20VC: Chime IPO: The Breakdown | Why Fund Returners Are Not Enough & Seed is for Suckers | Are IPOs Dead & The Future of the Late Stage Private Market | Rippling vs. Deel Lawsuit: WTF Happens Now?

24:47It is a big bummer. On this converges, I'll tell you my view of what he said. This is for my tiny lens, right? I've had two portfolio companies recently that got offers to buy them at 500 million. Okay, now in isolation that sounds great, but these are very good companies. Okay, these not open AI. These are very good companies. One was just a smidge above the last round and one was a smidge below the last round. And what I mean from the Orlando thing is listen, this sounds good, but these are tech leaders who want to make AI adjacent deals, okay? But they don't care about, they're not willing to go all in, okay?

25:19Now maybe in six months those deals would be a billion and they both would have cleared it a billion. But they both said no and the companies just walked and one of them bought a company instead for just under 100 million because it was just easier. Instead they bought someone at two million for 100 million. Great deal for the founders, right? Raised a seed round but they walked from buying a leader because 500 was the limit, right? And they're all for infinity, right? In this case for all intensive purposes. So I wasn't shocked, but I was like, you know, I'm just watching the sign of the time.

25:49But usually that accelerates, right? We're in typical phase transitions. But would these acquire us? Would they pee back to? No, big tech leaders offered to buy two different companies for 500 million, convergent evolution, or same number. But one was just above the last round, right? A little profit. The other they didn't care about the last round. And it was Walker, you know, heller, we don't care. And then they bought a much smaller competitor and lost, well, lose years due to it, right? but they didn't step up in the way I would expect. Now that they have to, it was just to, for us, all to make money in M .A., you need folks really stepping up in these deals, right?

26:23They're like, ah, Rory did the last deal at 700. I'm gonna pay 2 .1. That's the way Venture works. If that don't happen like the Yammer and other deals, we don't make any money if they don't pay 3x, the last round guys. Like, otherwise, it kinda collapses a little bit, Venture, I think. The truth is, there's times in the market where the euphoria takes off and people are willing to lean in. And then those times when the other side feels it has leverage and doesn't want to do it as much and look right now Look in a few cases like Wiz I think they created all the leverage they played it perfectly And then the other side did what they needed to do they paid the big step up from the last round I think in a lot of cases look all these people read the same press we read They're saying venture guys.

27:02It's a little bit tough. No one's had liquidity And they're probably in the mode if I don't need to overpay the only thing that changes that is if some of the companies that buy and buy successfully have success with those acquisitions. If you're wait two years from now, you're competing with service now and the movework acquisition is killing it and you're now second or third in the space. I don't know who that would be. Would it be Zen, after whomever? Then by God, you're going to do what you have to do, right? You're exactly right. One of the pressing facts about venture is we make an embarrassingly large percentage of our money.

27:34Once every seven years, when you're in the white heat of must acquire, must own high growth venture assets. And the trick in the other six years is surviving and keeping all the little companies alive and growing nicely so that when that moment comes, you have inventory to sell. That's probably not this year. Yeah, that's my sense. It's not. It's getting there, right? Because these, because these offers happen. Five hundred million is not, I mean, we have a little bit of fun here, right? In any absolute sense, it's an insane amount of money, right? But it's not enough inventory, right? Jason, what ownership do you have in those two companies?

28:06Let's just average them to 10. Nice. Wow. Good fun. Dude, that ain't yours funds for 70? Yeah, but I did want a one X in. A fund return is not enough, man. What's the point? We don't get out of bed for a fund returner. A fund returner just returns the fund. Like everyone talks and venture about fund returners like they're so great. I don't think they're so great. But depends on look, you're in that business though. I mean, obviously look, that's not the perspective of someone who was an $8 billion fund, where they are humble enough to recognize I said that the poor guys just gonna have to chip away two billion out of time.

28:39Yeah, poor guys. Yeah, I'm not into that vibe. Like, I, it's just not worth it. But really, I don't think a fun returner for seed is really enough. I mean, it's the classic 1X, and then two deals do 0 .05 X, right? And the rest do another, and you dribbin', you dribbin' drab to the 3X, right? You dribbin' drab, but, you know, I don't wanna be in a walker. I need a nice place in Marleybone. Is that where 20VC is? Is it Marleybone? Marleybone. Yeah, I love one of those carriage houses, And I want like a nice one, you know, I want a nice one to get out. That's going to be my fourth house in Marleybone on down those cobbled streets with those carriage houses, you know what I'm talking about.

29:13Then you should start a podcast, buddy. That's what I'm doing. That's what I'm doing. I can ask it. When I thought, when thinking about exit values, there was something fascinating. It was Vencap and LP, Internial P. And they basically did this analysis of exit values. And they found that in the 99th percentile exit, so the top 1%. the price of the value grew from 1 .4 billion in 2005 to 2009 to 10 .2 billion in the most recent 5 -year period, almost like a 5 or a 6x in the top 1 % exit value. I wanted to hear your take on this. First, and Rory, please slam the question in whatever way you feel relevant.

29:55I first thought I thought it was great analysis to the point where I actually emailed David and said send me the underlying data, which now gives me the advantage over you because I have it in front of me here so I can keep you honest. Did I put this down as mine and you knew that I didn't do it? Absolutely, because it was mathematically correct, so I know it wasn't Harry. Look, I think it was its great analysis, profoundly great. The question is, and what it's being used to do is try and hypothesize if this trend continues, how big will exits be in two, three, four, five years, and thus, how much, what's the ability of venture to raise ever and ever larger, aggregate amounts and still make the math work?

30:36That's the embedded question in this. Unfortunately, the answer is one of the agree, right? In the sense of, it definitely points to, you know, small number of egg is getting larger, though the trend is not as pronounced as you think. The first period of time was 2000 to 2004, where the 98 %ilex was as high as 3 .3 billion. So in other words, they went down. You had a cyclical downer for 10 years before they started going up in the 2015 to 1988 and then exploding up to 10 billion in 2020 to 2024. So it's not like this linear growth for all time. It's like a dip and then a growth back. So that's the first comment.

31:15So it's not as kind of clear a trend as you think. But I do believe at some macro level, it's correct and it's simple. It's not that things are getting better or it's just that the longer you hold the company, the more compounding takes place, the more dispersion takes place, the big get bigger, and the shitty ones are crap. It's just math. And therefore, by definition, if the window to stay private stays longer, the size of the largest exit will be higher. I've known that, like the largest single exit in this database in 2020 to 2024, the largest single outcome was actually two at 65 billion are above.

31:53If there's not four exits above 65 billion in the next five or seven years, then the people who bought Stripe, SpaceX, Databricks, OpenAI and Unchropic are screwed. So I don't think that's screwed. So I think there's gonna be, this trend is going to be even just as it's gonna continue in the next four to five years. There's no doubt in my mind. And it's not for magical reasons. It's just because you're holding longer. Let me give you another example of that. It's really interesting. I looked at historical data. The biggest single exit in the period 2000 to 2004 was a 20, you call it the 99 deathile.

32:27I don't think that's a useful term. The more useful point is it was the largest single exit because there was only one in that group. It was a 23 billion dollar exit. It was Google in 04. If Google had stayed private one year longer, Google's market cap in the end of all five, it was about 140 billion dollars. If they just stayed private another year, the entire data would be swamped by the fact that, oh my God, the biggest venture exit ever was 140 billion in 0 .5. If the Google CFO had had a hard attack in 2004 and they postponed their IPO for a year and a half, then the largest exit would have been in 0 .4 and it would have been Google.

33:05The point here is, all this is a derivative of small numbers of how long the very best companies stay private is all that's going on here. And it's true and it's a thing. What it means is that the bigger your fund, the more imperative it is you have to be in those six deals, which explains why capitalists are easy to raise for those companies. It all makes sense. It was great analysis. I'm not sure it points to everybody can do great adventure because everything's going great. I think it points to the top end of a power law where it really matters to be in probably five or six companies at almost any price.

33:37But if the top end of the power law is so much larger than it was previously, which I think we'll all agree will be that way in 10 years time, 2035. Are we wrongly negative on the size of light speed general catalyst you name your mega funds? Because we're considering today's exit size on something that we should consider as 10 years out of the exit size. I'm not negative. I think they have a great business. If you get the capital into those companies, then you're going to do great. I don't know if it supports everyone being able to do that and the scale of late stage money relative to the opportunity.

34:08I think it's much more nuanced. Maybe the way to say this, Harry, is this the direction of travel is clear. As long as companies stay private longer, there are more opportunities, not just at the 99 percentile, but at the 99 .9 percentile, at the very tippy top one or two deals per decade to be in them and compound for a long period of time. That's definitely true. Does that translate into all the funds making enough return on all the deals to kind of make the late stage network not as clear? My, my just concern is just there's so a few companies in that 99 .9 % desolate. It's like a world of concentration unlike any that I think we've seen.

34:44You're exactly right. So how do you know in a unicorn, whether you should keep in or sell? How do you know? Where's the line? That's actually a great question. Obviously look, it's so annoying. It always looks so clear and retrospect. You obviously shouldn't have sold any SpaceX ever. So the question is, how do you know at the time? And I think it really is a function of market size momentum. Most, I mean, it's the classic problem is, yeah, if you're presented with an egg's of opportunity at five billion, framing it clearly. Let's say, let's say all the unicorns get to five billion and the great secondary gods come and say, you can cash out anything you want now.

35:22Statistically, let's say I could cash it all out the last curse around it. Nine billion. I mean, Mary Meeker used to do this analysis of IPOs, which was excellent, and because I believe private late -stage companies in 2025 are just the same asset class as IPOs in 95 to 2005, the same analysis applies. Most of the companies barely beat their IPO price a year later are ever again and a small number of companies compound and do amazing. So now how does that become actionable? If you're sitting there and you can sell all your private companies at five billion or the last round price, statistically 80 % of the time you should sell because that's what the stats say, but 20 % of the time will cover.

36:04The interesting thing is the 20 % will not just make money themselves but will cover all everything else. The wonderful thing about this business is compounding is a very forgiving thing. So obviously, if you're smart enough to be able to tell the one good one from the four bad ones, sell the shit ones, keep the good one and you'll be rich. But if you can't do that, it is a matter of mathematical truth that the second best alternative is holding them all provided you have one of the good ones in there. What's going on with all these late stage funds is some version of holding them all. If I do enough and I'm in the good ones and I double down on the good one the long term trend to a massive tail of the power law is going to make me money.

36:41My new rule is, listen, this is you're lucky to be there, right? But when I was looking at this on a spreadsheet, my new rule is at 2 billion, sell unless you're 100 % sure you shouldn't as a seed manager at 2 billion. I know it sounds goofy, but it sort of ties to doing better than returning the fund because the risk is unless you're sure, unless you're sure it's a space X, right? being in that 80 % is not so great, is it? The truth is this, it's a hard comment, but they've made it harder for most investors and most funds, because you're exactly right. Now, now you have to make these choices, whereas before you got liquidity on the mall, now you're still in private land, and you gotta try and figure it out.

37:15And you're having to make those decisions with a smaller portfolio count. The truth is, if you need 20 deals, you know, when you're starting in a billion to compound to a hundred billion, at your stage, Jason, the portfolio count you need is much higher, and the way that manifests itself, if you've constructed your portfolio 10 years ago, assuming you got your eggs at 100 to 200, the risky thing is, now you still got to double down 1 or 2 or 3 more years from here, and as you say, the bad outcome is you have the 80 % but not the 20 % and you don't have the compounder that forgives all things. So I think it's pretty smart.

37:50That's why the whole push towards taking money off the table as a secondary is just smart. I don't think you can take the risk of doubling down ad nauseam when your 10 or 12 years in it sucks But there you are Yeah, I remember back in the I'm dating myself But I was an emergency with Peter Gassner at Viva right and I saw a little bit of happening and their LPs were very mad when they held Because they own third there the only real industrial in Viva right 30 % they own 30 % at IPO And I was just looking it up. It was worth which was a lot of money back then It was worth 2 .4 billion at IPO, right let the partners hold but distribute to the LPs They're gonna get 750 million and it was probably a 250 million dollar fund.

38:24We could look it up, right? It's a multiple fund returner on that one, right? And because we had a few when I was just starting we had some healthy stuff and they were kind of mad that what you guys held but today it's worth even with some volunteers worth 40 billion. A great 25 and created billionaires out of that out of GPs created billionaires by holding but how do you know? And I knew Peter was the best one out of our class by the way our batch so maybe you can know like there was David tax was like 10 times better than me and there was Renee Lissert and others but Peter was like it fucking off the planet in terms of quality as a CEO but I didn't have the numbers right but they made the bet didn't they?

39:00Yes they did and the thing they had to their advantage was well advantage or disadvantage was when you're public you can make that decision you can distribute enough different people to make different decisions that's the beauty of the public markets if Viva had compounded as a private company the company would still have been the same but those choices would have been harder to make and different, you know, it wouldn't have been as easy to there's no distribution as a concept. So, interestingly enough, I hadn't processed this until real time. The incentive, and this is where I go back to my monothomatic theme of the death of IPOs is just bad news all around for capital allocation.

39:34because now as a GP you're sitting there going, I want to hold this thing forever. My LP would probably like to get some liquidity if it was public I'd distribute and I'd keep mine, they'd sell theirs, everybody would be happy because everyone can make choice and choice leads to optimal outcomes. Because we can't go public, I either have to sell now, which maybe is not what I want, or I have to write it out for the next five years, which is maybe not what my LP wants. And I think that's inducing some tension in the system, which would go away if these things were public. Taxes alone can be an incentive for a GP to hold.

40:05Taxes alone and most of our LPs don't pay any taxes, right? I mean, there's many other reasons, right? But taxes alone if you especially if you don't have QSBS You're like, ah, I got to pay 50 % in San Francisco like maybe a hold for another year. See what happens You have 50 % capital gains. Well, if it's short -term capital gains, right? It's still going to be even with long term. You're going to be 15 % in California 22 put you're going to still pay to 40 % in California long term capital game Well, this is what I find not so we have half your cap gains. You have a very true statement. You have half our cap gains.

40:36In fact, you have less than 10 % of our cap gains. You guys wouldn't... I mean, I don't know if you saw the Wall Street Journal today just dissing on Europe. You don't have any cap gains, so it doesn't matter the... The taxation rate is purely notional. What was that Wall Street Journal piece? That was the chart I put. The ratio of Europe to US for long years. What did it show, Jason? US companies 90 companies worth over a billion worth 2 .5 trillion and EU only 333 billion right so 333 billion versus 2 .5 trillion and a big chunk of the EU was stripe which you know we can debate whether that's a European startup or not.

41:14Harry's got a hundred of the best founders addressing this problem so I'm not worried in five years. Sometimes I'm surprised there isn't more capital flight from at least like the US makes it pretty hard to leave the country and it's a pretty bad country to leave, but I'm surprised there aren't more people in Miami than there are. I'm really surprised there are not more because Harry, you save 15 % just moving over to Miami. There's some asterisans and daggers with it. I've clarified my internal situation. If I were to reduce my income tax by 25 % by moving to a non -tax based state, I would also reduce my network by 50 % because my wife would be staying behind.

41:47So it's just not an option for me. So I'm at peace with paying whatever Gavin Newsom needs to keep this kind of bloated overpaid show on the road. It's a great place to live. So I'm genuine, genuine, common. I wish you were lower, but tax is not the reason to leave California. We should all be so lucky to have cap gains. But the serious comedy made Jason is that the beauty of public markets is allowed everyone to make their own choices on their own economic decisions. And they can hold if they want to build well. They can sell and pay taxes if they want to sell. It's a lot harder to do that in the private markets.

42:19I do believe we will look back and say, there are reasons why the very best companies choose not to go public. But it's a darn shame that the public markets haven't addressed those concerns such that all this stuff could be done in the public markets. Number one thing that you change if you run public markets to make it more appetizing for companies to go public. I love the idea of time -based voting that they floated in Don't Call Me Nistadal that there's Texas trying to get to get on exchange with some of the lean companies startups and some other folks. I don't remember the people, but the idea that you share waiting is in part a portion of how long you've been an investor in the company.

42:57It's kind of an extended version of the kind of just founder voting, whereby, because what happens in a public company is sometimes all the arbiters, all the short -term investors pile in, and they really push the company to make short -term decisions. But if your vote was in partly a predicate of how long you'd been an owner of the company, I think that could lead to very different results. That's one random comment. I don't know how to get away from the randomness, the noise level around quarterly calls and all that process. I mean, Google for a long while did that by simply not doing them, which may be one approach.

43:30I wish you could reduce just the anxiety and tension of that part of being public and always being on display. I don't know how to do that part of it. I do think forcing longer term holders is part of it. Sometimes I wonder if it's really so broken, right? Some of our favorite CEOs from your portfolio. So Aaron Levy, he's all in, right? But certainly spoken of the headaches of activist shareholders and all that at box, right? Huge headache for him. Then I was interviewing Brian Halligan a little while ago. You know, he has some perspective on this now, these Chairman. He's like, honestly, it's not much more work being a public company doing this than it was being late stage.

44:04It's not that much more work, but HubSpot's a $30 billion company. So maybe the bar should just be high. So you don't have to deal with these issues. If you hit your numbers, if you grow 50 % at 500 million and you grow, it's not really much of a huge deal. You have a huge finance team. It's not the end of the world to go public, is it? So a couple of comments. One is the odd thing you have is the companies that do the best, are precisely the ones who are in a position not to do it at all. You know, you have the striped situation. So it's the companies who want access to the capital of the two, three, four hundred level for whom it's still a big, a relatively big burden.

44:36But I do agree your point is actually the right one, not mine, frankly, which is, even though it's a bit of a pain in the ass, I do wish you could deal with things like activism, silly regulations around board and board composition and all that. The real point is, people respond to economic stimuli. If the capital were more expensive in the private markets than the public markets, then most CEOs would go to the public markets. The core reason it works is because there's a lot of capital available in private markets for companies doing two or three hundred million in revenues with a lot less hassle than getting that same capital in the public side.

45:09And that's the reason they do it. People respond to price signals, CEOs respond to cost of capital signals, and there's no doubt that bizarrely enough, the cost of capital in the private markets remains cheaper than the public markets. Now it's interesting when you look back on the chime, $25 billion raise, an objective fact is this, the cost of that capital was twice as high as you thought at the time, because you didn't give away 4%, you gave away 8%. So it may well be that we're in this little bubble where we actually don't know the cost of capital for some of these late -stage rounds. And if you get high priced rounds with lots of price protection and you ultimately go public, you may in fact discover that the last couple of rounds were way more expensive than you thought.

45:49And I think it'll ever go back to $100 million IPOs, but I think there'll be more of a normalization on your choices between public and private. I want to finish today if that's okay with one final segment, which is my team love CalSheet, like a predictions market place where you place bets in real world. They love it. And I wanted to, I chose three that I liked. Number one, will open AI stop being a non -profit? Yes or no? The new cycle is so fast, does your point of hair? It means what a loss for Sam versus Elon Musk in the short term. What a loss, man. We already forgot about it. It's a total capitulation to ever being a traditional for -profit company, right?

46:26I'm going to go with yes, because the question is weekly phrased enough that I can answer So yes, will it stop being a nonprofit? It doesn't give a time. At some point, this company's gonna get public. It's gonna have a PBC type structure. It will get there. It will take a lot of lawyers, but it will get there. So I bet yes on that one, because there's no timing. Jason. I've never seen a dysfunctional company that's more successful than OpenAI. I mean, all the founders left. They fired the CEO, brought him back, non -profit, left -profit, for -benefit, non -benefit. The momentum's crazy, but man, the motivations are really weird in a nonprofit.

46:58And giving that up, the folks, I've seen that on nonprofit boards are not going to give up this power. They're not going to give it up. No one I've seen on nonprofit board wants to give up the power because there's no money in it. So it's all about the power. I'm going to disagree a little bit on that because I think that the motivations in terms of being a nonprofit were much more important for the engineering staff and the early employees who really had in a real profound belief that they were doing something important for mankind. I might share that belief in the slightest, to be clear. But I think that was an animating factor in attracting the very best intelligence into this business early on.

47:34The quote, not for preferred halo matter. And it's no accident, in my view, that the two companies that have been most successful, open AI and ontropic, embraced that, because they recognized that they're the most important audience for both of them, was talented AI engineers, and all of them shared the religion that said, this thing could change the world and be dangerous. So therefore, they embraced the religion too. I don't think it's a question of the board of open AI, not wanting to give it up. I think bread, teller is just such a smart dude. I think it's a question of untangling the mess when you've got litigation on every side, Elon busting your chops, a bunch of state's attorneys, and you kind of know where you want to go.

48:14It's going to be hard to get there, but in the end, the value of the asset is so high that there'll be some half -ass cobble compromise whereby the entity will be a PBC, the not for profit will be one level up. And the only question is how much do they get, how much the Microsoft get, how much do the investors get. Somehow they'll figure it out. So I think they'll get there. It'll just be a wild and wacky journey. Second one, and we're gonna count by minute response, Max. Chat G, PT, five, revealed this year. Yes or no? The folks at OpenAI, the engineering talent, is so much better than you realize.

48:48It's so next level. It's so next level, right? the talent that they that open AI and Thropic cursor and windsurf attract its epic So if they want to merge all their models into one model which would make my life easier because I can't even tell them apart I that would be great, right? It's like this makes no sense at a consumer level, right? But man Jason is making any feature requests into the blood But merging all of these I mean is it core enough to happen right? Maybe there's a reason it hasn't been announced, right? It will happen in, but given all the activity, it wouldn't be surprised to me if it pushes a year longer, right?

49:25But they have the best in the world. I'm saying I think no, but it would be great. Okay, you'll know. I'll take you on that one. I'll say yes. I absolutely think they will. The velocity of a name. Yes, and I don't know. But Jason, baby, you want two minis and macasies. I'll give you dippling and real as the final wall. Dippling and real. Yeah. Gippling and real. Will Rippling beat deal in the lawsuit? 100%. Yes. There's no chance they'll lose. It could get settled, right? Which is they're always the right outcome even when there's a motion The right outcome is always to settle it, right? There's no way they lose 100 percent the facts are too bad There's no way they lose a 100 percent.

50:00They stole trade secrets. This is a classic case. They're gonna lose I said Jason you're like gonna lose Roy gonna lose I do agree Jason. I think whippling prevails in this lawsuit if it goes to court I think it probably should settle because most civil litigation does settle But it's hard to imagine from the fact and I did see the counter claim just recently But it's still hard to the imagine from the facts has stated. Did you think the counter claim was weak? It was some version of you guys did it too. I mean the first filing Ripley made back was I was ideal made back was pretty blah and weird It was about four or five weeks ago and it was full a lot of kind of weird You went to Harvard or you were angry about something.

50:37I didn't quite understand it This is a counter claim that said the guy that we hired. I think you guys hired to it. It's all very you did it too But I just think I'm with Jason. I think the facts and you have the person who made his affidavit and by the way You've chosen to run to another country and hide. I just think the fact pattern looks crap and at some point Sense prevails and you say whoopsie sorry and settle. So yes, I would buy the I would buy the yes on this one The other thing you also for what it's worth. I don't know how it works in the UK But in the US counter claims are not what they look like Just just as an FY why they do it in this and I'm not a litigator But I've been on the other side.

51:12You do tech long enough you're going to be on both sides of these, right? Counterclaims can offset any claims, even if they're outside of the statute of limitations, even if they couldn't be brought on their own. So let's say rippling wins a billion dollars against deal and a lot of damages. Even if they couldn't bring their own lawsuit, they might get an offset for $900 million. There are so many incentives to bring counterclaims that you would not bring as a claim. So there's always a lot of drama and some of them won't even make sense. Like some of the counterclaims don't make sense, right?

51:39And they're doing it for, they're doing it not because they think they're gonna win. They're doing it because they know they're gonna lose. And so you put everything in a counterclaim because everything counts as an offset, right? It's a sign of losing these counterclaims. It's not a sign of winning. And it's really stressful when you're on the other side and you get 10 ,000 counterclaims back because there's always some truth in it, right? There's always some truth in it. But it's a litigation game to get offsets. It's a sign, Harry, that they're gonna lose. All those counterclaims are ironically are assigned, they're gonna lose.

52:06If you're 100 % in the clear, you just say not guilty. You just ignore it. And there's a CEO, you go back to work. You don't flee to other countries. You go back to work and you say, Parker, you do what Elon and you do what Sam's doing with Elon. Sorry we misunderstood each other. Parker, happy to have a beer and talk it out. That's what an innocent CEO says. Let's talk about it wherever it is. How is going to come in? Let's hear it, how is it? Let's hear it. As Alex is a dear friend and I'm also a deal shareholder I would just like to add Alex has actually been abroad for many years the media Amplified him being somewhere where he's been for years.

52:46Yes fair point, but you do but my point is right What you do say Eric I know you're older. Take it to Dublin. He probably wouldn't take it Even if it was first fucking class, okay, dude He ain't coming to Dublin to testify on this puppy So thank you because no one's going to Dublin, Rory But if you're gonna win, in all seriousness, if deal's gonna win, okay, you do what Sam did to Elon. You say to Parker, I know we disagree, sorry as friends, let's get together. We used to be partners, they used to be integrated. They used to be partners. We'll work together again. Sorry we disagree. Sorry things happen that shouldn't have happened.

53:20Let's talk about it and you don't say anything else, but that's what you say if there's really nothing there. That's the power play. I'd go further. It's what you say if there's nothing there. And it's what you say if it's there also because you settle this thing because nothing good is going to come from this kind of Litigation where and I checked that not now, but a few weeks ago we thought we're going to talk about this. All of this is just civil Litigation, but the scary thing is some of the allegations could be interpreted in a criminal fashion. If I was the CEO of deal, I would want to get this behind me so fast my head would hurt.

53:54I'd want to settle and bury it deep and say, whoopsie, sorry, donation to the charity, rejoices, whatever. I would want this done because I don't know if this is going to escalate to criminal because one of the things that's very funny when you see the difference between civil and criminal is in several people yell at each other. And I think the criminal FBI, etc., are way more jaundiced and hard -knosed and they're just like, we're not going to get involved just because you kiddies are fighting with each other. They're only going to get involved if they see malfeasance. But the more noise you make and the more yelling you do, the more risk you have is that someone looks at the file and says, let me think again, yes, in Ireland, but border, these are US companies.

54:34There was an allegation here. That would be an espionage. Suddenly, we've drifted into some kind of theft of trade properties. And suddenly, someone opens an investigation. Then you're fucked. If I was my ass was on the line and I was the CEO of deal I'd be like how much money does it take to settle this thing by Friday get it done This is gonna. I know Alex. This is not gonna happen So hey look it's a free cut look people do what they're gonna do Like to all founders out there settle everything especially when you're not in the wrong when you're not in the wrong Settle it right when you're when it's the what because it's so hard if you're not in the wrong to settle it right It's so wrong.

55:11That's the number one reason to settle when you're not everything But I will say this, I would two observations. One is everyone gets really emotional about litigation and starts getting personally invested in it. That's the first thing. But then the second thing is even more important. The lawyer that you engage will tell you you've got a great case when you start out. As you get closer to the courtroom door and as you spend more and more money, they start changing the tune slightly just because suddenly, and maybe just not hearing what they're saying on day one. The day before court, they'll be saying, Remember, I told you it was a 50 -50 bet and you're like, I've just spent two million dollars and six months preparing for this trial And you're telling me it's a 50 -50 bet and you'll sit there and go if I knew then what I knew now I just settled at the start, right?

55:54That's the best advice for this people don't get it I'm gonna put this clipping in a post I did on it We're always right every single time you've been through you meet with the lawyers and they tell you if you have a These you're gonna your case is super strong, right? They tell you in the meeting $2 million later it gets close to trial and they're like, well those counterclaims, I mean they are silly, but a jury might not see it that way, right? The judge might, and all of a sudden it always gets closer to 50 -50 when you get to trial. The stress goes up, it's never worth it for either. Like it's almost never worth it, but that story.

56:25Every time you get your dander up and a lawyer tells you you've got a super strong case, I literally just went through this with the CEO. I said, hire someone great and have him play the other side. I literally just went this with the CEO. I'll play the other side because they're going to tell your Rory story and you're not going to want to do it anymore. 100 % of the time they changed their tune. It's about $2 million in, they changed their tune, isn't it? It's right around $2 million of legal expenses. That's so true. Hey, funny, my wife was a criminal defense attorney and she would always say the worst defendants are defendants who start talking about principles.

56:54I don't want to hear about your principles. I want to just hear what it takes to settle this thing. Don't get on your dignity. You guys have before about the amount of kids being put through college because of open in AI's legal bills and everything around it's legal bills. I think the same applies here. The end case, invest in Wilson's Insiniencule. Actually, but before we go, how could I forget? This was one of the biggest weeks for Jason with Saster. So Jason, before we leave today, I wanna talk about Saster. You had the biggest and the best there. What are your big takeaways from seeing the world of Saster come together in one place?

57:27The biggest takeaway I think, what Yarmony from HubSpot and Aaron Levy both said is, I'm super excited but I'm anxious. There was literally 50 times more energy at Saster this year than last year. In 2024, I didn't realize the tell was there. It was the end of the Debbie Downer era. It was the end of folks saying, whoa is me? I was growing 70 % in 2021 selling my fungible sales automation tool. And now I'm growing 2%. Last year they were still. These people did not show up. And yeah, this was your idea, Harry. We had three other sessions. I didn't allow one single session to talk about the past.

57:59It was banned. The past was the ban. You were only allowed to talk about AI, and you were allowed to talk about AI today and tomorrow, and that was it. From the CEO of Snowflake Hub Spot, we banned the past this year. You were right, right? And it created like incredible energy and anxiety, but good anxiety, right? You got to work twice and started twice as fast. I think that's great positioning, because it was either after 08 or 9 or I think it might have been after the dot com crash. What you saw two or three years later is even the survivors were scarred. And there was just no ability to talk upside.

58:30And you're like, oh my God, I got from 10 to 15 to 18. But I'm just so shattered from the pain of the last three years that I lacked the capacity to think big again. And many of those companies as a result didn't make it. And I think that's a, that's really good positioning. You know, it's coming out hopefully into a picking up time. And I think that's what it takes to win this year. Cause this whole sass is dying. It's bullshit. It's changing. And you better be AI forward not dead, but if you are, I'm very certain that if you do the right, make the right moves, you can grab hold of this thing and not just grow, but reaccelerate growth, which I think is what 25 has to be all about.

59:05Jason, you mentioned last week about buying clay out of fear and say, hey, Rory, come to the CMO event, come to the CMO event, I'm sure Rory was there cheering from the front row, I was in spirit. But what would the take away from the CMO event? A budget's open again, are they buying clay out of fear? What was that takeaway? The basic vibe was everyone recognized 20 to 30 % of their teams going to be replaced with AI and they're happy for it. Whether the tools are ready today or whether it's going to be six months, no one wants, everyone was ready and behind closed doors borderline excited for the bottom of the 20 to 30 % of their teams to be replaced by AI.

59:43No one's regretting it. No one's wondering, my God, my culture is going to be impacted at my company if the sales rep that takes a week to get back to somebody loses their job day, I know no one was regretting the impact on culture. Seriously, no one was regretting it. They were embracing it. How soon can I deploy tools to migrate out the bottom 30 % of my company? I don't want them. No one wants them anymore. Not Jason is. It's not just that he's the grim Reaper, but he's the happy grim Reaper. He's like, I love my work. Let's do some briefing here. All right. And yeah, maybe the positive spin on that is you can grow 30 % next year or not at any head count, but you know, it's it's the same story just perhaps a little bit more benignly placed and we all know it won't actually happen that way.

1:00:23There will be some churn. But yes, it's all versions of the same story, which is AI is a productivity lift at some level. They're stressed about the change though, because almost everybody also recognized Mozart weaker, whether you're Windsor for Hubspot, the Mozart weaker. I buy that. Now, I think over time, Mozart will emerge, but you're exactly right. This is a we often refer to some deals as it's a run fast deal. A good portion of the value that would be created over the next three years is just by running fast. You talk about running fast. I mean, to be fair, Windsorff ran faster than anyone in terms of what they built as quickly as they did do and then to get to the sale position that they did do.

1:00:58And then last night, or yesterday, whenever it was, Microsoft announced obviously that open sourcing VS code really putting a dent, I think some would say, in the hopes and enthusiasm and valuations of Windsor and Kerser. How did you guys analyze that one when you saw that announcement about open sourcing VS Code? It's interesting, because yes, it amps up the competitive tension, but it is also what's stepping back. If you were the developer Bohemut, which was Microsoft, the fact that you have to do this now to remain relevant at a zoom out level, this is a sign of relative weakness, not absolute weakness, but you know, if you had dominance already, you wouldn't feel the need to, right?

1:01:39You know, they're not going to open source Windows OS. There's been talks over the years, right? When you have a dominant position, you don't have to be nice. This is a manifestation of them feeling competitive heat, always recognizing as they have for 30, 40 years now, developers, developers. So they're doing something to stay competitive. So it might dent your perceived valuation if you're one of the competitors, but you've got to give yourself an adaboy. You know, you punched hard enough on a $2 trillion, dollar, $3 trillion dollar market cap company that they felt the need to make this move.

1:02:09Did anyone have an AISD or that actually worked? Do they work and those value accrues are two different questions and they occur in roughly that sequence. In other words, if you don't have clarity on if they work or not, then you shouldn't be thinking about where does value accrue because no one's going to make any value anywhere. So first you got to say to yourself, what parts of the sales process can be automated? And I'm 100 % with Jason. There are parts that work well today. There are parts that will work well in six, nine months, as the kind of technology progresses. And there are parts that don't work well.

1:02:41You probably don't do your marquee email to your very best prospect, but you all have coming back from a trade show or something like that, masses and masses of leads that just don't get followed up. Right. There's a whole bucketization of it's not so much the marquee work you're already doing is all the work you you should be doing, but you never get around to. That alone is a significant lift. It's back to what Jason, it's a 50 % idea. If you make the reps 50 % more productive, if you get them to focus on their key tasks, you're giving yourself 50 % lift and that's nothing. But I do agree, Harry, you have to be very granular on what works and not works.

1:03:18We've seen that in all, I think, in all AI companies, which is why, you know, going back to the investing thing, step one in all these deals and every AI deal is, do you, the vendor and you the customer have a mutually agreed figure of merit on what success looks like that you can boat track. If not, at some point you're going to churn because once out of the other either you're going to underperform or they're going to think you're going to on a perform, you have to be aligned around that. And then you have to be really honest are you delivering it and time everything you're pacing your aggression to when you are in fact delivering enough value to be able to keep them happy and keep them moving forward.

1:03:53I do think to Harry's point though the invent like I'm not smart enough to know which hundred to invest in right on the other hand How many notetaker apps are there right? I believe based on CBN sites. There's over 18 ,000 note -taking apps But on the other hand it has a privileged position at zoom But auto AI just announced across a hundred million in revenue, right? And there's several over ten and so I'm like this crap's bundled in and like I can't tell the difference and Notetaking is becoming like voice like gong like for for wow gong was disruptive and it still is But now that functionality's built into everything, right?

1:04:26But go back, because I think Gong is interesting, actually, because you made the comment, I think that's an example of someone who took voice as an entry point, built a compelling, in a multi -hundred -million dollar AOR business. But if you look at what they do today, voice recording, let's call it sales -specific note -taking, which was core to what they did five years ago, is only a part of what they do today, and what they've done is they've used that entry point, They've built a stack, they've added forecasting, they've added CRM updating, they've added a whole bunch of related functionality.

1:04:58And now I believe they're re -accelerating and now they have a defendable business where AI was the wedge product, and then you had to hustle your way and add the other stuff. And I think that's going to be the dominant mode for a lot of these companies. Why call them run fast deals? You got to pick your wedge AI entry point for that two or three years where those kind of magic AI premium, but you got to operate on the assumption that three, five years from now, the core thing you do is going to be commodified and what you got to do is have used the magic moment to get the distribution and then built on top of that defensibility.

1:05:32Ganga, I think it's done a very good job of that. Amazon, Apple, Google. We name the most defining companies of our time and the list can go on and on and on. You can even choose big consumer brands. Point is, fireflies, otter, granola, every subvertic lies. just for me as an investor, they bring them to the IC with me and I'm like, oh, this is not a deal that I want to be in. One of them. I can remember being a snarky little 30 -year -old VC, making snide commons that Amazon was just a bookseller, okay? I remember in 96 when Cliner did the round and I think they went public in 97, that was when companies actually went public quickly.

1:06:10And you know, it was a, you know, you could have got your head around the teeny tiny time. It was a wet, the thing is sometimes you got to see the wedge point, the wedge, and then where you can go from there. So I do hear you. No taking is a crowded vertical, it's a crowded space, it's what I actually love and would like to find a play and I could talk about for a while later. But sometimes don't make the mistake of looking just at the market today, look at where you can go with that product and can you articulate a longer vision. But we're going to Harry's point when when you're looking at deals at scale today, has defensibility and unique selling proposition.

1:06:43Has that gone down, when you score a deal, has it gone down? That's kind of the question Harry's asked because he's brought these deals, the revenues there, he likes the founder, but he can't, defensibility appears to approach zero in some of these deals. We just actually had a polite version of an argument on this and our partners, meaning just yesterday, right? You know, I'm looking at a deal, I won't say which one, which is in a very commodified market with lots of revenue, lots of good growth, but oh my god, they can name 10 competitors. And one of my other partners that I've worked for 20 plus years is looking at a high risk, high intellectual property deal with no revenues right now, but clearly, and lots of technical risk, but clearly if you pull it off massive defensibility.

1:07:25And we're sitting here going, how do we trade off these two things? And I will say, we've definitely skewed more to it. We will do the run fast deals, but you got to go in with your eyes open and know that you have the team that will run fast. And from a portfolio construction perspective, I really liked the fact that we're trying to add some more singular, different companies where it's an end of one, ideally with some more product market fit, but where you kind of go, this has defensibility and a much longer run, because I don't want to wake up with every deal being exactly, you know, GPT plus and 27 competitors in three years.

1:07:59So it's a tough and competitive investing environment from those perspectives. Listen, behind it all, is the model providers, the ones that are the shit businesses, right? We go through the peaks and troughs of like, oh, they're great, they're commodities. And now we're in the realization that OpenAI and Anthropic are actually phenomenal businesses. Anthropic, run rate revenue grew from a billion in Q424 to 2 billion in Q125. 100 ,000 plus customers grew 8X. How did we analyze this? Is this way better than we thought? Was this what you thought? Does it change your perspective on anthropic? I mean, listen, you can segment the market, but it's also interesting that anthropics a distant number two in some ways, right?

1:08:41And the growth is jaw dropping, right? On the other hand, listen, I'm not vent, you guys have chat about, I mean, OpenA also said they're gonna burn at least another 44 billion until they're profitable in 2029, at least another 44 billion. It is jaw dropping. It's the old Amazon thing from the old days, The Rory said, I'm like 18 doses of steroids, right? Everyone's all in. It's another 44 billion, but it's clearly a multi trillion dollar company. So the math ties, is it a new world? Or will it collapse on itself? I interviewed a great investor this morning, sorry to interrupt you, and he's already a holder in Anthropic, and he said, I'm trying to buy every employee's options.

1:09:19I'm trying to buy everything around Anthropic that I can. I'll get a billion dollars worth. I've got supply for my LPs for five. I'd believe it, because they're great businesses. And, you know, I did, I have encyclopedia, the, what you describe, the opt -on. They always have to be great businesses, because they're the, they're the most defensible part of the stack. I mean, I don't buy the commodification. I was going to be two or three, and I don't think there's going to be 10. People are going to build around that, and they're going to make technical choices. And you're going to fast forward five years.

1:09:48And just like lots of people could do Amazon Web Services in 2007 or 2008, you know, once you're 10 years in and you have the scale and you have the development environments and all the rest, those are going to be great businesses. They're going to be great business. Let's get, will they be worth 300 billion or one trillion? I don't have a developed opinion. But no, they're the anchor tenants of the AI economy just as Amazon, Azure, and whatever Google cloud were kind of the anchors of the cloud economy, the great businesses. With the rise of great companies comes the fall of others. Check, $12 billion to $95 million, third round of layoffs.

1:10:28Is this just exactly what we said that most of what smaller than ever and companies can be changed overnight? Yes, short answer. And why would I pay Cheg for X when I can literally type it into Cha Chi PT? That was a business that was, you know, dead road kill in front of Jason, most obvious next Cheg. The tough one, if MCP really works, right and it's very interesting seeing HubSpot and Box and DropBox be excited about them. If it really works we won't even really need these applications. If I can use NCP to grab my content from Box and I can do better think more powerful things with it by combining it with my own model.

1:11:07I'll barely even know Box exists. HubSpot is great but if my own AI can pull out all the structured information out of HubSpot and run my own AI the way I want to I might not even, you know, what does HubSpot gonna be worth to me? If I can put my own AI, my own agents on top of these apps, all these ones that we think are so great because they're databases, I think they instantly become vulnerable because they just become databases. They just become databases, I think, and I think they know it, I think that's why everyone's stressed. The only pushback I'd give is the word instantly. I mean, I think, I do believe AI will exert pressure on some of these apps in terms of newer solutions to do it.

1:11:44But I do think we should assume that the replacement cycle plays out over 10 plus years. I think the existing dominant vendors have a chance to write it out. I think look at what service now is doing very aggressively. But I think you're right. If you are asleep, then you are, if your app doesn't deliver a ton of value, then you will get ground down slowly and painfully. So you mentioned that like turning very quickly into a database. People say that about Salesforce. If you were to look forward, would you be a buyer or a sell on Salesforce with the potential for it to be a database overnight?

1:12:14Yeah. I mean, I hold Salesforce stock. I'm not seller. I think they're not going to be a explosive coer from here to say the least. But I think one thing we underestimate is the power of in -convency, not to be a venture type IAR performer where you're hyper -grote and tracking an IPO, but just the ability of these big tech companies to extract massive profits and massive cash flow at scale. If Salesforce is, quote, just a database in 10 or 15 years, It doesn't mean they can still kick off gabs and gabs of cash. I mean, all you have to do is look at Oracle. It's not only is it just a database, it is a freaking database.

1:12:51That's what they did first. And Larry, depending on the day, is somewhere between the first and the fourth richest man on the planet, he's not sitting there going, oh, I wish I was cool in AI. Right? He's going, I know how to optimize every damn dime from these corporate customers, which ship just enough new stuff to keep him on board. And we will build a wildly profitable, I think, 43 % operating margin business. So I'm not looking at Salesforce to provide the oomph in my portfolio, but I wouldn't want to afloat that stock with those cash flows because I just don't think it's going away. Were you Salesforce in our shop here?

1:13:22I think I'll be dead before we whip it out. I listen guys, the average episode that we do now gets 3 .5 million plays now across the five. Pretty fucking cool. I so appreciate you guys. Rory, thank you for rephrasing every question. Thank you. Jason's going to fire me and just get an AI now. I just want to be clear all I want to be fun. I would just bringing it back to the questions that was in the notes that I prepared to you kind of went off script in the first two minutes. It took 30 minutes to even get back to the second question. I was like, dude, I didn't prepare for freaking V .S. forking.

1:13:57Give me a break here. I blame Jason. They were in his notes. Guys, you're amazing. Thank you so much. All right, rock and roll. Take care guys. Dipliated reel for the win. I mean, you hear it in my voice. Those shows are my favorite shows of the week to record. Jason and Rory are just such incredible people. We've got a very special guest joining us next week. I cannot wait to bring you that episode. I hope you enjoy it. Let me know what you think. I love your feedback. Let me know. But before we leave you today, here are two fun facts about our newest brand sponsor, Kajabi. First, their customers just crossed a collective $8 billion in total revenue.

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1:17:44as always I so appreciate all your support and I tune in tomorrow for an incredible 20 growth episode with the head of growth at 11 Labs, Luke Harry's