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24:12I think CEO Comp is pretty broken at the moment. In this two things that I think are pretty broken about it. The first is just everyone really relies heavily on RSUs and when I grew up in the industry, I hate to be like, I'd be like, I'm back on the old days. It was mostly ISOs. It was optioned until 2006 and regulation changed and the expensing of that change. So the world kind of moved to RSUs. It just creates sort of a risk ofverse behavior in the CEO. Like it's basically cash comp, goes up and down a little bit, let's say. But in ISO, you're swinging for the fences. Like you've got a strong incentive to swing.

24:46And so it's really had a dampening effect on the risk seeking behavior of a CEO that I think more companies should want. And it's kind of pervasive across the industry. So I don't like this RSU comp thing. That's the first problem I see with all this stuff. The other problem with comp is almost every company looks at CO comp. And the way it works behind the scenes is, you know, how the hell's got a compensation committee? Everyone's got a compensation committee. And how the hell wants to pay the CO, let's say, at the 75th percentile of what her peers make. And so we look at 20 different peers with similar size companies, the last thing blah, blah, blah.

25:20We pegged at that 75th percentile which in her cases, you know, it's 20 million bucks a lot of money now If you did that for Dylan which would be in our comp group similar market cap to HubSpot He didn't make 20 million bucks a year But if you think about it that's like point three percent of Dylan's market cap of his own personal network It doesn't move the needle and I Oda it doesn't matter at all to him And so you have to get kind of creative and so I actually like what they did with his comp. The PSU is very heavily not ours use, and I like the idea of not pegging your comp to your peers, but you kind of have to peg the comp to the network.

25:59Same thing with Elon Musk. Like if you paid Elon Musk, like Mary Barra, makes $29 million a year. You think Elon cares about 29 million. So you have to kind of comp it to the CEO's network as opposed to just the peers. So that's what I like about this. How are you, we're gonna come in, and I'll just save you the trouble. A PSU basically, an RSU is like an option, but a zero strike price, so it's guaranteed money and blinds right on all the neggars on that. So PSU's performance stock units have evolved to effectively make the RSU more like an option because what you say is it's guaranteed money but only if something happens.

26:33And the typical thing that people are pegging it off in the public markets, even though I don't agree, I'll come back to it, is stock price. So in end of what's instead of saying, here's 10 ,000 shares no matter what. It hears 10 ,000 shares, but you only get them if the stock price is 40. So what you've bizarrely done is we created options because they got regulated out of exists in 2006. So now you've effectively recreated them. So the PSU is making an RSU more like a stock option. I like that. I know. And in general, I do too. But watch this. The problem with the Dylan Compackage, I'm going to say it didn't work because if you look at it, the problem with stock price triggers for compensation.

27:11Is it sound rational? But they put this in place before the IPO and if you read the triggers, they've already retrieved the triggers. And I'll tell you why they do that in a second, but the weird thing about all these triggers, effectively it's said, you've got a whole bunch of price tags up to 118 bucks a share, I think. They're probably when they were making those triggers like really two months ago, they're like, yeah, this is going to be great for the next three years. But totally out of Dylan's control, just because of the way things have priced, he's made all the triggers already. So in retrospect, well, he did build the company.

27:40He's still as divest over seven years, so it's not like he takes all the money and runs But the performance element vanished very quickly because of the pop and the other for me is I Prefer performance based to not performance based. I would prefer even for a public company to do them on Tangible goals like revenue and up income and all that over multi years and I see Brian shakies The problem and the reason you don't end up doing that is because because there you have to disclose them, and be things change, and when you change comp on a public company, the ISS and all the whiny babies give you a hold on a shit.

28:14So what happens, and I've been in the room, you said yourself, I would love to pay a Brian Halligan for 35 % revenue growth, and 35 % EPS gold for the next seven years, and we'd pay him a billion bucks. But if we put that on the table, and then circumstance change, we have to disclose it. So then all the analysts will start saying, oh my God, they think they can make 35%. So if they only do 30 % growth, Brian missed. So it just becomes problematic and what they do in the end is this, Squirtle was just do stock price targets, which are better than nothing, as Brian says, because it's more swing for the fancy.

28:46But sometimes you have this weird, like if you look at all these packages that were put in place, all the ones that were put in place in 2018 worked and give the CEO what they wanted, because the stock price ran up and all the ones that were put in place in 2021 are stranded. because all those price targets like the Airbnb price targets ain't ever gonna happen now. So it's an imperfect mechanism as Cardboard often is, but directly the right approach. I'm not a violent disagreement with what you're saying. Yes, you're right. The way Huffa does it is on net new ARR. Nice. And a new, like a floor earnings number.

29:20Anyway, none of this is, it's like what's the least bad you can do? And I kind of like the way we ended up on it. That is really nice. Do you guys, curious, do you, and you have to disclose that? Do you get angsty about disclosing that because you're kind of hinting what you think you can do? Yes, for people who can figure out how to do it and they can figure out what your bottom line is. What we used to do was net promoter score and stuff like that. And that gets really tricky having to disclose that. I really like very few Comcommittees do what Brian does because I think that's so much better than just stock price.

29:51Every growth round that I've seen in my little portfolio, all of them have had moon shot packages. So they're going in earlier and they are becoming a standard part of how growth many growth funds win deals. They go in and yeah, I'll do the deal at a billion, but I'm going to give Harry another 7 % of the company and they're always at least 10x, like there's a quid pro quo. It's not 10x, it's 10x from what I'm paying as a growth investor, fine, I'll do clay at 3 billion, but if you hit 30 billion guys, you guys both share another other 10 % of the company. And so I think this is getting institutionalized earlier and earlier as valuations.

30:26It may not matter what any of us think because the growth guys are adding this to the standard term sheet. The Slavius version is what you literally say to the CEO, I'll re -imper, effectively give you options back for the delusion you're taking on the round. This is a little more high class than that because it's saying at least you gotta achieve first. Well usually you get more. What I've seen is instead of a growth fund saying, I'll give you another 2 % back. I'll give you seven or eight. I'll give you a massive package, but I got to make my 10X. It's their version of the Elon package. And I think that what happens there, my prediction is, and again, I often disagreed with on this uncomcommittees because I've done some of these where I've tried to make the montangible targets.

31:05What will happen when you do the stock price ones is if the company is doing really well, but the stock price isn't achieved, the CEO would be sitting down two years from now and he'll be asking to wave some of the criteria. I can just see the movie now. I'll bet you nickels to dollars that doesn't happen because I don't know what Brian, you see it sequoia, but founders are signed up for crazy stuff these days. They're signing up for massive stuff. And I don't think a lot of grouchy VCs are gonna wave it. I just don't, I don't think it's gonna happen. I hear your point, Rory. I just don't think it's 2024 anymore.

31:32Brian, you are an amazing coach to founders. I speak to Pat, Andrew Reed a lot, and they say that founders love your coaching mentorship advice. When they have big growth rounds like these with performance -based incentives like we're talking about, how do you advise them? Is it what you thought you'd see now on the other side? I like all this stuff for the founders. The other thing I like is founders taking a little bit of money off the table on the way. For us, when we did our round, it was Sequoia. Sequoia came to us and said we'd like to buy some of your shares and rich specs and horrible financial decision for me, but it was good at the time.

32:06And I saw I forget a couple million dollars worth of HubSpot shares and my co -founder of few people did. What I liked about that was, you know, Salesforce came knocking and wanted to acquire, hubs about like, it stiffens my backbone a little bit. So it's good for the founders, good for the VC. I think he gets a little wobbly when it's a $50 million secondary in the series B, but in general, I like what's going on in venture. I think the value is just very high right now across venture. So we'll see how this thing plays out. I think it's a little bubbly right now, but I generally like the trend that's going on in terms of the secondaries happening for founders.

32:40And I like these PSU type rounds when it is particularly is a lot of this as a founder I work with right now, who's a terrific founder, who just took a while, like four years to get it going and now it's ripping. And you've been massively deluded. And so I'm like, well, let's figure out a way to give you a nice big grant. I agree with all that. And I do think though that valuation is the imperfect metric. And Jason, I think you're wrong. I think investors, GraggTVCs, will we cut? Because CEOs are smarter than us and comp. But I've learned this. I have Brett, but they are running their company and they obsess about it day and night.

33:14And let me tell you, if you've got a CEO who doubles revenue for the next two years, and the only reason he's not making his extra 3 % is because we overpaid two years ago, and now revenue multiples are normalized, and therefore I'm not getting my 5x. He's going to come into the Com Committee and say, I have nailed running this company. We have three extra revenue. We're opt -in compositive. Give me my damn shares. And I'll sit there going, I knew we should have done a revenue in an opt -in target like Brian has a HubSpot from day one. Because what we're doing right now is we're taking what Bob Brian correctly calls high -end valuations and then we're 10X in them and we're basing comp on that.

33:49We're basing comp on a camera. It's never going to happen. Look at all those 2021 moonshot publicly disclosed ones. Most of them are like, oh, what were we thinking? We thought that we'd go from 200 billion to 2 trillion. Hmm, maybe not. If we think about going from 200 billion to 2 trillion, there's going to be a boardroom that's going to be thinking, huh, should we take some action now? If you are Canva, are you looking at this going, forest gump run? That's head to Nasdaq. How do you think about the impact of this on Canva and subsequent companies willingness to go out? Yeah, run forest run.

34:27The markets wide open, the valuations are good, there's a lot of demand. It's very seasonal. And oddly seasonal timing really matters if our Canva is amazing company, I would be lining everything up to go public. But the founders have already pledged to give away the majority of their stock. It's not about money for them. They're going to give away good causes and they want those causes to get as much in the possible. Yes. I'm not saying I know the answer. I just think it's more complicated than someone that needs the money or all the early stage investors have had chance to trade at tens of billions, right?

34:58And there's just a lot of liquidity already there, companies massively profitable. I just can't, I'm not smart enough to predict how those factors stand together, right? This clearly isn't a must -gemfire that's being built to Canva, right? It's very different. I've never been thinking about it. You have all the idiosyncratic personal things. You have people who say, I don't want to go public for a long time and you have people who need to go public early, right? And all those are idiosyncratic. But if you zoom out one level, you can add your head to this conversation and they'll pay their ass when there's an open.

35:26In the end, price clears all markets. And for the longest time, the money in the private round was cheaper and less hassle for the last three years than the publics. So no surprise, we did more private. Let me see. Five times revenues with a bunch of people in New York busted my balls versus ten times revenue and I never get to talk to these growth stage guys that once a year. I'm doing auction B. Now you have a situation where maybe at the IPO price for a figment, 18 times revenues, you kind of go, I can get that privately. You can't get 80 times revenue privately. So if you're now looking at where things are trading today, I think at the margin, those prices are higher than the private things, stepping back for the syncratic stuff at the highest level, the cheap money is now in the public markets and blinds white you be an idiot not to go for it.

36:14If you need to raise money in the next two years, now would be a really good fricking time. In Silicon Valley, the stripe is really beating the drum on this. Why the heck would we ever go public? There's sort of that sentiment out there because there's so much private capital you can do secondaries. But I think it's just people are nervous about what's on the other side and my take on it was like we were private company We had a bunch of quirky slightly misaligned venture capital investors who were definitely in our shorts Yep, then we flipped to public and then all of them we got rid of those VCs now We had a bunch of quirky slightly misaligned public investors who were less in our shorts It's actually better and a lot of ways than being private and And public investors, like there's so much written about what happened with Zendesk or Otto desk or these really bad things that happen.

37:02It's pretty rare. I have found public investors be irrational. If you paint them a picture of what will happen over a long period of time, if you are pretty conservative with your numbers, they're rational and they'll stick with you. I think they're underrated and I think people think it's like something scary over there. It's not as scary as people think. I have a lot of founders who say, I'm terrified of the activist investors. I'm terrified about what happened to Jeff at Twilio. So this is my company, this is my life. I don't want to have that happen to me. What would you say to that founder?

37:30It's pretty rare what happened to Jeff. I mean, everyone talks about Jeff, everyone talks about how I guess everyone talks about and asks, but it's pretty rare. And that company sounds some issues. I agree, but I am a, people should go public person. I think it's a little overwort. I do think the activist VC, because we were one of them. Yeah. He seems to have a much bigger pain in the ass in public. We are a much, it equates that to the B -roll. Yes, I think these are much bigger pain in the ass than the typical public investor. And slightly less of a pain in the ass than the public activist investor.

38:05I'm pretty sure on that one, I'm going to defend their brine. Most times the public guys are behind. Do I say in the last five years on the venture side, definitely the benign content has ramped up. So just come up with it even 10 years ago. I think the marketing the last 10 years on the venture growth side has very much been we are more benign than the public So I think that might be misleading that might not be true So I think you're right that it's a healthy trend to realize that you can go public you get this liquid stock It's not as terrifying as you think and you have liquidity every day Not just once a year by appointment only.

38:39I'm a big IPO should happen person Here's what's underrated about the IPO is very stressful you're exhausted But the day you go public is going to be one of the top two or three days. It is an amazing day. You'll go back to your company and two days later you'll have a party with your company. You will cry, you will laugh, you will hug, you will cry. There's something about that that is really, really special that the great people know. Having said all that, I've only lived through it on the employees side when it was great, right? The next day after that was weird going back to your desk because the world's changed.

39:13The next day is really weird, but if I could IPO at 30 billion or sell my company 30 billion cash, I'd much rather run the company. Don't get me wrong rather than sell, right? But if we're just a financial decision, I'd rather have 30 billion on one day than wait a decade for it to drip and travel out, right? So there is a conflict there as a founder like, you know, selling is tough for 98 % of founders. I'm sure it's a Koi if you ask. The only 2 % of founders say that was the greatest experience of my life selling my company. But man, getting it all at once if it's the same, even with a net present value, like, it's just a weird trade -off between the two, the journey and the economics.

39:51It's complicated. I just wanted to butt in there, Jason, because you said that about getting it all at once versus drips and drops. I'm super naive here, Brian. You said about it going from my axe to a hundred axe. When you do go public, is it drips and drops over years? Is it dripping to drop? You can look at the way I do it. I sell the same number of shares every month since we went public. And the reason I do that is I don't want to signal something. If I make a big buy or a big sell, it's going to signal something. It's funny. People will look at it. The investors look at it. So I just said that the same thing.

40:21The number of shares I sell every month is on autopilot. But it strips and draps. You're definitely right. Do you know how much you have left? Yeah, I've got plenty left. Because I got more shares. Here's the thing that I understand is the founder. You get more shares this time goes on. I actually didn't know that when I started. I was like, I would get smaller, actually, I would get much smaller and then they just turned around a little bit. One of the things we didn't warn you about joining the podcast, Brian, is that every once in a while, Harry basically asked you to disclose your net worth.

40:48You're not actually doing it. And you have to remember, it's like in the prison cell, you don't have to answer. You complete the fifth on anything, right? No, Harry, I will not disclose my last weight on tone sheets, not my net worth. Just refuse point blank. What was your multiple on Hub's spot? I'm not going to say that. Extraordinary good and I'm extraordinarily grateful to Brian for allowing us to do the say, especially when I had whift the B and my colleague Rob and then Stacy took over and did the C and corrected my dumb decision making. And we're extraordinary lucky to invest in them at something like a 70 pre on a company doing 10 million.

41:24And thank you God from the bottom of my heart every time I go to my little house. Thank you. Thank you Brian. The backstory on scale No. No. No. It's a series C. And it was, it was, it was bad timing. At timing matters more than I ever would have thought or studied in school. Well, bad timing because I really hadn't had lunch. And he was grumpy. No, it was in the throw so the recession. And we went up and down Sand Hill road. Like, Darmation, I get off the plane from Boston, landed in San Hero, we're like, we got this. We're going to go up and down. It's like 20 meetings and we go all 20 meetings and we get back in the plane would be like, we got no up and down San in her every every big name firm, everyone, every household name said no, you're back, you're back and forth, we had nothing.

42:07And so we were about to do an inside round at a slight uptick to our B very last minute, Rory and Rob Fias had us in, we pitched them and gave us a term sheet at 66. So actually, the thanks goes for me to you, Rory, because you marked a part deal. I appreciate you. Yes, I remember that was in 09, we did HubSpot, Box, DocuSign, and I think we The time to buy is whenever and else is not buying, especially when just put it out there, you just little old scale and you're not Sequoia who came in after us. Bring on those days again. I mean, the world might have to end and that's obviously a little tougher everyone, but it'll be really great when companies like HubSpot are grateful to get my term sheet at 66 pre just to remind everyone at which point they were doing some between 7 and 10 million doubling year on year.

42:53But other than that, it was a tough decision. So grateful, Brian, thank you very much. just like yes. So my multiple was excellent Harry, so pound sand. And what if been even better if we did not have the mechanism then to hold for long after the IPO. So I profoundly wish we'd had that as well. But you couldn't hold worry. You weren't allowed to and your LPA is along. So we had single LP. We had to distribute. It's a long story. Move on. Yeah, that's more money. And the spot was in the public since we went from a total of 25 to 25. In a relatively short period of time. And I think school is really smart.

43:23Suspect, I suppose, one of the reasons why they said, let's hold these companies after they go public. In some cases, but I think it's going to work over the long haul. Then you'd have the way, I also worry for the multiple. He's like, no, no, no, no, moving on and then Brian's like, let me tell you how he missed it in the B. And you're like, oh, I prefer the multiple question. That's good. Yeah. It's very credit. It was great. A company that sub -spot was. It clearly wasn't a consensus bet at the time. Like objectively, Mark Kenna was the consensus bet. Mark Kenna was raising a bigger valuations.

43:51There are always raising three. There were more enterprise, Brian. That's the play. you got to go more enterprise. Yeah. It does actually work roughing on that because we have the king of SMB on this call with Brian. I mean, the interesting thing about HubSpot was the way they built a $30 billion market cap business in SMB, you know, starting with, you know, sub -50 person employee companies and you write JSON, it was very counter -consensus wisdom at the time and did you ever want to go up market? I noted it. The reason we bet on SMB was I had spent my entire life doing the soul crushing exercises of selling to CIOs.

44:26And it's just a whole crushing work. I didn't want to do it. And I also felt at least back when we started, the internet kind of disproportionately benefited small relative to hard. And your success was much more about the width of your brain than the width of your wallet. And so we had sort of a play on that. We also just looked at the consumer business like actually the PNL is a shitty way to look at these businesses. Let's look at CAC and TLV kind of convinced ourselves that that worked. And one interesting thing about HubSpot SMB, the other SMB company that's done amazing, even better than HubSpot is Shopify.

44:58And they're both outside of consensus land in Silicon Valley. There's a big echo chamber in Silicon Valley and big negative bias towards SMB. But you can make it work in SMB HubSpot and Shopify have shown it. Block is shown it. Monday .com as well. Massive anti -consensus. Yes, they are in a way that you guys didn't. But would you've made the choice today, Brian, in AI? And the reason I asked, I mean, to make a lot of great AI products work, you need training. You need a plant, you need forward deploy engineers, you need daily, even if it's SMB, every day someone's got to be your AI orchestrator.

45:29If you were doing all that today, would you go a little bit more M? Because these S's don't have time to train their AIs. Here's one of the interesting things about my life, is all these founders come to me and say, how did it happen in HubSpot? Like, how did you do marketing? We talk about our website greater, marketing and mountain marketing. How'd you take on Salesforce? Like, kind of came under them, freemium. And like, we learned a lot. We innovated a bit and a lot of what we learned just wouldn't work today You got to keep innovating you got to turn that over and so I'm fearful to give people like what about your culture like People need to find new things I'm nervous when I give people advice and tell them what we did at house by because it worked at the time It was really innovative at the time But a lot of what we did on go to market a lot of the premium stuff I'll have PLG stuff a lot of the interesting culture stuff for SMB play like you know some of it works some of it doesn't I think I'm going to work for one dozen, yeah.

46:19Jason, I'm going to literally, this is me exploring, not knowing the answer. Is there a great SMBAI product out there today? Will you go that? Well, lovable, stupid question, worry. I mean, you seem to imply that it's harder to do enterprise SMB level apps in AI because of the need for training data. And then I'm trying to think, what are the mass adopted enterprise apps? And obviously, you know, you're the lovable and replete guys. So there are some. Even the exceptions sometimes prove, I mean, I'll tell you, I learned a lot of AI from Brian's AI. Like, I copied it and made it better. When Brian built his clone, we and I were talking to the very enemies, like, well, I like Brian, it's pretty good.

46:56I had some fun cathartic conversations with Brian's AI and I had some fun ones. And I'm like, it's pretty good. Mine's better because it's only because it's trained on more data. Mine is better, but I didn't get it. I asked Brian, why is he so good? It's like, I spent a lot of time training it. And this was six months ago. There's a lot of time in it. And I didn't get it. But now when I look at every AI, true AI company, It's hard to train it, right? And so this is a quandary for SMB investments. What I'm looking for SMB companies in AI is how do you self -train? How do you solve the unsolvable issue?

47:26How do you solve the fact that it can take six months to roll out a Palantir grade deployment? How do you do that in 60 seconds? And any founders that crack that code, I want to invest this hour, this second. And I'm pushing every startup I work with at SMB to be more AI and sometimes they push back on this, right? But you've got to do it, right? You got it because this how do you train the stuff? I see Jason is there's a ton of pro -sumer stuff this working Lovellables work Refford's working Gamma's working like so many pro -sumer things seem to be working and then enterprise working I read you're right.

47:59I haven't seen much in between But there's no training in the I mean we use gamma too. We love gamma But you don't train gamma. I mean you train get you do train gamma a little bit don't get around But you sort of accidentally train gamma by uploading your templates and your things right like, replant and lovable, I mean, I'm Mr. Vibcode or right? Those are AI under the hood. The training is weird though. It's AI under the hood. So I just think this AIB2B SMB is something that hasn't been cracked to Royce Point and I think we should all just rush all our capital and all that. Listen, if you can train an AI, it's easy.

48:30Hubsbott just put out this report on AI with SMBs, right? It's said like 80 % of folks have an AI team to do this. Even with what they call the SMB and VC, 80 % have a team. SMBs don't have a team. One restaurant that Brian and I invested, they don't have an AI team, right? At Brian and Jason Sandwich Shop, there's no AI team. As I say, I opened the door to a non -prepared topic, so I'm winging it. But my sense is two comments. One is, it may well be a taxi or a two longer, because if you think about even the HubSpot journey, you said, what tends to happen is the big companies with loads of money, fart around mentally define these apps and figuring out what it should be because they can afford to, right?

49:09And then when the feature is locked in, the SMB guys go, who we'd like that? And then you don't have to do so much in the case of that last generation trying to figure out what is in the case of this generation. You probably come with a very much pre -trained app where, you know, if it's call answering or something like that, most of it's already done and you just have to configure that the SMB level. And it may be over the next year or two because I do believe, and this is, I think one of the reasons we love to have so much. Anything the big companies have, the smaller midsize companies want to.

49:37They're not different. They just need a packaged tightly and priced tightly so that they consume of it in bite -sized chunks. So over the next couple of years, it may well be, as I say, for things like phone answering, simple order to dispatch, that there'll be a whole bunch of pre -can pre -baked. This is how it works, Mr. S &B. Just turn it on and you too can sound like a big call. I'm not optimistic. It won't be trained on a company by company level, but I think it will deliver a big -ass value You said there are big companies with lots of cash I do want to progress this because there is something I'm fascinated here you guys thoughts on I matter What a frickin ripping quarter it was like 38 % year -over -year increase in adjusted EPS 22 % revenue growth but 22 % drop in free cash flow.

50:21How did you guys read? How long does this go on for? Is this the start? Is this near the end? How much patience do people have? It's funny you led with the halandas that go on for it because two weeks ago when I said halandas that go on for you looked at me like I had two heads. But I do it like your take the shit I put up with Brian. Yeah, I'll just take it. No, I take it. I'm polite. I don't give it back. I just take it. And I will say on all these things, the takeaway, and I like to be framed in here, or not the way you flip it in the note you sent me prior. This isn't a AI's enabled success.

50:53This is, I have an awesome existing business and it kicks off so much money that I'm allowed, spend that money on building these great AI vision and I can probably do that for as long as my existing business kicks off cash. So my big a half of this week's earnings and I would say I got broadly AWS right and I broadly got Microsoft wrong. My big takeaway is not all the AI stuff is working for the hyperscalers. My big takeaways, all their existing businesses are working so well, and kicking off so much cash, that they can keep doing this for the next year, and they said they're going to keep doing this for the next year, because they want to play in the new game.

51:30That's the takeaway. Real men with $70 billion of free cash flow get to spend $40 billion of that on service. It's a great country. Is there any nervousness at Sequoia, Brian, at all, that the good times might end soon? Is there any dress? Sequoia, memo? version three, writing to go out to search and replace and gamma just have gamma please dust off the the rip good times and update for the AI any discussions at the partner meetings you've been in about that. I mean David Cohen wrote the piece about the gas cousin between Kappa, Spendan, Revenue. And like one of the questions is like are we in a bubble or not and the argument against the bubble is sort of just look at anthropic and Chachy PT and the growth rates are Euclis or you look at even Harvey or so many of these companies that are app level what I kind of like as an Investor looking at this stuff.

52:20I get nervous about tech companies selling to tech companies Yep, yeah in Silicon Valley companies buying from Silicon Valley is a lot of trading going on and there's a lot of growth in there I sort of like what Chachy PT is because it's like mere mortals using that thing I love what Harvey's doing. They're selling to lawyers. I like what Rogo's doing selling to investment bankers, stuff like that. I get nervous because I think 2001 and definitely in 1999 and 2000, it was just Silicon Valley companies buying and selling from each other and it created kind of a trend. I'm 2021 too, a lot of it.

52:50We're sure. Yeah, for sure. So I kind of like these ones selling to mere mortals. But it has to be a bubble at some level. The CapEx bubble, it can't last forever. Look, AI is bigger than the internet, most likely, right? Bigger. The investment makes sense, but when you see the meta's cash flow decreasing, I mean, there's some kind of bubble here. Hopefully we all get out, but it's some kind of bubble. I think a bubble is just a laden word. It's the usual two things. There's an enormously enabling technology. It's getting massive traction at the apps level, as Brian mentioned, but you still add up all the apps revenue when it probably comes to $25, $30 billion maximum.

53:30And the capex to build that is running between $400 and $600 billion. So you're investing $400 to $600 billion a year to enable a $25 billion ecosystem to go and keep doubling and maybe next year it's 50. So my takeaway is the long term trend is almost certainly real. And if you fast forward 10 years that 25 30 billion of apps wherever you could easily be $300 billion. So that's why in the long term it's not a bubble. There's probably going to be a period where things get ahead of themselves. The marginal player will get caught just like the marginal player got caught in 2001. The over -levard player who's taken on too much debt, finances will get caught and get burned, and the big guys will be trench for a year or two and then just grow into it.

54:15That's the most likely version of the movie, which is some pain at some point in time. And it's boring because it's neither one, it's not like it's amazing AI maximumism. And it's not like it's bubble -dummarism. It's just like we're doing what we always do with a new technology. We're spending like crazy because it's the only way to discover the frontier. And until you discover the frontier, you're not investing enough. So we're doing it as an organization, as an organism almost. Capitalism is working. We're spending money trying to shit that works. Some of it won't work, but unless you try, you just end up like Europe.

54:46Sorry, Harry. I just want you to be, you wish it on me. You're so Irish. Harry, we've had 800 years. He talks more European than you do, Harry. We've had 800 years of you guys shitting on us. Every chance I get to shit on your back, I'm going to take it. So just get used to it, man. Aside from the naval gazing on us, because I don't know the answers, I would just say incredibly impressed with massive scale, how fast Microsoft's growing, how fast? Manage growing, companies people aren't talking about are the very old school Microsoft, SAP, and how about Oracle? How about Oracle? My like date is August 26, 2022.

55:25That's when like everything kind of hit the bottom of a share price. If you go from that date and you look at Oracle and you look at SAP, they're both growing like 230%. Stock. The only SaaS company since August 22 is growing faster to Shopify. They're growing 300%. So they're outpacing HubSpot Salesforce, Adobe Box, Lassien, everybody. Are you talking stock price or revenue growth? I'm not. You're becoming a stock price, baby. Yeah, I mean, I'm stock. I think part of that is a function of the fact that they started at a much lower pace. I think you are right, though. The study thing in Oracle's particular case is how they've, you know, But rightly or normally I'll say, taking that free cash low and invested it in GPUs and have now made themselves relevant in cloud and provided that market keeps growing that's clearly worked for them so far.

56:12Roy, I know you love unfair questions. I'm going to give you the chance to grant a CEO of the year award and you can grant it to Sacha or Zach, which one do you give CEO of the 80? You know, I'm decided I'm now going to be the new humble me. It's inappropriate for me and me a voice comment a little grasshopper to comment which of those two amazing CEOs are the best They're go team. I think the CEO of the year is Jensen. I'll go with that But the other thing I like about Jensen is sort of rethinking the role of the CEO He's rethinking the steel playbook. I think he's a pretty good integration for CEOs out there today The reason the two people you cited it's very much existing business carrying and doing something in the new world whereas I think you someone like Jensen are open AI, you say, our Dario, we've created the new world.

56:58The two categories in the stack that didn't meaningfully exist at scale in Sassan Cloudland that exists now are the GPUs, which is all Jensen and the models. Neither of those kind of categories even existed. And obviously not only did they exist, but they appear to be dominant relative to the other parts of the category either apps in AI land. So I didn't go into that. Those are the contenders for CEO. The other guys are contender for managing the cash machine brilliantly at scale and keeping it up and to the right, which turns out to be a pretty lucrative way to spend your dull life. I'll tell you why you absolutely have to go for a Satchi over Zuck by far.

57:36It's more a structural reason. And this is certainly what I learned in my tenure as a VP at Adobe. As a founder of the Stephs Easy, you just call the troops together, Zuck can do what he wants. Satchi, I just watched Adobe just trying to go to the cloud took three years. I've convincing everybody, okay? So what Satch has done, inviting Sam Altman back in, doing the deal, managing the deal, doing this cookie deal to buy 49 % of open AI, investing all in on a Zorf Ray AI. Like, he doesn't have the power to do this on his own. Brian Yomani and Darmesh can get together, and honestly, you guys can just decide what you want to do it.

58:10I mean, I know I'm being simplistic, but I would bet you degree, right? For Satch, man, this is like the amount of meetings and orchestrations that you got to do as a non -founder. I give him credit because it's much harder. He's like a refounder. He's in basically acts like a foundry gets stopped done like a founder. It's super impressive. If you accept the constraint that you can't build the core technology internally, which is what Microsoft had to accept and he accepted. Execution since then has been perfect. You found the only other people who had the technology. You gave them a convoluted deal.

58:42You've suck a lot of value out of them. You have the ability to resell it. All those things are awesome. At some level, you must kind of wish as the CEO, Michael, there must be a little party that says, if my guys were only smart enough to build a shit that open AI was building, I wouldn't have to do all this crazy stuff. But maybe that's the nature of being smart enough to accept that this large bureaucratic company can't get it done. Maybe that's the answer why it's awesome. He's live with the reality of, I wish my people could do this, but they can't. And I'm not going to keep banging my head against the wall.

59:12I'm going to do this very hard thing for a non -foundative. I'm just gonna cut this weird deal with these other dudes, give him $10 billion, own 49 %, insert myself into the AI business without actually having the core model that you should have had to be able to do it. He must feel, maybe the real somebody in his head is, thanks a fucking lot the rest of you guys, I had to figure this out with one BD guy while all you guys were sitting on your ass, not shipping AI. Maybe that's what he deserved the medal for. Not easy. Not easy. Annie has to take 49 % of the losses. Massive losses flowing through their financial statements.

59:43I mean, you could argue, Astros and daggers, but it's not cost -free, right? It's not, there is a cost, right? Two percent of the OI, they'll be fine. I mean, they'll be fine. They'll be fine. We turn for, you know, probably a trillion dollars a month. Would you get criticized for this as a non -founder CEO? You get criticized for every line versus Zuck. They're like, what are we going to do? Just being bossy enough, you like, what are we going to do with Zuck? What are we going to do? Just being bossy enough to write a $10 billion check for something weird is in and of itself, heroic. Guys, I do just want to go to a couple of private rounds just because they've I've already stood out to me.

1:00:14We said about companies that we've talked about before. Coagination is now rumored to have done around at $15 billion. The new combination being obviously cognition and windsurf. Both had 85 million in revenue, so combined you're at 170, being priced at the new $15 billion. How did we think about this? What you're saying is the rumor was it was being done at 10 and now the rumor has been done at 15. It's pretty much the same as the antropic rumor. It's done at 100 and now it's been done at 170. $100 billion, I know it's worth. I think what it says is, demand is high for premium assets. So it's a little like, it's the private IPO.

1:00:50You flow the price of 100 and you end up at 150. You close the price of 10 billion, you end up at 15. I think there's just a lot of demand for perceived premium AI assets and prices how scarce assets get allocated. I just thought this layoff buyout thing was just crazy. Separate question, but yes. I'm patting that, Jason. I guess today cognition laid off 30 % of the folks they bought and they offered to buy out all the other 200 employees, they give them a nine month package. They told them they either had to work 80 hours a week, six days a week in the office, or they should take a nine month package.

1:01:21And listen, no criticism, great people here, right? Some of my best portfolio companies used Evan, which is pretty interesting when I talk to them, right? But doing this hero acquisition, then laying off 30, and then telling everybody to either work 80 hours a week in the office or take a nine month package, and then finding out that the founders and the investors put in the 100 million, Google didn't. The story is very much more complicated than it looked at first, right? There's not quite as many white hats and everyone's a grey hat, it turns out. Okay, but let's just unpack that. Why make the acquisition then if they're going to get rid of 30 and then say, hey, all of these terms posted, if you're buying the team?

1:01:57I don't think they're buying, I think it's clear they weren't buying the team. I think it's clear that Devon is an AI engineer, okay? And I talked to all the folks in my portfolio. The two actually toughest problem CEOs are using it, okay? stuff that were they're reluctant to use AI. They like Devon, but it only does a little bit. They pay for it, it's fine, but they're not deported across their whole team like Cloud Code or something. So they have a niche product that's done well, and they want access to a top platform to get into everybody, a broader platform. And so they bought a brand, they bought 80 million of revenue to maintain, right?

1:02:31And they saved themselves three months to nine months, and basically did a deal that looks non -deludive at the at the end of the day at this 15 million. And maybe there's just a lot of spin on a deal that was just for brand and an accelerated market entry. In fact, they're offering to let every single employee go. Certainly means they don't see a lot of value in the folks that are left. Are there some implicit cultural statement? And again, they're doing that. You were all working nine to nine times six and you guys aren't. If you want to sign up for this, do if not leave. You right, there's an element of clarity to it.

1:03:04They've got until August 10th, all employees decide whether they're staying or going. It's a lot of change from the last pod. But all predictable. I mean, my guys, I'm not laughing because the human implications here are so stunning, right? I mean, Google's such a jerk. We don't want anybody. We want the company to die. Then the investors and the founders have to take the 100 million out of their own pocket and leave it in wind surf. Google didn't do it. They had to do it after the deal was handshakeed apparently. Then it all happens. then they get bought at the 11th and a half hour and now everyone gets a buyout package.

1:03:38It's just it's even in a 966 world. It's too much. Yeah. Because they all made the common part of that. They got the equity cashed out. What you don't know is how that compares to taking that 100 million closing the company down and splitting the money. I genuinely don't know how they ended up. But what it said, I mean, look what it says is this, the minute you move away from the cap table to, you know, making it up as you go along, If you're not one of the key players, you're very vulnerable to, you know, you're basically Depending on the kindness of strangers as Blanche Dubois would say which is always a mistake, right?

1:04:08You're depending on people arbitrarily deciding quote -unquote what fear is and people's decisions on what fear is changed over time Versus in a normal M &A where you know, you know, where you stand It's a Delaware Corp or Nevada Corp and you get what you get I think the lesson here is once you get away from that. It's all we're all everyone's just winging it and it's hard to know from the outside. Did you quote streetcar name design? Yes I did. In a VC pod, my respect and love for you. It's gone through the roots. There you go. There you go. That is fantastic. You know what? Just a little bit of the humanities.

1:04:41Well now the computer sciences are, I've got to go back to doing my English lit exam. That is amazing. I love that. There's two more things that I wanted to discuss. Ramp raised a 500 million series E 22 billion price iconic LADDET. This is like the fifth or sixth round they've raised in like an 18 month period. Is this aligned to company progression or is this late stage capital trying to find a home? It's probably a bit of a board because remember, Ramp, unlike most software companies, harder what they do is lend money. You know, they basically give people corporate credit cards on which they earn the interchange and the way you earn the interchange as the issuer is someone has to fund them for the 30 -day float period.

1:05:25Now I don't know in their case are they funding it themselves or they have some kind of float through but in any event issuing a corporate credit card by definition is way more capital intensive than simply building a software company and so they're doing boat. So it probably consumes more capital than the typical software company and the faster you grow the more capital you consume. So at some level there's going to be just a capital need for that. Then on top of that, you obviously have the phenomenon of it's a widely hot, successful company perceived dominant in its category. And by virtue of that, it's just going to attract a lot of venture capital interest.

1:06:01And if people keep off of you money and increasingly higher prices, you're probably going to take some. So it's probably a bit of both. You know, the other thing these rounds, when I look at ramp, 22 .5 billion, right, very quickly. Yeah. But 500 million, it's only 2%. Clay just did around it, 3 billion, which is studying growth, with two, right? But they sold a hundred million, right? So these little tiny rounds, the absolute dollars may sound large, but they're not even rounds, right? When we're talking about one percent delusion, two percent delusion, and the VCs get a markup out of it, do they really count?

1:06:31Right? I remember back in the day I had a markup at three billion in investment, right? And I asked my anchor, but it was a very small number. My anchor said, don't recognize it. It's not big enough it doesn't count. And he was right. I'm not saying that's the same here, but these are, if I'm rampant, I could sell one percent And in a series of rounds, there's no, there's, I mean, there's no cost. There's no, there's a good rounds for companies. I've heard them called suicide rounds. Well, like the 100 million at 3 .1 billion. It just sets a very, very high price to grow into with not actually that much capital.

1:07:00That's the downside, right? Maybe it is a suicide round. I think if you need the money, you have to get the money. And if you need the money, the high price is better than a low price. Raising money at too high a price is only called suicide if you have to raise again. If you don't have to raise again, and all you do is have some investors who've overpaid in the tech four or five years to grow into that valuation, well, that's tough shit for the investors, but from the company's perspective, it's fine, and you're glad you got the money. What you don't want to do is raise, let's take the hundred and three billion.

1:07:29You don't want to raise a hundred and three billion when you need it four hundred, and then you go back out six months later, you haven't had the growth, and in theory, you only were at one and a half billion, but then people get the cognitive dissonance of it's a down -round and you're screwed. If you really... That's a suicide round. not to suicide, but if you raise 500 million at two billion and three or four years later, you go public a one and a half billion. Well, tough shit on the guys who paid two, but life goes on. I mean, Rams raised 1 .9 billion. So it's just going to keep consuming this capital for one reason or another, right?

1:07:58And as I say, you can most, I mean, I used to have the number in my head. You can actually work it out if someone had the time. Like if I've heard they're doing roughly seven, eight hundred million dollars, interchange is a good slug of that. You get two, two and a half percent on interchange. so you can work out their total transaction volume and you have an average probably of a 15 -day rotating balance. So you probably have four to five times revenue in terms of floating cash amount. In other words, to do 700 million in revenue, you might have a three to four billion dollar capital requirement because you're floating all these, I mean, you're placing MX, so you're floating all these guys on their credit cards.

1:08:32So you know, you do need the money. I mean, I get like 20 emails a week from Brex telling me to deposit more of my account. Yes, maybe it's not a coincidence. I'm constantly, Jason, you're borrowing, may go down below two million, we need money instantly today. I'm, I don't believe you. Leave me alone, guys. Yeah, just leave me be. I'm fine. That's exactly right. No, I mean, in the end, Fintech companies are fin. One of the non -negotiables is to have low cost capital. And you know, you do it at the moment, bizarrely enough, venture equity is the lowest cost capital and pretty much anything out there.

1:09:03As Jason said, 2 % delusion are a banking license. Hmm, I'll do the 2 % delusion. Now the final one that we have to discuss, I thought this was really interesting, just going back to Ventualand, CRV raised 750, shrinks team, not raising later stage select fund. Is this a sign of a more rational venture landscape? Is this a sign of LP appetite being less willing for opportunity funds? How did you guys think through this one? I think they do early stage well and they probably decided the best way to make money is to do the thing you do well and then do it well and keep the message clear. I actually thought it was a smart of them.

1:09:39I mean, there are some firms that are pulling off these multiplat from striaties, but it's just a step function increase in complexity. And you know, if you can do it, and obviously we all know the names who have great, you have a multi product firm. But if you're going to be marginal at it, the nonnegotiable thing is to at least do one thing well. See, I've very clearly decided that rather than muddying the waters, trying to do this multi -strategy thing just execute really well on great early stage investing. It was probably smart in a world where you just want to have a clean message. To your comment on is it a side of wider LP appetite?

1:10:12No. I think what you're seeing is the LP appetite is varied. You can say, hey, I'm really glad to see you are being focused on your message down. And next day you can say to founders fund you got the most amazing growth rate fund in the planet. Let me give you another billion. And the day after that you can say to a lad Gail, you're just amazing. Let me give you one and a half billion on your own. Maybe the takeaway is the whole industry has changed so much that there's a lot of different ways to play the game. And I think more than anything what they want to see is people know what game they're playing and playing it well.

1:10:43What you don't want to be is the person who has envy of someone else's game. I try to, and by C .R .V. is like, hey, this is what we do and we're doing it well. You can say, okay, I know what I'm getting from that. I mean, look, the other thing is we're in Age of everyone raising as much capital as they can and deploy infinite capitalists start up state private forever, but Deep down, but deep down It you know if you're in it for carry over fees if you are you want to get into carry mode faster Yes, I'd rather have two seven hundred and fifty million dollar fund split in half like founders funded then one one point five billion dollar fund It's better for gp's isn't it?

1:11:16I'd rather have I'd rather get into carry mode faster and I don't know CRVs results, but they've had some good investments. If they're looking at their, especially some partners who may be generated more carried in others, they're like, I'm not in it for a million bucks a year and two million dollars a year in salary. I'm in it for big carry checks. And I want to get this thing deployed in 24 months, 30 months, right? And so I know this, we've lost this the last 18 to 24. But if we look back on all of Harry's guests, you know, normal times you want to optimize your fun size to achieve the maximum carry you can in a given time, right?

1:11:47And then just go raise another, right? In an ideal world, you might even raise the fund a year. So you can get into carry mode as quickly as possible. You lose a lot of things, you lose time and others, but you want to get to carry mode fast. You don't want to leave it all to your grandkids, do you? Jason, do you regret doing an opportunity fund? I don't regret it because I'll make money, but if that's why CRV, so listen, it's not worth it for me to do the opportunity funds. It's not enough. I'll make like 15 % more money. It's not enough money. If I had a $500 million opportunity fund and could deploy it, that'd be different.

1:12:17So maybe CRV looked at it and maybe they did some of their deals and did make a lot of money. It was a lot of hassle and they're like, hey, I only made 10 % 50 % more carry. My LPs don't love it because I burned a lot of capital from them. Let me concentrate where I make a lot of carry. That's my guess. And for me, carry, it's the same thing. Like 90 % of my carry will come from the main fund. So I'm like, I don't want the drama in my life. A great. So sort of, but you know, I'll still make maybe 3x, but that's it. Interesting enough. I think a lot of the math ones out there, because you look at it and you go, how many deals do you have in your main fund?

1:12:50How many of them are amazing? How much can you get in, you know, maybe only 20 % of them are amazing? How many can you deploy late -stage dollars in? You know, maybe only half of that, because the around, the late -stage rounds get pricey very quickly. It turns out that unless you end up with one of the very few companies that are not just amazing, but are super amazing, where they can be a $20 billion outcome, your ability to deploy lots of capital relative to your early -stage fund is actually much smaller than you think. So the size and the opportunity fund that you can deploy just within your entities is smaller than you think.

1:13:21And you write JSON, then you end up saying it's a word to it. Now, you can decide if some people have no, I'll build a whole late -stage growth strategy and then knock yourself out. You can do anything and you can put billions to work. But then at that point, you're becoming a different thing. Plus, maybe less discussed. Maybe service too big for this, but almost every seed manager that we know that's been successful, they can spin up an annex fund. Like it's not so simple. If all of a sudden you got into unthropic early and it's turning out pretty good. You could raise a couple hundred million dollars in an annex fund or an additional fund.

1:13:50It's okay. It's not a permanent decision to not raise another vehicle. You do not think that benchmarks, capping or discipline on fun size is one of the core reasons why it's been a challenging year or so in terms of their competitors scaling, gaining relevance and then being a little bit left behind. I don't know if I agree with the characterization. I mean, I thought they've had, I mean, my, Jason did the list, arching, you, you, either you or Jason did the list last time. Harry did it. Harry did it. They've done amazing deals. They've been left behind is that set of deals that they've done.

1:14:22I don't think that's challenging. But you're both right. Yeah. But you're both right, right? The numbers that they've picked extremely well, incredible investments. On the same time, if you look on social media, Benchmark isn't listed the way Andrew Sinan Sequoia was like it was a generation ago. It's just not. Does it matter? Harry's built a big brand. He's concerned it matters. You could argue both sides, but when the industry was smaller and Brian Halligan had to drive up and down San Hill to get a deal done and it took months, brands were just different. It's still an S to your brand, but it's not in every conversation on X, right?

1:14:53It's YC, Sequoia, and Dresan. That's it, really. Totally. And if you were scaling fun size and scaling strategy, would you be able to keep the lights of miles and Victor, who are obviously great investing talents? I think it's presumed to... I'm not going to tell a bunch of our hardware and their business. I remember them starting in 95 and talking to them. They've done a pretty damn good job of one of that business. They don't need my help. Stepping back from the individuals, right? The meta question you're asking is, let's deem, because I think it's true. What we're asking is the very best specialist fund able to compete in this market with the very big, you know, full stack firms.

1:15:30That's really the meta question, because I'm willing to stipulate and there's a lot of data that says that that benchmark have been among, if not the best specialist fund. So I think this takes it away from individual commenting on people which gets personal very quickly and more That the meta question you're asking is is the right strategy? Specialist fund or do you need to be a full stack player to matter? And there's no doubt that if you're full stack you have more coverage you have more news you have more news flow Yeah, I mean you I cited the data like from the Rotman guy at DST a while back You're picking goes down a little but your volume goes up.

1:16:07I don't know No, each side has a risk. The risk you face as a specialist is you get crowded out by the noise and people don't know you're amazing enough and therefore you lose some of the add -backs to the people who have more brand. The risk you face as a brand is in your wild urge to put all the money out. You end up overextending yourself and you get some power returns and you fast forward five years and you look back and you go, oh, we had lots of noise, lots of good individual deals. but as Jason said, it didn't add up to compelling returns because we had so many other deals. And I think the truth is, both strategies will work if executed well, and both strategies have their risks.

1:16:44I know that's kind of a stupid answer. It is, but I think there's lots of ways to make money. The one thing you don't want to do is be inconsistent. You have to have a strategy that plays to your strengths and that can work for you, and you have to understand the risks that your strategy entails, and the risk of a specialist And we see it every day. Look when you're competing against the guys who have infinite deals and inferred deal flow and infinite money, it's hard and sometimes you lose. Equally for those guys, sometimes you put a hundred million dollars or something and it just doesn't work.

1:17:13Unless you have an outlier to cover all those mistakes, yeah, that's going to be their problem. Guys, I want to wrap up with one final question in this. We had Halligan today. He was fantastic. Who would you most like to have next time? I think it would be great to have Mark Beniath. I think he would do it. He'll be different than Brian, right? But my idea that I didn't have until today was Jeff Lawson would be I thought the same I thought Jeff would be fantastic didn't occur to me until today I would love to hear all of his reflections all of his thinking I mean he's a founders founder and hadn't occurred to me it's a great idea right Tony and how would we how would we inferness to him not make it just be everything you learn getting fucked up you want the act of a story but you want you know what it'd be a story he's got a whole AI incubator in dog She's got a lot of stuff going on.

1:18:00He's rethinking everything from a stack in the age of AI, right? Good. Yeah, I love it. Let's go for it. I'm gonna do Jeff and Benny off and we'll get them on in that series. Or I'd be scared of Benny off. Oh, no, it'll be fine. Benny off's great. He'll just talk about agent force. I mean, what can I say? We deliver fast in the last 24 hours. We have confirmed Benny off and we have confirmed Jeff Lawson to do the show next with us. It will be a fantastic set of guests. I so enjoyed that as always. If you want to see more, you can find it on YouTube by searching for 20VC, that's 2 .0VC on YouTube.

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