20VC: Leading Anthropic's First Ever Round | Will Open Source Threaten Anthropic's Business | Do Margins Matter in a World of AI | Why Triple, Triple, Double, Double is Not Good Enough Today | Why Series A is Hard Today with Matt Murphy @ Menlo

21:31Harry Stebbings:The margin structure of Lovable will be changed greatly with the utilization of open source, which is obviously much cheaper. That goes against one of the other investments being in Anthropik. Do you see them as like hedges against each other? Do you worry about the progression of open source, given how much can be done now with open source? I'm intrigued how you think about that. Yeah, I mean, first of all, Anthropik is a fantastic partner to Lovable and vice versa. But like this market is so big. So there's really two dimensions to that. One, some people worry about lovable and anthropic tripping over each other.

22:04I think anthropic always comes to things a little more like the technical user, and lovable comes at it more from the lay user. I'm sure there's probably some overlap in the middle, but I think there's plenty of big space for each one to do extremely well. And, you know, look, Cursor was about as in the crosshairs of anthropic as possible, and I think they still had a pretty darn good outcome. But the whole open source topic, look, it's like any market. When you start off in a certain way, it's just like, look, I want to get something running. I want to get it out there and just prove I've got, you know, a cool product.

22:34And so you just default to the simplest thing. Over time, you do more optimizations, right? And so I'm also on the board of Open Router, a company that you all talk about quite a bit, and I love hearing you guys mention them. And, you know, that's kind of like the North Star there is like, hey, you would have some intelligent layer that intercepts an API call from any application and basically says, what's the best model for me? Like across whatever efficiency frontier I'm trying to optimize for? Is it price? Is it reasoning? Or is it performance? You know, latency, things like that. And it's scale, like that's the kind of stuff you need as a company to manage and optimize your business.

23:10And so wave one of AI is like, let's just get it going. Wave two is like, let's get a lot more sophisticated about what we use and when and how.

23:18Harry Stebbings:If you're getting sophisticated about what you use, when and how cost optimization comes into it.

23:27Harry Stebbings:So does that not dramatically reduce the TAM of frontier model companies? And maybe we're so early that it's still$10 trillion for a TAM, but like maybe Anthropik and OpenAI solve cancer and climate change and your email tagging is done by open source. Is that how you think? No, I think the foundation models, let's say specifically Anthropik, have such special models, performant, intelligent models. This can be hard for somebody to just kind of say, I've used open source with my data. It's going to be functional and positive for some amount of what you're doing, but I just don't think it can be powerful enough to really, you know, displace it.

24:02So I'm, my mindset generally would be like, you're going to use multiple models. Let's say if you're someone, pick a company that maybe you use 50 % Anthropic and 50 % open source in your own model. I don't think it goes to that. Well, you were talking more costs, but I don't think it goes to that 96 % because what's happening is companies see this like, yes, I can get lower cost, but if I use Anthropic, it actually increases my customer retention. I generate more revenue. I get users to engage with the platform more. And that is what the data is suggesting now with a lot of application companies.

24:35But there's certain API calls that just don't need that level of functionality. And frankly, it's good for everybody. It keeps Anthropic on their toes to keep innovating. Most innovative company around. So they'll keep innovating, not stay still. And then startups innovate in their own way with open source.

24:50Harry Stebbings:Do you think the costs have to come down for AI? Sam Ortman said very clearly that they are doing cheaper and cheaper kind of tokens and reducing the cost significantly. Does AI have to get significantly cheaper? And will we see this cost curve come down massively? Well, I mean, I think it's like any product, you know, that you can argue that the cheaper it is, the more it kind of opens up the market because you can do more for less. And that, you know, those economic curves always spark activity. But, you know, look, even within the anthropic family, right, like you've got Sonnet, you've got Opus, you've got Fable.

25:23So even Anthropic itself is innovating around, hey, it's not one size fits all. So I think you're going to have the combination of something like that, a family of models from Anthropic and then a set of open source models and things that you train with your own data. And you're going to look across that whole tapestry and say, hey, I'm using 50 % this, 30 % that, 20 % this. And those are the kinds of optimizations that happen at scale. And that's the stage of market that I think we're just entering into, which makes it a lot more fascinating, frankly, because there's going to be so many kind of second and third order companies that spike and take off versus, you know, the whole market being concentrated.

26:00Harry Stebbings:I'm incredibly naive. And so I don't understand something, which is like we see, obviously, opening, I have Jalapeno, reportedly Anthropik working with Samsung to create their own chips, DeepSeeker creating their own chips, Meta creating their own chips. Do you have to be full stack today, do you think? and is that why we're seeing everyone move into the chip layer? I think it goes back to what I said about optimizations. I mean, you know, Google with their TPUs a long time ago, Amazon with their Traniums. I mean, just at some scale, you look at your bill and you're like, I'm paying somebody way too much, you know?

26:38And you say, well, I'm willing to pay that for some part of, you know, my COGS because that's just so much better and different and I can't compete with that. But maybe there's some other types of activities they're doing that I can really leverage my own technology and bring my cost structure down. And, you know, I mean, the chip business is hard. Good luck wading into that, right? You know, it takes a special team, especially if you're going to compete with Jensen and a lot of other options out there right now. But, you know, these companies are smart and they're looking at like, hey, look, there's some very specific thing that we do in our model that if we had a chip that just behaved like this from a memory cache, whatever, like it would make us so much better.

27:16And I'm sure for some percentage of the workload, whether it's in training or inference, that could be a big deal. So it's probably worth the swing if you're a hundred billion dollar revenue company.

27:24Harry Stebbings:When we think about kind of full stack versus not being full stack, you know, I've had the founders of Nebius on the show. I just had Lynn from Fireworks on the show today. And Nebius said they were moving into the open router business and would actively take it. And then I asked Lynn this morning, is there value in it? And she was like, no. In the routing business? yeah why do you think there is what am i missing well first of all what open router has is like they've just got this groundswell of organic activity with developers who come to them because they trust them they know it's a great inference marketplace they love their intelligence like i don't think a ton of developers flock to nebius like if i'm a developer i don't wake up and be like hey you know so they're kind of in the wrong part of the conversation but if you're on nebius and they're your underlying provider and they provide routing, okay, fine.

28:18But if you're a company that's building and thinking about multiple cloud platforms and you want to kind of even obfuscate that, then OpenRouter is a great solution.

28:28Harry Stebbings:How big is the routing business going to be, do you think? How big could OpenRouter be? Is that a$50 billion business? I mean, their trajectory is insane. I mean, I forget what they've publicly announced, so I better not say anything. This company, wildly profitable at a scale that would probably shock most people before this whole open source model, alternative model, model optimization market really takes off. I feel like we're just on the cusp of it. And this company is already a beast. So I have massive and very high hopes. We mentioned Lovable earlier. In terms of other application companies that you are in and are very meaningful, another that we have together is Lagora.

29:09Harry Stebbings:I love Max. I just think the world of him. What an absolute beast. Remind me, what round did you do for Ligora? You did the... The round that just happened, you know, about six months ago. Okay. And what size check did you do? It was kind of sub 50, but in that range. Okay. And so you're like, great, let's get a foothold in here and we can put more in with time and partner more closely with this business. Exactly. Everyone tells me, and again, you can be like, Harry, for goodness sake, it's like Friday morning. I wanted a chilled interview. You can put me back down. But everyone tells me, oh, Anthropic's the real threat.

29:44Harry Stebbings:And I'm like, are you kidding me? This is like a heavy GTM business focused on building relationships with lawyers, doing legal deployments with G. I mean, it's completely different. How do you answer that statement when everyone's like, well, Anthropic Legal is going to beat them? Yeah. Well, first of all, Max is special, as you know. Part of my diligence was watching your interview with him. But he's just an execution machine and just a lovely person to be with. I think, you know, there's always for a while here, we're in this period of for a long time, it felt cleaner. Like, hey, there's a model and there's an API and then there's application companies.

30:21And obviously that's kind of gotten blurrier and blurrier. And there was a period a couple of months ago, it's like Saspocalypse, you know, everything's going away. And I think some of a lot of that has kind of faded. And now we're kind of sorting out like, OK, well, which applications really deserve to live and why? And I think, you know, not speaking for Anthropic, but my view is they're kind of like, look, if the model just kind of does something and your application isn't distinctive enough, the workflow, the value you've built on top of it, and the model takes that market away, well, then it probably wasn't that, you know, defensible anyway.

30:51I think in the case of Max and Ligora, you know, they have lawyers and FDs getting in there and understanding these workflows. It's kind of like crosses organizational boundaries. Like, I think it's very hard for a model just to come in and be like, oh, there's multiple constituents here because you've got corporate lawyers, law firms. And when you're on a case, you've got a client, you know, multiple law firms. So it's just it's not quite an N squared problem, but it's complicated. And you need workflows that understand that you need context, even within the law firm. So I think there's just a lot of I know there's a lot of value to build and create on top of all that and love the way they're executing.

31:26Harry Stebbings:Does the Gora have to succeed outside of legal for it to justify the valuations that it will want to raise up? You see Harvey moving into compliance and tax and I think the Gora will, too. But it's because if you want to raise it 10 billion, cool. But like there's a price at which you need more than just legal. Yeah, I mean, look, Max, I guess maybe he hasn't been as public about it, but absolutely, that's part of the strategy. You know, when we got to know each other and we were thinking about the round and justifying not only the current round and hopefully, you know, participation in the future round and working with the company, the vision is much bigger than that.

32:02It's not have to. It's just, you know, you've built this base platform that happens to be really, really good at understanding complicated, sophisticated service teams, you know, legal tax, you know, accounting, all this. Why wouldn't you expand into that? And then there's probably another leg of the stool out there yet that we haven't even seen that we'll be talking about maybe next time I'm on.

32:21Harry Stebbings:I think Series A is the worst place to be today. And my partners always hate me for this because all Series A founders are like, great, we won't go and see them. But it's the worst place to be. You have like one to three million in revenue and you're 200x ARR, two to 400 million with little PMF. Do you agree that right now, insertion point wise, Series A is the hardest? and that's why we're seeing everyone flock to growth and precede. And how do you think about that, having seen so many cycles? It's tough. I mean, you nailed it. But I mean, what we're doing is a barbell strategy right now, right?

32:56So it's like, hey, when is a certain company in a category establish themselves as a leader? Because, you know, in that kind of one to three, you may not even know who the competitors are yet, right? And you're going to pay as if they're going to be the winner because that's just the way the valuations are in that kind of, let's say, one to 10 range. So we've moved our, you know, we have a fund called inflection fund and we always called it early growth. Early growth to us meant like three to 10 million of ARR. The reality is like for the good companies, that window used to last like a year, year and a half.

33:26Now it lasts like a week or in the case of Max and Lagora, that's what they do in a day. So, you know, like it's just that was a hard strategy to keep pursuing. So that's kind of like the Menlo inflection classic kind of investment. But really, it's been more to these outliers where they've completely broken out somewhere above 10. And that's kind of like market specific, where you feel like they've been anointed the winner or you believe they will be. But to your specific question around Series A, that's the other side of the barbell. And so what we've done is gone much earlier. So spending more time, we've got a specific seed strategy where three partners can write up to an$8 million check on the spot.

34:06That number used to be three. So we've kind of expanded the aperture and the flexibility for the team to move quickly. But the hard part in A right now is that C to A, the time between those two things has really compressed. And if you really look at like the data points between those two rounds, like, okay, so they kind of built more of the product. They kind of have like five POCs or maybe they had five POCs and now they have a million of error. And you're like, I know anybody can do that. Not anybody. I don't want to oversimplify it. But it's not really that much of a signal. And yet the valuation goes from 50 to, you know, to 200 or something like that.

34:40So that's so that's the hard part. So we've really moved earlier, you know, kind of the I wouldn't say precede, but more like that seed motion has become much more prominent for us getting early, especially to a lot of these technical projects. We have very specific strategy around Neo Labs, too. We're in about seven of them, but we're not going in with like 200 million. We're going in where we can get ownership early or be part of something that we think ultimately could be a winner and pile in. So we've adapted to the environment with a bunch of strategies that allows us to pursue this barbell on the later stage and getting even earlier on the seed stage.

35:14Harry Stebbings:I think one of the worst performing groups in terms of venture in this vintage will actually be the small boutique seed funds, which is what every single LP that you speak to today, Matt, wants. Every LP, this is the funniest thing, every LP wants San Francisco specific seed fund only under 100 million. And I think this will be the worst performing category of venture in this vintage because firms like you and Founders Fund and Benchmark and Sequoia and Excel and the list goes on and on are so effective with a very good seed product. If you're a$50 million seed fund and you're writing$2 million checks, dude, I'm too big to be friendly and I'm too small to lead.

36:02Harry Stebbings:Do you agree or would you say I'm wrong? Yeah, no, I mean, look, I think the biggest thing that's changed from the time, you know, my early days in the business, but for a long time is people used to have their swim lanes. And now more and more, everyone's full stack, including our good friends now at Benchmark adding a growth vehicle, right? And then everyone used to make this argument in the seed world, like, oh, there's negative signaling if you let an institution in there. And I think that's kind of out the window as well, because for the right companies, like everybody's getting preempted and the rounds are bigger.

36:33maybe we're back to you know more collaborative rounds because they're bigger everyone used to be like well i have to have the whole round and now you see a lot more syndication but this whole notion of swim lanes is gone and that's just the times we're in the syndication element's actually

36:46Harry Stebbings:nicer i find it's nicer to be able to be more collaborative i like that a lot more i mean believe me for the first uh 10 15 years of my career every series a you led you would bring in another kind of top tier firm alongside you and the view was like look we're going to work more effectively together. We're going to be better helping this entrepreneur grow on scale. And then for 10 years, it became, no, no, no, everything has to be one investor. And some of that's obviously a function of ownership, but I like the syndication part. When we talk about seed funds of that size being challenging, Series A being a difficult insertion point today, and the barbell approach, the$3 billion fund size, we talked about it in the show with Rory and Jason, and we didn't really get it in the nicest way.

37:27Harry Stebbings:You've got Anthropic, you've got Lovable, you've got Ligora, you've got OpenRouter, you've got Fireworks, you've got the list goes on and on and on of great companies. You could raise way more. Why did you raise three? And is the future of venture not much bigger platforms like GC and Lightspeed and all the big names we know so well? Well, when you take on more capital, there's implications of that in terms of how you run the firm, culture, how many people you have. And we love to be a relatively small and mighty machine with roughly, let's say, 12 partners and a great set of, you know, principals, associates, things like that that make us better and stronger.

38:06But like when you go full, full stack and you have like five different teams, you start doing sector, like everybody's kind of out for a pass. And sometimes I've seen this in other places where you feel like, well, I could do great things, but I can't really index on this small group of people. There's too many. If one group doesn't do as well, then they kind of drag down, you know, how this other group. So it kind of leads to a bit of less feeling of like alignment, agency, collaboration together. And that's what we've really wanted to keep at Menlo. And despite having two funds and kind of two ICs, we have a very fluid amount of work across those two groups where partners from the venture fund can lead investments in our growth fund, et cetera.

38:46So it's really more like, how do we want Menlo to meet the market? How do we want to run internally? How do we want to keep our team relatively small with great people and not feel like we're more a company, but we still really are a firm.

38:59Harry Stebbings:Dude, I'm just a humble British podcaster. We don't talk about scale here. Okay. We're just, we're everyone's friend. One's not so tiny, my friend. But my question there actually is, you know, I know Josh and Thrive very well, dear friend. And he's always said to me that, you know, people have a lot more plasticity investing across the stage than one thinks. Do you think people are like, oh, they're a growth ambassador? Or do you think people do have that plasticity to move across stage and a great seed investor can be a great growth investor? I think you're best off if people pick a, I'll use the word swim lane again, meaning like, hey, it's just hard to cover everything, right?

39:37Especially in seed. Like, how am I supposed to be wandering around, you know, Stanford Labs meeting with researchers and also chasing the 20 best growth potential investments in the world? It's just too much. And I think the pattern recognition, the density of the work that you apply to a certain area makes you better. And so that's roughly how we've split our team is, you know, early stage team, outlier, growth kind of companies, and everybody really focused. But if something comes up that's a great fit for somebody across the fund vehicles, then fine, there's fluidity. But I really do feel like you're best off by being super, super focused with, let's say, 80 % of your time.

40:18Think about sector-wise, too. all of a sudden processors, TPUs, GPUs are hot, right? And then you've got defense tech, it's hot and everybody's kind of rushing in. You can't go in there and just kind of spearfish one investment that you run into and feel like you've got the expertise. You need to understand that landscape. You need to understand the entrepreneurs. You need to understand the buy side. And if you haven't really worked in a semiconductor company before, which I did, that's where I started, you know, my career to startup before I joined Planner Perkins, it's so hard. You know, it can take two, three years to get the right chip out.

40:49You think you got a design win, it evaporates very, very hard.

40:52Harry Stebbings:What about Ari Vichri and Steve Vassalo with Cerebris? I mean, they directly did a spearfish on this one company. All right. Well, I've talked to Eric about this. And by the way, you had Bruce Dunleavy, like one, you know, epic semiconductor investor. And he's like, all my partners, maybe even said this on your show, but like, you know, all his partners told him not to do it. But like, I would every once in a while as a firm, you can do something that's a little bit like there's something really special here. We might get a zero, but if this works, wow. And I'll take you back to our investment in Anthropic.

41:24Same thing. It's like, this doesn't really fit. This isn't what we normally do, but wow, if this works. I mean, you've got such a special founder in Dario and an amazing market. And if these guys become the two, and that was the goal at the time, this is going to be wildly successful. Now, did we ever realize they were going to be the number one? That was like a little twinkle in the eye, but that's the upside you get by getting yourself in these companies.

41:46Harry Stebbings:Can I ask you, just on geography, we've spoken about Lovable, we've spoken about Logora, two companies based in obviously Sweden, and then you have Anthropic and you sitting on the West Coast. How do you think about the centrality of power with AI moving back to San Francisco, all the brightest minds, all the best researchers are there, being the common theory, with also a portfolio that's very global in terms of winners. Yeah. San Francisco was a weird place for a few years. You know, like all the cool kids wanted to be in New York and San Francisco felt a little bit like a ghost town, very concentrated in sass, not like that much interesting stuff going on.

42:23And I love seeing it have its mojo back, right? It's like when these waves come, the Bay Area usually leads. And so it's just giving so much more energy and people who are like lifetime New Yorkers who would never think about leaving, you know, living in the Bay are now coming out here. I think more college grads are saying, yeah, New York's cool, but I got to get out there and be part of this AI thing. So I think it's great for the Bay Area. And I think the concentration of that talent is what has always made the Bay special. You know, you just kind of, you're just constantly talking and meeting entrepreneurs and understanding how everyone's pushing themselves, not just like their work ethic, but more like technically what they're working on.

42:58Your context that you have by living in the Bay Area is probably like 10 or a hundred X if you're just some really great company somewhere else. Now, kudos to you and not just you personally, but like, you know, what's going on in Europe right now? Like that whole deep mind diaspora, you know, you mentioned a couple of companies like Lovable and Lagora that we're in and Ryan, a couple more, like that's new for us. We would always be like, oh, we can't go to Europe. It's kind of a more of a cottage industry there. And where does the talent really spike? But the one thing I'll have always thought about Europe is if you're an entrepreneur there, it was harder.

43:32So there's kind of more grit to be a great entrepreneur in Europe than let's say in the Bay Area where it's not incredibly hard to get into YC and just be a founder. I think in Europe, it's always been a lot harder. So if you have the grit to get off the ground in Europe, to be a global company, that says a lot about you. So I wouldn't say we're putting boots on the ground there, but we're spending a lot more time and definitely interested in doing more there.

43:56Harry Stebbings:Anton at Lovable always says building in Europe's like, you know, hard mode. Can I ask you, when you lose a deal, is there a commonality as to why you lose? The thing that's most often is that you were late to the party, right? Like, you know, you were not intentional enough that this was a company that you wanted to be tracking and building a relationship. So you're coming in a couple of weeks or a month before the round and somebody else has a year long relationship. That's usually a death knell. The biggest death nail always for me is like when it's like, oh, I worked with them at my previous, I worked with Matt on my previous company for seven years and I'm like, okay, I'm done.

44:32And relationships mean so much in this business because it is high trust matters so much and both within a venture firm and with the companies we work with. And so it's hard to establish that in some shotgun wedding, some sprints. So we try to be very intentional about getting out ahead of things. I'd say for the best companies, they're always going to be this like kind of jump ball. And it's incredibly important to know someone who's associated with the company who can kind of help guide you in, land the plane a little bit. And if you don't have that and another investor does like, Hey, this person has worked with this board member for 10 years and they had a great experience in some big outcome.

45:09You know, it's more things like that. It's rarely just like straight up, you know, valuation, stuff like that. Yes. Valuation can be painful, but for the right companies, you know,

45:19Harry Stebbings:you do what it takes to be in the single biggest mistake for me is always actually focused around ownership there've been several companies where we've had like one percent offered to us deal 11 labs star cloud where we were like one percent we can't be doing that and now i look back and all of them would have returned huge amounts of money that's the way i was trained and i learned that for most of my career so it took me a lot to kind of shed that and do you think lps understand that Because LP is always like high ownership portfolio, you know, constrained portfolio sizes, concentration, benchmark.

45:53Harry Stebbings:Do you think they get that the game has changed? I think they see the results. Right. So like maybe not up front, but we're pretty explicit with them that we kind of have like, hey, here's a core position in a fund. And then here we call like tracker checks or starter checks or frankly, even look like look at our anthology fund. right? Like that's over 50 companies, somewhere between a hundred K and 1 million, where you kind of get in a seed round and the companies that have graduated out of that have been open router, whisper, axiom math. So there's a couple of things. One that gives us a bit of proprietary quote deal flow, but it gives you the opportunity to be in the cap table, get to know the entrepreneur and then pounce when you see something's working.

46:32And I would say, if you get even a wedge into a company, you're 10 X more likely to be able to participate significantly in the next round. or lead. And I think LPs get that or they are getting it.

46:42Harry Stebbings:I totally agree with you. And you do those checks so you can concentrate capital more with the progression of the company. I went viral on VC Braggs. Matt, when you did our last show, I was very amenable and sweet and nice little kind of Harry Potter adventure. Now I'm quite binary. And apparently a lot of people don't always like what I say. And VC Braggs in particular took real problem with me because I said, basically, I turned down a company the other day because they were going from like one and a half to five to 15. And there's an opportunity cost of capital. So it's very real. And the growth expectations are just very different.

47:19Harry Stebbings:In other words, triple, triple, double, double. It's just not exciting enough anymore. And so I got chastised for this. Are you with me that fundamentally, if I bring you a one to five and then a five to 15, again, it's great. I'm not belittling it, But that's just not the venture game today. It's not. It's not. And it's hard to say and it's hard to change the context, the 20 plus years of context around what good and great was. But that's the reality. The environment has changed. And so if you look around and you're like, well, that used to be top 5 % and now it looks more like top 50%, well, we're not trying to be in top 50%, right?

47:58So that's just the reality. I mean, it's not controllable by us as investors. When we look around and see these companies doing zero to 100 in a year, never seen anything like it. And there's more examples of that than I can probably count right now.

48:12Harry Stebbings:What company are you not in that you would most like to be in? There are several. One company that I've really admired and as the kind of like outlier entrepreneurs in my history going back, like you look at the companies that became great. You know, when I was early days at Clanners, like, you know, Jeff Bezos and later on Daniel Act and the Collison brothers. And like somehow or another, these amazing founders end up manifesting the company. I don't necessarily think it was that they chose the right market or I mean, somewhat they did, but it was really just the force of nature, the creativity, the vision, the execution, their ability to raise capital, hire the best talent, all that.

48:51So anyway, I think an example of that in Europe, just because it's close to home for you, would be someone like Matty at 11 Labs. Very big respect for him. So, you know, I don't want to give everyone on the podcast my whole pipeline, but just because that's when you know well, I'll throw that out there.

49:05Harry Stebbings:What was the most controversial deal inside Manlo that you remember? The obvious answer is Anthropik in some ways, but I'm trying to think about. And by the way, there was two controversial points around that. One was, you know, the first just like, is this really what a venture fund does? And the second was like, we've never done an SPV before. Are we really going to go down this path? I can't really remember offhand anything like that was that profound and felt like, wow, we're kind of putting the reputation of the firm, especially the bigger SPV on the line to kind of pull this off and, you know, breaking new ground.

49:37I think, you know, the great thing about our partners, we've got a very technical group. We're small enough to have high alignment. We respect each other a lot. It's easy to make, you know, we listen to each other, make good decisions. So I don't find things that controversial. I don't really ascribe to this point of view where you need like a bunch of no's and there's one person who's a yes and that leads to an outlier. I know there are examples of that, but that's not really been my experience in the firms I've been part of or with our team.

50:04Harry Stebbings:Final one before we move into a quick fire. I am not great at maths, but if I do like a little bit of a back of a napkin on Anthropic and distributions, it'll distribute around$10 billion in carry. It's quite a lot of monopoly money, Matt. Not in Kerry, right? Our position is north of that. You can do the math on what Kerry usually is. So it's not quite that on Kerry, but yeah. Totally understandable. Two to three billion. It's a very big number. How do you think about firm sustenance when there is such a big win? We have seen firms candidly struggle to maintain dominance when everyone makes so much money, bluntly.

50:43Harry Stebbings:How do you think about sustenance post such success? I think Menlo has always had a challenger mentality since myself and Venki came over a little over 10 years ago and kind of Sean Carroll and came back. And, you know, Mark Siegel was the partner who was there who kind of put the band together. And ever since that moment, about 11 years ago, it's just been a grind, a fight, a build exhilarating to kind of get to this point. And I feel like everyone we brought along has kind of felt Menlo move up that stack and be more and more successful. So I think what's driving us is what you would expect less about that monetary outcome.

51:19And holy shit, we've put ourselves in a place to be one of the hopefully leading firms in AI. And how do we really compound and double down on that advantage? And that's the energy I feel every day, certainly from myself and all my partners. I just can't see that going away. It's kind of like it's kind of like we arrived. We're here. What do we do with that? And the money is great, but that's not why we did all this.

51:38Harry Stebbings:I think richer investors make better investors because you do not worry about downside mitigation, but you focus on upside optimization. How big can this be? What happens if this works? You're not worried about LPs not re-upping. You're not focused on risk mitigation. Do you agree with me in thinking that? Of course I do. And I think it's at a firm level and it's at an individual level. And there's been times in my career where you feel some doubt, either from yourself or those around you, and it makes you dramatically worse, right? And so what we try to do is have a high trust environment, build people up, and everyone is going to fail in this business.

52:20It's just kind of recognizing that sooner and kind of landing the plane or doing the right thing. The worst thing in the world is to kind of hold on and just go to try to act like the reality is not the reality. And oftentimes you're doing a founder a favor by even helping them kind of land the plane. So yeah, I think it's an important point and an important thing to manage in this business.

52:41Harry Stebbings:I would love to move into a quick fire round. I have pushed and prodded around many different areas. So I appreciate the patience. This is where the really off-putting stuff comes. I'm ready. You were born ready for this. What have you changed your mind on in the last 12 months? Oh, I mean, certainly just how big companies can be and how bold Menlo should be in pursuing those, that we need people who are free thinkers and willing to take those kind of risks. And that's more true than ever, like just how big a company can be. biggest miss and what was your lesson from it the things that i would look back on at the time as a biggest biggest miss no longer feel that way so that's like like i'll give you one you know we were at the one inch line um winning plaid back in the day and i have the utmost respect for zach and the company and what they've done but the point in time i felt like when i lost that that that was like existential to my career and ability to win and and you know they're a great company But I guess what that did is just more conditioned me around like one loss doesn't define anyone.

53:44Now, OK, if you didn't win Anthropic, that would have been extra painful. But the point is, like, you just got to keep going and finding that next big one. And if you focus on the right big trends like we did around AI and get out ahead of it, that these cycles come along. And that's what I've been more focused on than worried about a loss.

54:02Harry Stebbings:You can invest in one seed fund, one Series A fund and one growth fund. Which fund do you invest in? And they can't be your own. All right, seed fund. I'm less like plugged into the seed fund world for reasons that you and I have already discussed. I don't follow a lot of seed funds around, but I've had a great relationship with Chad at SUSE for a long time. You know, Brooke Byers was, you know, one of the quasi mentors of me when I was a climber and we got to know each other and seeing him kind of grow and thrive. And I really appreciate his perspective on things. Series A, you know, benchmark.

54:33I've worked with Chathan and Eric a ton and, you know, great respect. Hard to say, not say Sequoia as well, but anyway, since you asked for one. And then growth fund's a little trickier. There's so many great full stack firms. So it's like there used to be a very clear set of growth funds. Like when we were talking about swim lines, it used to be like, okay, well, there's IVP and, you know, there's Meritech and I have high respect for both of those folks. But now the reality is that the growth funds that you look at, it's like, well, it's Lightspeed, you know, Thrive, you know, folks like that, that we partner with a lot and even Sequoia and Andreessen.

55:04So it's harder to just kind of pinpoint one growth fund because it's like a blend of a dollar. There's no way to really index on that market anymore.

55:11Harry Stebbings:I'd probably say just size of firm. You could be like, you know, when you reach$5 billion plus, you're probably a growth fund at that point, my friend. That might constitute it. But yeah, I get you. I think also, by the way, everyone who was a boutique growth fund is now just a growth fund. I think you will see all of your IVPs, your Maritex, just raise large funds. You can't play growth with under a billion. I agree. The growth market has changed dramatically. Where is overheated right now, do you think? Robotics and Neolabs, maybe defense tech, but just because there's so much going in. But I like all three of those sectors.

55:49But like Neolabs, my partner Didi put out a tweet yesterday on how there's like 60 Neolabs. I told you we're in seven. But, you know, some of them are very, you know, generic, like we're building, we're getting a band together. We're going to build something really cool, researchy, and we'll see what happens. And then others are like Chai, where it's like, hey, we're going to be very focused on creating drugs and antibodies and our Axiom focused on math and things like that. But, you know, there's 60 plus of these. And, you know, when the dust settles, I don't know what's going to come that you can't, you can't expect all of these companies to have great acquires.

56:21And there's no way in hell that, you know, we're going to have 60 independent model companies in addition to all the open source and everything. So I think that's way too big of rounds they've raised for where they are. Huge concentrated positions for some firms. So I think that's a challenge.

56:36Harry Stebbings:Where is underinvested? I think that there was a bit of a false negative on some of the infrastructure stack, you know, whether it's like observability, agent frameworks, you know, all this kind of stuff that started maybe three, four years ago. And a lot of these companies didn't end up panning out, right? And now the problem was, goes back to what you and I talked about earlier, people were very focused on like single models. So you didn't need all the surrounding infrastructure. But now as the kind of the whole ecosystem has gotten so much bigger and you're doing optimizations, you want to manage your spend, you need to have much more robust observability solutions.

57:14You need something like Open Router. I just think, oh, we're in this company called Gimlet, which is, you know, kind of like this technology layer to kind of obfuscate the underlying chips and technology stacks like CUDA, et cetera. So there's so much more there. And I think we started off investing in that area two, three years ago. Nothing really came out of it. Now these companies are really taking off. So that's what we're excited about. Kind of the developer stack, all the tooling above the foundation model.

57:40Harry Stebbings:Final one for you, dude. What are you most excited about when you look forward to 10 years? So for me, you know, my mother's got MS. I'm incredibly excited to think about medical breakthroughs for diseases where we always kind of just accepted that, oh, it's a chronic condition. And you're like, okay, I'll just live a much worse quality of life with that then. I'm excited for breakthroughs there. How do you think about where you're most excited? Yeah, I mean, well, I'll just pick on that one and then riff from there. But like, we're totally excited about that. We have about eight of these models.

58:09I mentioned Chai, but we have a company called Zaira, Viglia. I can go down the list of companies building specific models to do drug discovery. So I think, and then we did something like Assort Health for better healthcare delivery, right? So like the whole medical system, which we all know is kind of broken, even though the US has great healthcare, there's so much more that can happen and come to us from both from therapeutics, as well as just kind of workflows and how the medical system operates. And of course, you know, that's a very near and dear mission to Anthropic and Dario. But aside from that, like the thing I'm most excited about probably goes back to like where Menlo is now and watching how we really lean into and take advantage of this opportunity with the team we have now that we've assembled.

58:50That to me is probably the most rewarding thing in my career is kind of where the firm is and the people we have to execute going forward. I'd say from like a trend of AI and all that, these things only come around, as you know, every 10 years. And this one feels like the biggest I've been through four or five in my career. And so I'm just completely fascinated to see what this looks like, because we kind of know what it looks like now. And we kind of think we know what it's going to look like in a year or two. But given the pace of innovation, what in the world is this going to look like in five or 10 years?

59:22Nobody can tell. And I think that how many things will be transformed over that period of time is going to be more mind boggling than what we've seen in our society and my lifetime and your shorter lifetime. So I'm super excited to be investing in the middle of that and partnering with great partners and people like you who I want to syndicate more with.

59:41Harry Stebbings:It is the greatest time to do venture. I do feel very lucky to be doing venture in this moment. Like what a privilege. Totally. 100%. Dude, you are a star. Thank you so much for doing this. I hope that I've improved as an interviewer in six years. Maybe not, but I will continue to try. but you've been amazing, dude. Thank you for having me on. You went from great to greater. I hope you'll invite me on before another seven years and always love chatting with you. But before we leave you today, founders face a different set of challenges at every stage of growth. For Sid Shait, co-founder and CEO of Dematrix, JP Morgan delivered the guidance and expertise to help navigate what came next.

1:00:26Harry Stebbings:He credits JP Morgan's high-touch approach with supporting Dematrix as it grew and expanded internationally. Whether you're in the early days or expanding into new markets, JPMorgan helps startups navigate complexity with real confidence, offering personalized guidance and deep sector expertise. Find out how JPMorgan helps founders at jpmorgan.com forward slash grow without limits. JPMorgan is the bank of the innovation economy. While JP Morgan supports growth, Corgi protects it. My word, what an arresting first line. Get your ass covered with Corgi insurance, and I'll tell you why. If you're running a business right now, you already know this pain all too well.

1:01:09Harry Stebbings:Getting insurance, it's really slow, it's confusing, and my word, it's full of paperwork. Well, that's exactly why Corgi is here to change the game. Corgi is the first and only insurance carrier designed specifically for tech companies, allowing you to get covered in minutes instead of days. Corgi provides essential coverages for all growth stages, such as DNO, E &O liability, cyber, commercial, general liability, and more. Get your ass covered. I love the way we say ass with Corgi Insurance alongside thousands of other startups at corgi.com forward slash 20VC today. That's corgi.com forward slash 20VC.

1:01:46Harry Stebbings:You won't regret it. While Corgi covers risk, Flex gives you room to move. Business owners run their whole financial life on Flex. One platform from business revenue to their personal spend. Float every purchase for 60 days. Tap capital that grows with your revenue and pay vendors in 170 countries across 32 currencies. Plus the whole back office. Bills, expenses, accounting, all in one place. So you spend less time reconciling and more time growing. That's why thousands of owners use Flex. named one of Fast Company's most innovative companies of 2026. Visit flex.one, that's F-L-E-X dot O-N-E, and use the code 20VC.