20VC: Do Margins Matter in AI? | Is Defensibility Gone For Good? | Is Vertical SaaS Dead in a World of AI | What SaaS Rules Are BS and No Longer Apply in a World of AI | The Future of Venture: Why Chanel vs Walmart is BS with Byron Deeter

27:21some of these early on are needing to invest at heavy rates, but far from all of them, you see a large number of these businesses that are doing it in pretty capital -efficient ways, and that gets incredibly exciting. You know that your data nerd like me, we talk about the the rule of X and these trade -offs between growth and efficiency and all that, and ultimately we do still believe that all businesses should be valued as a some of their future free cash flows, and that ultimately is the mark of a good business. And the incredible thing is that these businesses still have those fundamental economic profiles in most cases where they can throw off real cash flow at scale.

27:56But if I'm a founder now listening to you, what you're telling me is, hey, take as much money as possible, invest in fucking growth as fast as possible, and don't worry about margin. So actually, no, and that's why I wanted to make that second point that efficiency still matters. We do think that trade -off comes into play and we quantify it. The rule of X mathematically it's about a two to two and a half ex multiplier value of growth over efficiency at mid stage scale. Call it 50 million ARR. So early on, you know, the math doesn't matter much. It's hopes and dreams. You're just trying to get in market.

28:30So it's an infinite multiple of anything. But when you actually get the engine going, there should be math underlying the fundamental assumptions. And I assure you one of the coolest things about the profile of an anthropic and perplexity and Canada and these businesses is the math actually pencils out. You'll hear these founders talk about it in the Foundation Model phase. It's a bit misleading because the P &L doesn't match beautifully, but you should think of these model releases as a product in and of themselves. And there's a healthy life cycle to that product. And so you're monetizing last year's training in this year's revenue line while you're investing in next year's model, which is going to be monetized in next year's release.

29:11And so there may be these order magnitudes step functions where each atomic unit of product is highly successful and profitable and yet the P &L looks upside down because of this hyper scale. No pun intended growth rate that they're enjoying in that Ford investment cycle. And so even though it seems crazy, I believe it would be economically in prudent not to forward invest when you have that market demand there and when you can show the unit economics working at each fundamental level. Can I ask you a lot of people think that the excitement or they're very real will plateau in some respects and that maybe GPT -5 is the first instantiation of that kind of incrementalism in terms of development.

29:56Do you agree in terms of that incrementalism coming? What do you actually think given what you see today? We're still so early on the curve that actually more compute in the way that that we're seeing, Edon and Dario require it, will need to actually continue as exponential gains for the near 18 to 24 month future. It's gonna be fits and spurts. And I think that was part of the people being underwhelmed with the five -o' -release and discussions, but we've had these cycles before. And there will be breakthroughs, but fundamentally, I do believe - Does it remind you of other cycles? The thing I love about you is your wisdom, honestly.

30:30You've seen so much. Does it remind you of other cycles? It does, and there have been some hard miles here. We've been through a lot, Harry, but the curve has fell up into the right. Without a doubt, and I do believe that we will cross over this term. People use various different terms about levels of reasoning and awareness and an AGI and the like. I have no doubt we're, if we're not there, we're going to blow past it very soon and that we will get to this notion of, you know, higher level reasoning that does mirror, you know, the world's smartest scientists. And I think that's coming in the next 18 months and that these curves are going to continue.

31:06How we harness that, how it instantiates itself will be the opportunity for us all to figure out and monetize. But I don't think it's slowing down. I do think that we're also getting many more hardware approaches and solutions out there so that it's not as wonderful as Nvidia is. It's not just an Nvidia world anymore. And the chipsets from Amazon and Google and AMD and others are becoming quite capable. You're also going to see different approaches, different optimization paths, innovations in technology that unlock leap ahead in terms of training capabilities and cost to deliver inference. I do think that we're going to continue to see innovation there and the scaling laws continue to hold.

31:48You know, I find really interesting that's changed a lot in my 10 years investing. Is levels of competition. I'm sure you remember when 10 years ago, there'd always be one other competitor and you hate them silently because it's rude to hate them publicly. And there'd be one or two. Now there's 15 in every single thing. How do you think, button? How does that factor in to your thinking when making an investment? The social graces are gone, aren't they? It's kind of a barber. Yeah. All right. It's like the way to win Rory says this really well, which is like the way to win an AI, I just like scream the freaking loudest and then like deliver on customer promises afterwards.

32:32But scream so loudly and raise as much freaking money as possible then suck all the air out of the VC room and then deliver from there. But Harvey is a good example of that. Yeah, I think that works in some spaces. I think that's counter to my earlier point though, which was the great products are being pulled through. People are finding them. You know, Chad G .P .T. didn't scream from mountaintops. They delivered world -changing user experience and people showed their friends. Perplexity is doing that in search and answer engine world. And these models, you know, at the API layer are doing this for business users who are looking to connect them.

33:09And so I think the capital is important in terms of building and forward investing as we talked about for the business model, but I actually think marketing and sales have less of a role in this new economy than they did before. And that these products in many ways are selling themselves and product -led growth and innovation is the unlock for this supernova and shooting star aspirational growth profile because you can't put human sales reps against these things. Just the sales learning curve that Mark Leslie talks about when we backed him decades ago in Veritas is no longer applicable because you just can't possibly throw the bodies at a zero to 100 growth curve inside of two years.

33:54Just the sales models don't support that. One of the things I love about Bessimer is your discipline, actually. And I think you've seen it play out across multiple cycles. I think people who consist and you think you're a very discipline player, being in terms of temporal diversification and price, you've had to break that discipline in a new cycle. I just love to understand how do you think about breaking pricing disciplines day, where respectfully you have in the names that you mentioned. And how do you think about when you're willing to versus when you're not? Is it clearly just an outcome scenario planning game?

34:29So thank you for the, I think what it was meant as a compliment, but I'll also say that we spend a lot of time doing a bit of a negative. I'm so sorry. Oh, it's fair. And what I would say is, I mean, we're certainly not value investors. We pay market clearing prices. We lean in where we believe it's there. And we're buyers again in some of these top -paged rounds deep into the hundreds of millions. I think it's very clear that we play to win. I think the distinction there is that we do fundamentally want to understand how the businesses become self -sustaining and scaled. And we will walk from a lot of things that we don't see the Uniconomics penciling.

35:07One of the most famous and most painful for me was Tesla, really, on. It's on my anti -portfolio. If you go to the best of our website, we have a page dedicated to our scrupps, and that's what I'm mine. And it was because I couldn't fundamentally see how the unit economics of the roadster were ever going to work. And to be clear, they didn't. And without the, you know, the DOE bailout loan and things, Tesla wouldn't have existed. But what I missed was that Elon's a force of nature, a generational entrepreneur. And he put that company on his back and powered through so many subsequent layers that the next arcs of the model worked and and pulled everything else through it.

35:43And that's one of my big regrets is that our job is to see that potential in entrepreneurs to create those unlocks. And that's the challenge I put back on myself is how to break this notion of short -term discipline for the long -term horizon of what's possible. What price does DG propose to you then? I mean, we've done the last several rounds. So I forget the valuation of the first round. I give Pete Sincini, by the way, a lot of credit who's a good friend and a great investor. He also did Databricks, but he was very early with Arvind as that business was being formed. We did that, I believe, what was technically the second round.

36:19So I think that was branded to be it may have been technically in A and then subsequent rounds. But again, I wish we were earlier and larger shareholders and still regret that we didn't see what pizza early in that business. Do you think about taking chips off the table at any point? We're seeing the extension of private, I'm not talking about plastic here, but just generally. We've seen the extension of private markets in a way that we've never seen before. You know, Horsey Bridge taught me that fundamentally, Ventures are very challenging category or asset class, and thus you know the small windows of hyper liquidity and can recognize an act on them.

36:55Do you think we are in one of those small windows of hyper liquidity in these assets today? And do you act on them? I love that question, and I hope you continue to ask that question to to tell peas and later stage investors as well, because it's looked down upon right now. You know, it's sort of a dirty word. If we went and sold part of our position in some of these companies, people might think there's signal risk there. There's issues. And to be fair, Bessamer has this awesome history and we've generated billions for our LPs. And so we don't have DPI pressure that some emerging funds might or whatever, but I think that stigma's wrong.

37:29If these businesses went public as they used to, I mean, my very first IPO, Cornerstone On Demand, went public with 50 million of ARR, and I think with 700 million market cap, and they traded up to billions over time. But that used to be a really successful IPO back many years ago. And now you look at Canva, 40 billion plus, and a Therapeutic with 70 billion plus, and perplexity, deep into Deccacorn status, and like these businesses aren't going public anytime soon. And yet, from an investor standpoint, there's an argument that they should be handed off to later -staged investors and hedge funds and things.

38:05And so I do hope and believe for the industry that liquidity in the secondary markets is viewed more favorably and more active. This is a change in my view. I'll confess that I was pretty hard -lined against this, not for founders and teams. I always feel it taking some pressure off for them as good, but I didn't love it when our co -investors were looking for liquidity early in businesses. But I do think that in these mid stages, when people are staying private so long that an outlets healthy. And I do think that LPs deserve that. I think for emerging funds, it's important that you have these options and that the world doesn't judge you negatively for it, but actually understands that there's some economic necessity in a healthy ecosystem and capital flows both ways.

38:49For years, you've had a pricing premium in private markets, which has led in large pots the extension of these private markets. Now you're seeing that move to the public market and you're seeing your figmas pop in the way that they do your core weaves, your circles, your bullish pop yesterday. My question to you is, will we see this mass movement towards public markets given the reception that this first wave has had? Oh, I hope so, Harry. God, I hope so. Definitely the discussions are heating up again. I do think we're going to have a healthier IPO market at the end of this year and in particular going in the next year, but in many ways we have to.

39:27It has been record lows and record bad in the last several years. And that's not sustainable for the capital flow reasons we just talked about. This liquidity discount hasn't made sense. If you go back in the markets a decade plus, private markets traded at a discount because they're they worry liquid and there was uncertainty and less disclosures in those things. And logically they should. Now it's a growth adjusted discount. Of course, when private companies are growing faster, you have to normalize the multiples accordingly. But rationally, there should be a discount for the lockup characteristics and the information flows and those things.

40:06And we haven't seen that in many years. I hope and would love it if the public markets return to premium multiples and the private markets price off of those. I'm not convinced we will, but I am optimistic that we are finally going to see more IPO activity. When you look at our cloud 100 list, which will be released here shortly, I'll give you a little bit of a spoiler piece of news there. We're over a trillion dollars in private market cap now among just the top 100 cloud AI companies right now. Just an astronomical number to consider. And so there's a trillion dollars. How much of that is legitimate, do you think?

40:41How much of that is legitimate versus synthetic hype? I think this is entirely legitimate. And that's the crazy thing. Now of course, it's skewed towards the top. I think open AI, X and Thropic, you know, Canva, Databricks, Stripe, go down the list. I think those are incredibly high quality companies that essentially are are tradable public entities in a private wrapper today. So I think that those are entirely accurate marks and very real. The quality level of this list has never been higher. I think there's buyers and sellers at the marks all the way down the top 100. Now you can make a case that, you know, one -on -one to 300 may have some walking wounded, some, you know, last round prices that are artificial in the like, but I think we've cleared most of that out of the system.

41:27When you look at Mr. Irrelevant, if you use the NFL Draft analogy number 100, it's an awesome company on the list. It's a great business that certainly people would be buyers at or above the last round marks. I think you're going to see that across the list. Again, there's a trillion dollars of enterprise value sitting there that's not yet in the public markets and should be soon. You said like, we're not going to see that you'll canvass go out soon. Why? I said this to Cliff. I massaged him after the thing my IPO. They should go public. They should. And I think they will. So I'm not not scooping news.

42:01And I put him in a general basket a very short term, meaning, you know, in the Q3 window or the like. But clearly, they could have been public long ago. And they're in the rush. And they have all founders out there are thinking incredibly long term. The ultimate giving pledge that they did giving away 30 % of their economics for public good, including a lot of initiatives in Africa. I told him he could have just done the giving pledge to my funds. You would have absorbed the 30 billion happily. See, Harry, the power of the... I would help a friend, Barron, okay? I'm here. You could. You could hold more than 29 billion, Harry.

42:41Don't get greedy. Come on. I could. Sam, do you want it? Yes, please. It's amazing how many SPVs have popped up with that exact value proposition. Oh my god. There's a wrap on a wrap on a wrap on a wrap. My dentist is doing it now. I'm like, I have no doubt. And that is probably another sign that things may be a little heated. But I do think that great companies ultimately like Canvot, you know, deserve to be public, will be public. They've hired a great CFO and Kelly. They're certainly giving indications that they're headed that direction. but they continue to think long -term and they've made it clear to investors that they do not want a short -term mindset and we bought in.

43:21It's one of our largest investments in our firm history or hundreds of millions in and we're thrilled to be part of it and so they keep building value and we believe that it will be a great public company when they choose to go public but you know the urgency level there is moderate. What is your largest investment? When I had found as fun, they said it was angrily, it was their first and their second largest check. I was like, whoa, it won't need to be your first, but your first and your second. What's yours? That's awesome. So it used to be Twilio, then probably StubHub, Canva, and Thropic, probably that bucket.

44:03We're very comfortably go deep into hundreds of millions. We understand that these rounds have grown to a point where scale does matter and we need to be able to support our companies all the way up. And so we've added a growth capability to be able to do that. Did you have to learn to get comfortable doing that, Bar? And you're my friend, like, if I was riding the transition from a $20 million dollar chat, which is an awful lot of money and we're both very grateful to have a luxury to ride them, but that to a $200 million. It is a very different muscle and I'll tell you also as you're looting to it goes against your instincts when when you have a business that's cranking and you own a lot and it's marked up you know 10X and another round comes up that's also at a big forward multiple this you know mental disconnect of you know hey let's let someone else now come and mark it up and price it let them run I'm already sitting at 10X that's great versus this I want to be a buyer again and reset everything you know put in 200 million that now I need to go back to work and prove that I can dig out and get a return on again, et cetera.

45:08It's intimidating. And we've actually added people and processes to make sure that we don't get subject to this kind of mental inertia. We invite in another partner to look at it. And our best deals were constantly saying, okay, we have the century team, which we call it, which we believe will be the iconic companies in the next century. And it's also a bit of a riff on our cloud 100 is a team that'll come and help and basically partner with you on a deal and say, okay, let's take a fresh look at this, let's reunderwrite it, and let's make sure that we believe there's a 10x here ahead that can be there, and in which case, let's double down.

45:43We're trying to break that mental trap of being comfortable with success and being afraid to really back up the truck, and so you'll see us doing that more and more, I think. Where I've fucked up is like, when you do a deal at 20 million at seed, and then four months later it's crushed and it's at a hundred. And I've been like, why would I pay five X, what I've just paid? And actually, you have to be willing to pay up fast in your best companies and don't think about it. And the why would I pay more than what I've already paid? Very dangerous mind. It's incredibly hard, especially when we're all investing at big numbers to begin with.

46:19And we have a lot of times where literally the day the round is announced, someone will off of them at 2x step up. That could still be a great investment. I remember part of saying to me, the biggest challenge that I have is that I do a deal and the next day someone offers some three times the money at three times the price. What we forget is that actually capital for our girls companies and can distort the journey in a negative way. I think there's a real risk of overfunding businesses. There's a good in there, which is I do think that there's a positive when you get great firms and partners in there.

46:54There's a signaling benefit and there's an impact. I do think that we actually can help move the slip of the line a little bit for these companies and add value. One of the ways that we add values is that it makes it easier to raise downstream capital and I think that's totally true and a good thing, but there is an excess. The people showing up the next day with huge markups pushing more capital can be seductive to founders. And so part of the discussion is look, if you had that additional capital, the critical thing is not to spend it in a disruptive way. And that's the Flaurgrant Alligé where you choke on the capital and you don't want that.

47:29And if you execute on the plan, every day you're going to be adding value. So let's make sure we're fully capitalized to play out this next horizon of risks and goals and investment we want. And if we could take a little extra capital to that, maybe we do. But what's more likely is let's actually go out and execute and let's put this first way of capital to use. And let's build more value. And those investors are going to be there at even higher prices downstream. And the important thing, and we try to get alignment with our team members and things is we want to build a ton of value. And that if the round gets so frothy and runs away, that it's, you know, that it's even too highly priced for us to double down, that's okay.

48:03Like that's a good thing for the company. And if your cost to capital goes down a ton, then, then we're your partner. We'll go out and raise at a very high number and take very little dilution and Everyone wins because we're shareholders and we're like Peter Teele always says his biggest investing mistake is not doing the next round of Facebook If I would ask you what's the biggest mistake you made when you didn't double down again? What would it be and how do you reflect on that personally? Oh, I mean Not only do I have the Antiportfolio of the misses that we didn't do that you know the Tesla and Atlassian and companies like that front and center, but yeah doubling down on on everyone of our winners I think Service Titan was my 13th IPO, you know, have a couple dozen unicorn investments.

48:46And so mathematically every one of those I should have done every subsequent round and wish I did. But I would want to say one that comes to my more. I would say on the positive Twilio we did exactly this. I would say with a company like ProCore or Service Titan, we still were very large shareholders, but we had a lot of a lot of people come in and follow. And I think this was one of the things actually you talked about vertical SaaS. So there is a good lesson in this. We underestimated TAM and weren't sure these could be $50 billion businesses because we didn't yet unlock the payments expander.

49:17And so we miss assessed the total TAM and therefore got weak need investing into the billions. And we should have. But we left a lot of money on the table. We owned 28 % of Shopify and Twilio IPO and we owned well less than that of ProCore and just because we included a lot of other investors downstream. Market size misunderstanding, misestimation, is the single greatest reason why great investments are not made. Do you bother doing outcomes in our plans? Given for your best, you wildly misread them. Not only do we do it, we require it. Every one of our IRs, investment recommendations, is our memo terminology, has a scenario analysis at the end.

50:00And we also have actually published many of these on our website where we'll go back and publish the memos. And it's kind of embarrassing when we do, because you look at the just goes nuts upside scenario and they're embarrassingly small. And it's not because as investors at the time, we don't believe that they could be much more, but we're trying to be rational. And we're trying to bracket it in a medium term horizon that our partners will understand. And yet the tiebreaker of these deals is always the one that you and your gut believe can just go nuts. And we're the hundred action areas there.

50:32It's always this amusing back and forth where the vast majority of our deals that we put forward, you know, Solve to a 3x and you're sitting there and like, you know, you look at these scenario analyses And it's like, why is it that every memo I'm reading solves to a 3x? And it's because you know, people are trying to balance and be rational and talk about capital loss and all these things But the end of the day the deals that get done it's the ones where the the partner sitting there saying I'm pounding the table that the high -end and more as possible that really is the qualitative overlay that has massive quantitative implications.

51:06Get it. But if you think about the mistakes that have been made in terms of the misreading of markets and times, is it not actually detrimental to the quality of your investment decision -making if we consistently underestimate them? It's incredibly detrimental. and you know, you get back, we'll back to the work as, you know, V Facebook. If you did a tam analysis on Harvard, you know, hot or not, it would have been pretty small. But then I, I, I get it, what Jason Lamkins taught me, which is like, don't do it, don't do it. He's like, hey, you know what you do? You go, is the founder world class one?

51:40And then two, can I see a three X by the time of the next round? If I can, do the deal. World class founder, and I can see it, don't try and think is Twilio gonna be a $10 billion dollar business because no one thought it would be a 10 billion dollar business. Now it's much bigger. Just do the three acts. And so I don't fully can see that. Maybe the tie burger here in my mind is I look for at least exciting adjacencies. So you've got to have some killer unfair advantage to get started. You've got to have this mindset of okay, they know what they're going to go attack first. They're going to build a killer product.

52:13They can get into some vortex of growth and launch. I may have a lot of questions about the tam, but there's enough adjacencies, enough things that could go right that they could layer things on. And so I want to see that the three -dimensional cube of segments and products and users that can flex over time. And we don't have to have a figured out. We don't have to know exactly what it's going to be. But I have to believe that they're playing in a big enough ponds where good things can happen. I think that's the difference. And I will totally concede that there are times where we're not imaginative enough to go after it.

52:46And great founders will break through at times. But I think that combination is still powerful and the investments that we're making today and certainly that I'm making personally tend to still overweight massively those two things. So you know team and Tam and at least our vision of the Tam Horizons. But I would say like the analogy we were talking about a vertical SaaS before where you go through workflow automation, then you go into payments, now you go into AI and you go into services. Even what seemed like small markets can unlock massive dollars when you're creative about the horizons and that's what great entrepreneurs will do.

53:22They'll go attack those markets, suck up the value and really deliver awesome product and can build great businesses. And as long as you, you know, you price things rationally at each step and walk it up, it probably backs solves into Jason's math also, but from a top down rather than bottoms up point of view. I think the unwavering lesson is truly great found as always finding the second that, the payments for toast, which completely unlocks a business that was never there before. You said about 28 % of Shopify at IPO. My question to you is, famously, you guys sold pretty early. The outcome since has been so astronomically larger than anyone anticipated there.

54:02Do you sit and reflect on that as a partnership and change your go -forward stance on liquidating positions once public as a result? So importantly, we distributed early. We didn't necessarily sell. So what we did is we gave people the choice. And a lot of RLP's mind you do sell pretty quickly after getting stock by mandate. Yep, that left a lot of money on the table for a lot of folks. We absolutely wish that we had held on to Shopify and not distributed when we did. Hopefully some of our LPs and certainly some of my partners have held and been able to benefit from the run up. But at the end of the day, it's a fantastic company.

54:39I think there's still a long journey ahead. And that's why you see people still buying even at these valuations. crushing absolutely. Yeah, Toby is one of those force of nature generational entrepreneurs as well. Do you agree with Sequoia's Evergreen Fund structure? I agree that there's a lot of positives to it. This idea that you have incentives to manage all the way through, best summer actually has a heritage where many decades ago we had some Evergreen components to it, but I do think it's hard. I think that public management is a different beast. I do think that the economic should be different and the end of the day, especially in a DPI world, our LPs get paid to manage capital and do the allocation and a lot of them want the capital back.

55:17And so the merits of consistency and fun flows and those things have some trade -offs with hold periods and public duration. And I love innovation in capital markets. We're seeing other firms adding asset management businesses and debt products and roll -ups and doing all sorts of things. You know, there's some kernels in there that we agree with. There's a lot in there we probably aren't going to pursue. but as a fan of capital markets and innovation, just I applaud creativity and pushing balance. Capital markets and innovation, baby, is venture a game of just pure scale. We're seeing general capitalists, we're seeing lights, we're seeing Andrews and you need money to play this game now, it would seem.

55:57Do you agree with the world that is being often articulated? I call it Chanele and Walmart, which is boutique provider with specialist customer and then Walmart's enormous provider, Wool of Cash sells everything. Do you agree with that or not? Do I agree with Walmart analogy? No, but do I agree that scale is important? Yes. So why don't you agree with the Walmart analogy? Well, actually the direct analogy of the low cost provider, lower cost capital, you know, sort of push the bottom. I think you're seeing a maturation of the asset class. And I think the analogy might be the investment banking world and that you have platforms like the Goldman's and Morgan's and JP Morgan's that are providers of broad, global, multi -asset, multi -stage, multi -sector that can be full -service shops.

56:49That's very much the path the best members on. We have nine offices around the world. We manage tens of billions in assets. We're multi -stage. We want to be able to support our companies all the way through. That's very much the mindset we're in. I do also believe that there are specialists and maybe the Tiffany's analogy is maybe I don't know, in the banking world, maybe that's the catalyst or what have you wear. Very good at very specific things. That's very much the strategy you're running. That's the strategy that Benchmark continues to run. I think that there's a lot of opportunity there.

57:17There can be a bi -modal curve in terms of approaches. In particular, I think geographic firms or very specific sector firms, healthcare has been an example where sector expertise has been really an advantage, but you need scale. And so I think healthcare -specific firms have had success for that reason. This maturation is going to make it tough in the middle. How do you think about that? As an interesting one, I don't like thematic funds. I think you healthcare and cyber are two areas where it really pays to be thematic because I think it's just so deep, sexual knowledge and networks that are so required.

57:49But if you actually look at the majority of great venture firms in terms of the winners that they've had, they've been in generalist funds. I don't buy the defense firm, climate firm, FinTech -focused firm. Actually, do you know what? Stripes been won by your general catalysts of the world. I actually agree with you for the most part. I would say that you will get alpha from some of those funds, but the important thing is not to get ossified in an approach. And this is very much why we don't hire sector -specific investors and we don't give you air cover if your sector goes out of favor, meaning our jobs to make RLP's money.

58:26And if you're in a sector that's cooling off, you better get the hell out and go somewhere else that's going to make money. Or like you should stop investing. The risk of having a semiconductor fund or a semiconductor team is that you carve out pick a number, 500 million to invest there. Like you bet your ass they're going to invest 500 million. And so my whether the right answer was 2 billion or zero. And that's the risk. And so we have a very different approach, which is we are constantly optimizing the incremental dollar across sector. but also stage in geography. And we compete for dollars.

59:00And that is a mindset that we love. And it requires constant reinvention. The term we use internally is roadmaps. At every one of our off -site, partners are presenting new roadmaps. And they're talking about theme sectors, subsectors, investment hypotheses that they have that they're going after. They're getting feedback. They're sharing, they're iterating. And if you don't constantly reinvent yourself, you don't have a future investment because the markets are moving fast. It's our imperative to get ahead of the next trend, not sit comfortably in a sector that has had a good run and Believe that you're entitled to another good ten years ahead.

59:35Barron. I love you dude and your track is just so good Did you ever have a bump in the investing period? Did you ever have it? No, I'm being serious. I'm laughing. That is why I'm laughing It's not silly questions Unicorns are shouting to my mother before this and she's oh, what are you doing soft? I'm interviewing Byron and I'm told about you. I'm like, you got 13 unicorns of like 30 companies. I mean, you hit rates like ridiculous. Did you have a moment of self doubt, crisis of identity as an investor, like many are having posts of 21 Zerpera? Oh, Harry, I've had so many. I mean, in our industry, you just wake up and you read tech cruncher or listen to some of your podcast and you're reminded how bad we are at this job because there's so many cool things happening that we've missed.

1:00:19My first roadmap at Bessamer was RFID, radio frequency identification. Was and is a zero trillion dollar market. It was a total dud. Thankfully I only made one investment there and it also had a SaaS underpinning so we ended up pivoting and making a few bucks. It was a stupid idea. What I credit my partners with is one, you know, patience but two direct feedback. And so we iterated and pivoted and because I wasn't hired as a radio frequency identification investor. I was given the opportunity to pivot. My second error roadmap was cloud by the way, which ended up being a pretty nice second act, but it was a really bad idea.

1:00:59And so I had my first three investments were all very bad. My next two ended up being, you know, a billion -dollar IPOs. And so I spoke to Doug Vierney about this, where you have young people who make bad first investments. I certainly did the same. I thought, what's up for doctors and nurses would be a good business. How did you get out of the trough or not get in it? Three bothers. Patients and support from the partnership to make enough shots on goal to get some statistical relevance out of the sample size. I remember one of my great senior partners fell to heart and then it was a professor at HBS for years and I would go sit in one of his classes and have a long dinner or lunch with him and he drew on the board my career which is basically the straight line.

1:01:42And you know, with some bumps and then like a little bit of a pickup with cornerstone on demand and eloquence of I really think but he's like, he's like, just give it time dude. Like you're, you know, you're wandering in the desert a bit. I know you're anxious, you're type A, you want success but like this business is all about, you know, building a portfolio and putting yourself in position to be successful. Don't shoot out of the gun. You know, crazy big checks out of the gate. So if you go over three, you're done, you know, ease into it. And that was hard to take at the time because we're all aggressive and enthusiastic in this industry.

1:02:16But it was the right feedback. Resetting and learning and trying to get better allowed me to be in a good headspace for subsequent investments and to keep going and to have some confidence. And I do remember back when I was an entrepreneur, one of my board members was Rob and Vasson. He was at Mayfield at the time and I went to see him when I was going back in Adventure and joined Bessimer and getting some advice. And he said, your first investment is going to suck. It always does. You know, so I was talking about a deal specifically. And he basically said, well, so don't do it. And I'm like, but Rob, like, my definition then, like, I'll never do an investment because you have to, you have to get over that first one.

1:02:48And he's like, yeah, but like this one really sucks. Unfortunately, he was right on both. My first investment did suck. And I shouldn't have done that one. But I think the point kind of applies, which is it's a learning game. So just you need to be in it to have enough shots on goal to score some. And cycles matter a lot. I really feel bad for great potential investors who joined our industry with checkbooks in 2020, 2019, and they did great deals, but at market prices, which were way too high. And many of these people got washed out of the industry and never got a chance to make their fourth and fifth investment like I did.

1:03:25And we may never know if they could have and great investors. And so cycles matter a lot and having enough bullets in the gun to hit a target matters a lot. I think that's why temporal diversification is so important. I look at our first fund. A lot of it is high priced and good companies but high priced and then the second half is much more reasonably priced. Very much so. I mean time diversification is one of the few things we can manage in our industry. You mentioned it in terms of exits with the LP comment where concentration that tends to be true, but it's not something we can control because there tend to be IPO Windows, M &A Windows, and our job is to try to take advantage of them and they'll cluster, but we can't usually create those when markets are closed.

1:04:06However, entry diversification we can create. Few of us are good enough to actually play the markets counter to trends and be most aggressive when things are cool and to really pull back when they're hot, which is probably what you should do, but at least some notion of smooth and consistent to whether those storms so that you can take advantage of the cluster of exits, it tends to be about the most successful model for time diversification and venture. We've seen a shit ton of young people start their own firms. You've seen people even leave basimer. Do you think though that the spin -out time is up?

1:04:43We saw this like compressed time, Well, a lot of freaking spinouts very quickly. Do you think that was a new normal? Or do you think that was a compressed time where people realized that Carrie would be less than they thought and it would actually be better to be a sort of GP or a GP other I'm fond? The latter. I do think that this was a point in time where people were looking for that reset where for positive or negative reasons, they wanted a fresh start. Because in venture, I do think partnerships and platform matter. Ultimately, a lot of those goals are to then go out and build up another firm.

1:05:14and so you're either running from something or to something, but the end of the day, I think the best firms are pretty flat at the top, and so you're not seeking better economics, you're really seeking a better environment or better structure. And so I do think that a lot of great partners were able to launch out and get funded and kick off, and we'll see platforms then built out of some of those new funds and probably more reinvention in the industry than we'd seen before. But it is one of the few asset cycles where past performance is an indicator of future success. private markets are very much networking ecosystem based and you see very analytically.

1:05:51I referenced my partner Phil DeHardman who taught at Harvard before he would quantify this and he wrote the private equity and venture capital textbook and we'd do the data but I forget the exact numbers but if something like eight out of the top 10 firms in one cycle would repeat in the next because there was this virtuous cycle and so the challenges which of the new funds are going to break in and be those those next two that disrupt and there's opportunity there and maybe it goes up to three or four, but I also think that there's a benefit to being a consistent stable platform and many of those will persist.

1:06:21Final one for you to a quick fire. Everyone's always saying like, P is going to come save the day. There's going to be a wave of P acquisitions. Do you think P will come in and save the day? Number one, and do you think number two, the roll -up strategy that they're trying now with your sales, loss in your clarries will actually work? I think the next wave of liquidity is going to come from a combination of several buckets. I think PE will be one of them. It's going to be a pretty fun time for PE as these companies are long in the tooth. Vast majority are not going to get public consolidation will make sense because at the core, a lot of these businesses are very high gross margin and are run pretty inefficiently because we've got a growth mindset and we're certainly not optimizing for cost in the early days.

1:07:03and so there will be a lot of opportunity to work through those portfolios and I think private equity will have a run there. I also think big M &A is coming back. I do think that the incumbents responding to the cloud AI and paratives are going to need to get back in the buying game. The FTC is finally taking a more rational posture on anti -trust and blocking deals and these things. I think they're going to let market forces operate there again. And so there will be this buying imperative that rolls through the public markets and companies like SAP and Oracle and IBM need to buy or they're going to get crushed.

1:07:43And then I do think that the IPO markets are going to open up again and we're going to see a pull through there. And the big wild card, this fourth bucket is what we talked about briefly. And I thought one of the great questions you asked was, will secondary liquidity start to flow through from different capital providers and will crossover investors be comfortable doing more secondaries and things. And I think, yes, I'm not totally sold on these exchanges for private markets or these sorts of things, but I do thinking, for mentally, we're going to see people get more comfortable with secondary transactions.

1:08:13Stop looking for signal risk in that. And we're going to take pressure out from all these sources, which will then get capital flows coming back, which ironically may then just feed the engine at the front end even more. Did Tiger do more to help or to hurt the ecosystem? Oh boy. The foreground allergy comes back to me there. Incredibly mixed. I think that there was a lot of happy disruption and big thinking and creativity that I applaud. And there was a lot of reckless overfunding and deal work and non -governance that we're going to have to clean up for quite a while. I think that returns will be better than people give them credit for.

1:08:53When I look at scale, when I look at open AI, and I look at quite a few that actually they're in with me, they're at the top of the Praff stack, and they're in like 50, 60 million AARR companies at three, 400 million prices, with three to five years of run, like they're not gonna lose money on those deals. They're not gonna make huge money, but they'll be okay. I mean, that's the amazing thing over these cycles in index of the venture industry may be fine. Historically, it has under -performed the S &P, and probably will again in this case, but you'll make money. That very well could be the case there.

1:09:28It certainly wasn't an optimal portfolio construction, but the end of the day, I think you're right, that they're going to have some home runs in there, more than make up for a lot of the zeros. And then in the middle of the pack, there's going to be a lot of one to three X's that carry the load. My friend, are you ready for a quick fire round? Well, let's do it. I'm in your hands. Who's the best saucer in your Basinma team? Oh boy. Everyone in our partnership is constantly outbound. I would probably put Jeremy Levine there in terms of just his ability to see unique deals that are contrarian. And I think, you know, part of sourcing we think of it is just, hey, outbound, aggressive, creative, etc.

1:10:07But I think the insights to see what others don't is the essential part of that that's often overlooked. And I give many My partner's credit for that, but you asked for one so that'd probably be my answer. Best picker. Who do you think one is the accuracy of short? That good. David Cowan. Steadily finds great people in weird places doing bizarre things. I mean, Rocket Lab is one, Peter Beck sitting in New Zealand recently or Auth Zero or some of these things. He just has incredibly high conviction and we'll pound the table at times, you know, of things that may seem non -obvious and just has an incredible notice that's been doing this a long time.

1:10:50One seed fund, one series A fund, and one growth fund that you can invest in as an LP. Oh boy. And to be clear, you gave me no prep, so I'm gonna give this on reaction. Seed fund, I mentioned Pete Sucini before, what they're doing at law ventures, I've got a mens respect for, where they're going in at inception stage. They're literally sitting in the classrooms and labs at Callin Stanford working with professors. Pete's done this many times already with perplexity and Databricks and many others where, I mean, he literally was there at the inception stage of these Deccacorn businesses. Any one of those deals would be, you know, a great firm run or a great career for an investor and he's done multiple.

1:11:31So from a seed stage, I think they're gonna do some really special things. Early stage, oh god, there's so many. I think that the first round folks, I think, oh, this is horrible. for getting uncorrects a new name. Remind me. I'm sorry, like, this is a new name, that's the press. I think uncorrect does awesome things and actually is very aligned and kind of investment style and approach. You mentioned, you know, Lemkin and what he's done in very selective ways. I just have a lot of appreciation. I mean, it's nice. I mean, it's nice. I see. I love those people. Jason's like my dearest friend, dearest.

1:12:03Another new god there. Those aren't the sexy names. You chose first round, uncork and Jason. Again, I love them. I agree. They're all 10 year plus firms that will be kind of long in the long in the tooth. You didn't mention ironically your Sarah goes the hotter names. That was interesting. Harry, you suggest that that history is an negative quantitatively history is a positive. I think the data shows that you actually benefit from some pattern of success in platform and each of those firms has to go through some cycle and both first round and uncork are certainly going through generational transitions, but I think the next generation are incredibly promising.

1:12:42I think the founders would even say they're proud that they, you know, they'll carry on and exceed them. And so I think those firms are getting stronger and out weaker. Please, and no disrespect them. I didn't mean it in any horror. I love all three. Jason, if you're listening, especially like, you know, you don't disown me. I love you so much, Dave. And Josh Coppeman don't eat me. That takes nothing away from a number of the starts that you highlighted, I think they're less proven. And so we're also trying to work with them, but we're figuring that out. Which growth firm would you do? Like Minds Mar attack.

1:13:14I mean, Mar attacks are fantastic. I love their culture. I love their style. I mean, quantitatively, I think that Sequoia continues to mint platinum records. And so, you know, probably some combination of the two. What element of your investing style would you most like to change? Oh boy. My partners would probably say I should be more detail -oriented. I am much more team and gut, and so I'll confess I don't intend to change it, but I do miss some of the small things at times. Like I'm not a guy that's going deep in documents and details and things. Like I'm not going to be hung up on some usually deal term or financial thing or whatever.

1:13:52Like I'm all about working with great people this phase in life. It's too short. I love this job, but I just I want to have fun. I want to do big things with great people and that'll get me in. Sometimes I'll do crimes of commission where I'll just fall love with some things and miss some details but I don't think I'm going to change that. I asked one of your biggest competitors who said can this be remain nameless? What I should ask and they said the dude is just one of the only people who's done insanely well respectfully financially. And it's even he just doesn't matter to him. Like he's just as hungry as doesn't kind of give a shitty, just wants to win more and more.

1:14:27Does the money not matter after a point and it's just about winning? How do you reflect on that comment from your competitor? One, I wish you'd name them because that's incredibly flattering. I appreciate that. And I love hearing that. I do think I try to live by that. I mean, I'll confess when I sold my business long ago, my wife and I sat back and said, okay, like, hey, it's not life changing money, but actually we could retire on that money. Do we want to move somewhere, raise a family, unplug? and I couldn't conceive of doing that. We are all so damn fortunate. Like there's a lot of great economics in this industry and we get paid way more than we deserve.

1:15:01It's just so damn fun to be in the middle of what we're doing. I can't imagine not doing this. It's an incredible privilege to sit down with awesome people who want to change the world and help them do it. Like it is the coolest job on the planet. And so like I had no intention of stopping any time soon and the money is, you know, is a nice byproduct of it, but it's a cool gig. Final one, what if you change your mind on most in the last 12 months? The what can be from the scale of the opportunities? Like I thought we understood this next phase we were going into. How big this was going to be and very sincerely we've probably added a zero to everything.

1:15:38I think there's going to be a lot of trillion dollar businesses that are created from this. And I said it was kind of embarrassing when you look at our scenario analyses and our memos that we published on our website before because we talk about a billion dollar outcome as a big deal and the great success case and these businesses went on to become 10 or a hundred billion dollar companies. That exact thing's going to happen where we talk about some of these investments and we hesitate and we get really close and we invest but we're anxious and nervous and whatever and the end of the day these things just blow through everything that can be and we're seeing it real like when you actually see the anthropic numbers that he's now sharing.

1:16:13This is real. You know, they're path to billions and billions in revenue and really compelling unit economics. We have never seen this in the history of our industry. And it's playing out on this. I'm going to argue an unphied question, anthropic, over on the atrial in within a three year period. I mean, we put our money where our mouth is. We've been a buyer so over. And that's again, like we a year ago, when we were buyers, we still wouldn't have didn't conceive of that. We thought that where they're at now would be the exit, not another entry point. And that is incredibly awesome. I will never forget having Vince on from Thrive when he led the $30 billion around.

1:16:51And I was like, dude, what are you doing? And he's like, Harry, if it's a trillion -dollar company, we'll make money. And I was like, that is the weakest investment rationale I've ever heard. And now I feel like a total more on it. What are the beauties of this business? This is, you can, you know, fortune favors the bold and there will be those outcomes ahead. And obviously we placed our bets where we think they'll happen and there'll be many more. Dude, I so appreciate you. I so appreciate the friendship. Thank you for joining me, Stamina. Great to see you again. Great to be back. I look forward to our senior in person, but until then, thank you.

1:17:26I mean, more to fantastic, guy. As I said at the beginning, Byron was so kind and helped me when I was starting out and really had nothing. That was so much fun to do. What an incredible guest. if you want to find more you can find it on YouTube by searching for 20VC where you can find the full video of the show there. But before we leave you today, I love seeing the team come together to make this show happen. What I don't love is trying to keep track of all the information, the data and the projects that we're working on across dozens of platform products and tools. That's why we use Coda, the all -in -one collaborative workspace that's helped 50 ,000 teams all over the world get on the same page, offering the flexibility of docs with the structure of spreadsheets, Coda facilitates deeper teamwork and quicker creativity, and their turnkey AI solution, the intelligence of Coda Brain, is a game changer.

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