same number of deals every year.

49:28In retrospect, I wish I'd just gone home, right? You know, if you didn't do, because if you think everything in 2021 was either priced wrong and makes a 1x, or early and just totally wrong and makes, you know, less than 1x, let's just say, right? Other than a few companies that were the early precursors of AI, excess activity is, you know, not necessarily the best thing in an investing class. I saw the Druckenmiller quote, and it's for public investing, but it's been sticking with me all week, where he said something like, Most of the time, we sit around here waiting, reading, and thinking. And I thought, that's a real investor.

50:04And understands that activity is not everything. What is true for them is that what they figured out is that the bundled product of doing early stage really well would allow you to bundle three or four X more downloads later stage. And the combination of the two could be effectively managed and would be disruptive up and down the chain. That's the aha from them. I did the math two weeks ago and I'm doing it again. If they're 18 % of the funding last year, advertise that over two years, they're 10 % of the series A's. They gotta be 10 % of the good deals. They gotta be 10 % of the great deals. And they've structurally figured out a way to make that happen.

50:38That's the victory lap from this. So that was probably one of the thing about them that struck me the most. And then the other stuff was all about, some version of what Jason was saying, which is we're all still fine. The valuations are fine. it's expensive but not 99 levels yeah we'll see not to be um a little glum but what happens if uh mark or ben stepped down especially mark for a variety of reasons another another option is to wait them out this is an eponymous firm and things happen even health scares even health scares happen they do happen a lot of people get tired people you think people are all are all excited and then duskin moskiewicz quits the sauna out of the blue right you don't know smiles everyone smiles you just don't know can andreason horowitz i know everyone's gonna say there's there's martin and there's all these great people but can it survive at this level going to harry's point at this elite level a generational transition right can it can it survive that or is it always going to end up being those three generations to the gutter yeah yes i would assert vigorously the answers can it survive of course it can i mean one of my favorite quotes I think I've said it before, is the graveyards are full of those indispensable men.

51:49And, you know, let me just recite the names for you. Kleiner, Perkins, Caulfield, and Byers. Yeah. Kleiner still exists. Mamoun's doing a nice job. He's not Kleiner or Perkins or Caulfield or Byers. You know, firms that proactively manage succession planning can make it happen. I mean, they've gone through two or three generations. But this one is so, like the world's changed, right? This one's so iconic. Yes. But in a weird kind of way, I'm actually going to push back. the other. It's actually, and this is, I think, one of Andreessen's big insights. It's harder to be someone like Benchmark, small and brilliant, and manage generational transition, which is why it's awesome that they do it, because the asset is the brains of four or five individual people.

52:30The beauty of what Andreessen are clearly trying to do, and why I think they'll be able to manage it, is they're basically trying to transcend the individual by just being an institution. Their fundamental bet has been that venture capital is going to go the same way as investment banking. It used to be dominated by individuals and small partnerships. And now it's dominated by Mr. Goldman, Mr. Sachs, and used to be Mr. Solomon Brothers. And they all went public, and they're all just a very different business. That's the bet they're making. So cynical comment, if anyone has a rational economic incentive to manage generational transition, it's that firm.

53:03Because Mr. Kravis and Mr. Roberts can settle into a comfortable retirement, drawing off the management scene from KKNR, provided those fine 40-something Ivy League graduates that they've hired to run their firm can keep it on a straight and narrow. And the economics to anyone building that kind of equivalent of the investment bank, that is, that goes public, they have every incentive to do it. Oh, yeah, yeah. I'm not saying that if there was an unexpected transition that people wouldn't make money, right? The question that Harry had, this apparent dominance right now, could that survive the loss of Mr.

53:39Beast, right? Could it survive the loss of Elon Musk? right? The core, the iconic core. And I'm not sure. I would not like to think of the Tesla stock price if Mr. Musk decided to move back to South Africa and retire. The shadow of Marc Andreessen, even when he's quiet on social media, it's a long one. Which generational transition would be harder for Andreessen Horowitz or Coastal Adventures? Look, there's an insider baseball thing here that I don't, I'm not gossiping enough to know. I honestly don't know if Vinod wants to build a generational fund. When I'm just guessing as a brand guy, when I look how it's named and I I look, some of the, I mean, he has the best, some of the best talent on the bench.

54:15I thought Vinoad's plan was not to die. So none of this matters. It might not matter. It's a good plan. Yeah, it's a great plan. I'm with him. And if you can figure it out. It's a good, either for real or in the GPUs, one way or another to not die. If anyone will, he will. So there, we're not, so Harry, we're going to avoid your question because I think we have a sense of what the answer would be. So I'm avoiding the question by stupid. You're never going to die and you love the game. Vinoad's also never going to die. It doesn't matter. And he could just invest his own capital infinitely if anyone disagrees.

54:43Like he's going to live to$300 and he can just invest his own billions, worst case, right? You don't need any LPs. I do want to discuss public markets because we saw equipment share IPO, pop 33%,$8 billion market cap, growing 47 % at$4 billion in revenue. Great IPO. IPO market's open. We feeling great about this? I think it's a good IPO. I think it points to the need for scale, profitability, And it's a very different IPO, obviously. For Evan's background, Equipment Share is a kind of technology-enabled equipment rental company for construction. So if you're a builder, a builder in, you know, pick any US city and you're doing a job and you need to rent diggers, conveyors, whatever else, other equipment you need, these are the guys to go to.

55:27A great story, 10-year story, real critical mass, making money. It's inherently a physical business with a digital overlay. At the end of the day, there's nothing digital about a piece of construction equipment. It's a large yellow or green painted thing that digs up dirt and moves it around. So it's a grounded business, but they seem to have built kind of, you know, in large part using digital technology to become more efficient. They seem to build a pretty compelling business. So it's probably good news for all the other$2 billion digital construction companies out there. Growing 47 % at that scale and profitable.

56:00Growing 47%. If you're at billions in revenue growing 40 % and profitable, right? And outlier margins for your segment, then you can IPO in an effortless fashion. I view this as an effortless IPO, which was an interesting, it was effortless. It's really oversubscribed. You just IPO, you trade up, there's no drama. It's just, this is what an IPO is supposed to be. And fun to see it was a Y Combinator company from 2015. I would love to go back and look at everyone's notes as they set through demo there. 2015 and what they said about the equipment rental company from the heartland yc and lead edge both made a lot of money on that one does this start a floodgate of this size of outcomes going public and do they see the 33 pop and a good ipo as jason said and say okay markets ready now for us will this start a flood well we're going to say when i pointed out in the notes i thought the contrast to wealth front was here's one that wasn't good enough for the markets and a very good company, a company whose software we admire, who has done some good deeds in the world, made more efficient investing, very, very easy for people, doesn't seem to rip consumers off in a lot of ways.

57:11This was an IPO that the market said shouldn't have happened. It's a deeply broken IPO. It's trading down, what, 30 % or 40 % from its IPO? And it's subscale. It's worse. It's subscale, right? The markets are saying, first of all, this wasn't worth remotely what we IPO'd it at. It's only worth$1.3 billion, not$2.something billion. It's down 36%, which sounds bad, but it's also subscale. A billion dollars, that's nothing for open evidence or friends, but that is not, you're barely public. You lose the liquidity, you lose analysts. We can say they IPO'd, but it's going to be a long haul for everybody to get their money out of this company, right?

57:47For employees, maybe it's fine, but it's barely public. I still have a more than vestigial affection for this company. It does kind of suck. And And some part of it may be temporary, but it does point to the low end of the market cap space is a perilous one because you fall a little below it. You do end up in that 1.2. There are companies doing 5 million in ARR that are raising at 1.2 billion. And here's poor wealth symbol, hundreds of millions in revenue, billions on the management at the same space. I think they will compound out. I actually like the company and have a mental note here to go check on it and see the valuation and maybe buy some.

58:23But Jason is right. Right. It's not going to be a liquidity event in the short term because it's not going to be liquidity. Again, it gets back to the, you can say it's fortunate or unfortunate, but it doesn't matter what your kind of subjective opinions are of it. The objective fact is 3 billion plus or minus appears to be the point at which it's easy to go public and it gets a lot easier the more you go up from there. Maybe three is a cutoff. And when you do something at two and then you slip even a little bit, you're down into who cares land, which sucks. My worry is, honestly, if companies are created, maintained, grown by the people within them, do the best talent really want to go to Wealthfront in a 30 to 40 percent down IPO?

59:02I didn't mean that horribly, but it's just is that a magnet for the best talent today, given the many options they have? And if not, look, if you're an AI engineer, no. If you're actually interested in finance and investing, I think it's a very compelling space to go because I think the things they're doing are super interesting. You know, do you really? Is it a top five place? like no advance well i think two things could happen if you have a deeply driven and charismatic ceo on a mission you will at least find a way to attract a handful of leaders to even a company with that struggle you will find a way if you're utterly tenacious i believe you will they may be failed founders themselves which is like the hottest recruiting category in tech right now failed founders yeah you may find them other places but you will find two or three folks that can move the needle and it's all you need you only need two or three leaders a company of any scale.

59:49The best ones will find two or three. At the same time, I have to tell you, when I talk to companies like this, and I've done like several of them recently for the start of the year, I feel like people are just blinking at the camera. Like they joined these companies to not work. They joined these companies so that I had to argue with one of these companies that I'm just friends with. You know, they didn't want to get a big release out this year. There was a lot going on to get a big release out this. You're going to get destroyed by the competition. So on the one hand, you can do it, but you better be, in my opinion, you better be this CEO on a mission and reboot the company and find those folks.

1:00:25But realize 90 % of your folks, if you're not careful, are just going to be blinking at the camera. We need to slip that release. Well, these next quarters look soft, actually, Harry. But Q4 is looking great at the end of the year. I know Q1 and Q2 are going to be down, but we'll make it all up in December. I'm going to push back on this. Because we live in a power law in terms of outcomes, we say only a few outcomes matter. Therefore, all the other outcomes don't matter, right? Which is mathematically true about company results, because that's the distribution curve for outcomes. But the distribution curve for humans, just for the record, is actually pretty much a bell curve.

1:01:01So the idea that even in a good company, not everyone's going to be exceptional, right? There's an implied statement behind what you're doing, Jason, which is all the great people are in a great company, and everyone in the OK companies is mediocre. I actually think there are two different distributions, right? Probably the great companies skew a little better than the average. But most of the time, once you're up to 1 ,000 people, you have a fairly representative subsegment of whatever class of people you're hiring. Harry's got his confused face on, and I can't explain it better right now. But I don't believe all the people in something like, well, a solid outcome company like a well-fanty or even an equipment share are mediocre and not trying.

1:01:40I don't think that's overgeneralization. And of course, you're right. The reality is even at the best, 80 % of folks are not contributing significant value mathematically. But you've got to have these epic leaders in ICs to compete today. You've got to have a great leader. It's so competitive. I totally agree. But great leaders are everywhere. You better find this founder that can truly bring this talent in in a magical way. And it does happen. We've all invested in a company. And often it's a company that plateaued and then re-accelerated. The CEOs find a way to hire through that plateau, right?

1:02:13That crappy six months. So we've all seen it, but you better not pray it's there because you like the product or you like how you used it in 2023 because it's brutal. We said about small and subscale IPOs. Ethos, the Institute app provider funded by your Sequoia, your Excels, provider of life insurance, going public today when this show airs on the 29th, valued at$1.3 billion, high end of the range. last valuation privately was$2.7 billion in a peak valuation. Is that subscale? And as a result, should they not be going public? They should. What do you mean by should, Harry? Why shouldn't they?

1:02:49What's your alternative plan for this company if it does not go public? Just curious, Harry. Continue being funded by its existing investors. But if its existing investors think that the return profile from here is more akin to what a public investor would want, then they can go public. Sure. Or does this not slightly feel like being fed dogs? No, Harry, again, this boils down. It's a discussion we have every freaking week. It's below the line for Chamath. He doesn't care. Yeah, despite his$4 billion, I don't plan to run my life on where Chamath's lines are. I think it's true. That's a quote. That's a good tweet.

1:03:23Yeah. Please don't. I'm not trying to be argumentative. I'm actually being complimentary. Look, I think what is true is that at this kind of valuation, at this kind of market cap, it is harder to get liquidity. It's what Jason said. But you don't know what's going to price. You don't know what's going to trade. And maybe they don't want liquidity. Now, maybe it's a process of starting. And over the next one or two years, they perform. They grow. You grow 20 % year on year, whatever it is, 30%. And you just, over time, build up your market cap. I don't think we can all stay private forever. Being passed around amongst us, especially if we're not growing at, you know, the venture cost of capital should be around 30%.

1:03:59And the public cost of capital should be around 11%. There does come a point when you're better off in the public markets. and if it's subscale and cheap, let me tell you what will happen. People will buy it and they'll make what's called a capital gain. I mean, if I have the courage of my convictions, I should go away, look at the wealth fund numbers and say, I believe it's cheap at 1.2, I should buy. Because in the end, value will conform. This is going to go out on the 29th, Jason. So we can ask Rory now, because he's just said about a capital gain that could come. Will this have a pop or will it have a drop?

1:04:27Well, I think it's going to have a drop. Notwithstanding, Bill Gurley, my personal view is IPO should be engineered. Things matter, just like the start of the conversation on Brexit. It does matter to feel good. There's a lot of benefits to feeling good about the IPO. I think it won't. But I do think the interesting question is, maybe this is what you're asking in a sense, Harry. Rory may disagree, but in a sense, this is a capitulation by the investors saying we're not getting back to that$3 billion valuation or$2.7 billion valuation of years ago. It's OK. We need liquidity. There needs to be an exit path.

1:04:55No one's offered to buy us for a good price in the last three to four years, or they would have taken it. So it's time, boys, to IPO. If this one works, will we see a flood of these? Even if they're like Wealthfront or others and trade down, if the market will absorb them, will it be time to flush our 2021 unicorns out the door and down the drain, but out the door in 2026 and 2027? Maybe it's time to just let them go, no matter what price it's at. You're veering on doing the thing you condemned others to do, which is sneering at a$1,$2, and$3 billion outcome, right? It's the low end of the public company market cap, but it's a perfectly good outcome.

1:05:32And to be congratulated, to start a company from nothing and get to$1 or$2 billion in value, get it public, have the chance to compound for 5 or 10 years, it's an awesome achievement. And you're right. Look, we will look back and go, the winners were the ones who got a crazy valuation in 2021, and then were able to get out from under that valuation via a down round, a down IPO, or a down M &A. The bad ones are the guys who are still sitting there looking at their 21 valuation and thinking that's ever coming back. I give anyone credit who's making progress and clearing the logjam and doing what it takes.

1:06:04Yeah, I think, is there going to be a lot more of this? I'm reminded of those 700, 800 unicorns, valued at more than a billion. And SVB did that analysis. I think something like 30 % of them have a decent growth profile and scale. Call it 200. Jason's point, at one a business day, it'll take a year. That was 2021. At one a week, it'll take four years. So, yeah, I think this has to start happening. And, you know, one of the things that's true, Harry, is price clears all markets. In other words, there's a price at which public investors will say, yeah, I'll buy that. And maybe it's not 2.1. Maybe it's not the price you wanted in 2021.

1:06:36But if it's I mean, you call it being fed to the dogs, which kind of clearly was a buried pejorative statement. Maybe it's just figuring out what price it takes to fill the product. I guess just on a related note, I'm an advisor to a to a unicorn, hundreds of millions growing pretty good growth. right not being killed by ai but not necessarily benefiting from it but enough right to be in to eventually compound to a better ipo than that but not at open evidence and we did an m &a review a little while ago and i was shocked who's on the block i mean everyone's for sale and i was shocked that folks worth less i mean worth more much more are willing to be acquired by someone with a fraction of their revenue and these are i didn't see databricks are the ones that were passed around the room virtually but i was shocked of folks that have been on 20 vc that i did not know were in market that are looking for aggressively looking for an exit which is why when you see people pull off an ipo or pull off a freaking five billion dollar exit the correct response is yay well done and then be god damn i wish all of my guys could do that that'd be great it's a great outcome right yeah you know what if we're gonna end uh i do think a hat tip deserves to be given to our friend of the show, Mr.

1:07:48Mark Benioff, who Army just awarded Salesforce a$5.6 billion contract over 10 years. Mr. Benioff, hat tip. Well done. Totally. Yeah. SaaS is not dead, and now SaaS has an army. I love it. SaaS has the army. Yeah, take that. Take that, Dados. No, it was, first of all, you're exactly right. Great outcome. when someone, some sales rep in Salesforce is getting the mother of all commissions here and good luck to them. But I also think it speaks to the whole zeitgeist of AI is going to eat everything. And I think the correct pushback has been, I think the people have been saying all these systems of record like Salesforce are going to get replaced are obviously wrong because that's not what's going to happen because it would be an incredible waste of talent to do that.

1:08:36You should just let off the systems that have. And I think this is an example of that. It's a separate piece, comment, the Avenue piece is how much value can you build in the AI first world as a system of record? That's a totally legitimate question. Can Salesforce get its mojo and growth back or is it the utility of SaaS stocks for the next five years? That's a fair question. But I think deals like this put to rest anyone who thinks that they're going to vibe code their way to a product that can replace a$500 million army order solution. I'm really sorry. I'm dumb as rocks still after many shows with you.

1:09:09My question to you is when AI sales reps work and you have distribution to the scale that Salesforce does, I don't see how they don't regain growth and be a dominant force again. Look, the market is saying, again, right now, the market is saying, oh, my God, SaaS is dead. You know, the multiples are down. And you're saying almost the exact opposite. Again, I would remind you that you can take some of your ill-gotten gains and bet them on the public markets if you want to. I'm kind of in the middle. I don't think they go away, but I think it's what Jason said. They don't go away, but it is hard to do that innovation that gets that new product out the door.

1:09:41One thing that we do get confused about is we think it's all directly AI. And AI is the biggest issue because the lion's share of the new CIO's budget is going to AI. That's where all the discretionary budget is and price increases. Okay. And price increases is almost self-defeating because it only works so long. And so if you're not tapping into the AI budget, you know, Mark, when he was on this show and his own show was saying how much better a deal Palantir got. I think that was echoed in some of these army contracts because maybe you had to take a haircut on those deals and get the budget where it is.

1:10:11And so it's there. It's just there are so many other issues, unfortunately, that are attacking SaaS. They are seat contractions are existential. Workday said seats are perpetually under pressure. Shopify has held headcount flat for three years and grown 40 something percent in that time. We're not hiring anybody and we're going to hire less people. Price increases have become destructive because SaaS price products are up 40 % the last three to four years. And that's great for a CRO to make their plan this quarter, but it crowds everything out. There's no room to upsell or anything when price increases take up everything.

1:10:47And so there's like all these different issues. If we're not buying as many seats and we're radically increasing pricing, there's just multiple ways the old model's getting attacked. And if it were just as simple as adding an agent, that'd be hard enough. But it's not. And our workforces are shrinking. And what we expect from our workforces is shrinking. And so SaaS will adapt, but just magically charging per token doesn't necessarily change the fact for many providers. Tweaking pricing models doesn't change how much folks want to spend for a product. That's a fallacy. That's what consultants do.

1:11:20They're pricing consultants. It's great, but if no one wants to pay more than 20 grand a year for your product, you can't force them to with a clever pricing model. There's a lot of issues to deal with that the new guys don't have to deal with today. So you end up in that boring kind of quadrant of it ain't going away, but it ain't exploding. If it was just AI and it was nothing else, you put 2000 people like Mark did on AgentForce and it works or it doesn't, but it mostly works. Right. But at the same time, folks are contracting seats. Right. If at the same time they're cutting budget for existing investors.

1:11:50Right. If at the same time you're beholden to price increases to make your plan. I worry for all but the best. It's too many daggers out. It's just being attacked from so many sides that it's hard. We just got used to these 130, 120 % NRR years that were magical, that often didn't even rely on price increases, right? Slack never raised prices and still grew at 140 % NRR. I don't know those days are ever coming back, no matter how good our agents are. Okay, boys, I'm gonna wrap, baby. But before we leave you today, are you a founder working nonstop to raise your next round? Are you an investor doing all you can for your portfolio companies to help them stand out?

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