20VC: The $100 Billion AI Assistant Race: Town vs Instinct vs GrokBot | We Spend $75K Per Engineer on AI Tools | Why the AI Assistant Market Is Not a Bubble & AI Assistants Will Replace Every App on Your Phone with JD, Founder of Town

20:18Harry Stebbings:You mentioned the different layers of kind of the value stack there. What is the model infrastructure that you sit on top of look like? How do you think about model routing for different tasks? Are you locked into one? I think it's because we're building an application for everyone. And we don't think most people care about understanding which model is better at what at a certain point in time. Our job is to, for what you're asking for, find a model that cost effectively gets you the result that you want. And so concrete examples, if we're generating images, we have opinions internally about when we might use like a Gemini model or an open AI model to generate images, right?

20:57When we're doing voice, we have opinions about 11 labs, when we'd use 11 in labs to do voice, right? I think it's our job to do that because as the technology changes every day, like literally every week or every two weeks, there's a fundamental change. It's our job to make sure you get the right ROI there. But it's tough and there's things that are just like, is it the right result? That's easy for some context to know what the right result is. For others, it's very open-ended. You can't know ahead of time. So you have to kind of guess like, how difficult do I think it is and how close to the frontier do I want to get?

21:29And then the other dimension for us is voice. People don't like it when their townies sound very different. And one of the problems when you do model routing is there's some companies like Anthropic spends a lot of time. I know we make fun of them online, but they spend a lot of time actually making sure all of their model families roughly don't change too much in terms of their personality. They might be slightly more verbose or less and use different phrases, but they kind of sound similar enough over time. So if you use Anthropic to generate final output for your users, it's kind of hard to suddenly move to like Kimmy, because it just sounds different.

22:01So people feel like their AI has been lobotomized. So that's like the way I think about it. For coding, it matters less, interestingly, because for coding, you're like, does it work? Does the code fulfill its purpose? It's like, yes, you might look at the code and decide the style that I like or not, but not really, not anymore, right? Before when you're talking or speaking to an assistant, if suddenly it's twice as verbose, like over text messages, it's writing you eight sentences as opposed to four, like people don't like that. They will literally write tickets. They're like, despite my instructions that I gave it three weeks ago, like my text agent seems to, capitalizing letters more or stuff, like just literally you're like, okay.

22:35So, you know, the way I think about our stack is there is the part of the stack that deals with the user interface, like the feel and the personality. And there it is harder for me to just route wildly because I need consistency of the experience that is sometimes hard to get from other model families. Below that, when it's just pure reasoning and intelligence, and especially when I don't have to show as many of the traces to the users, then there yeah i think it's very much a matter of finding using the best model for the task

23:03Harry Stebbings:how do you think about how a different how differing model providers impact ultimate economics of a user and what i mean by that is like 11 labs is notoriously brilliant but also notoriously about the cost of a chanel handbag um and so my question is how do you think about model selection balanced with cost well harry the answer there for every startup that i know outside of a very few. We don't. Yeah, it's, well, we're hoping the price, we're hoping the cost curve makes it efficient in 18 to 24 months, right? In the meantime, you're subsidizing in part, right? Because that's what it takes to be a product market fit for these use cases, because you need to use Frontier for too much of the work.

23:45Here's what I think about it. Like we, so one of the things that town does is we label emails, okay? Labeling emails does not in any way, shape or form require like opus level intelligence. It does not require sonnet level intelligence, right? And so for that, we're already below frontier. I think that will trend towards the cost of compute over time. And so I'm like, how do I use open weight models? How might I post train even my own like smaller models? It's easy to say the price of that is going to be much smaller than it is today. And so for that part of my cogs, I don't think I stress out about it.

24:18And when I talk to other founders at AI companies, it's also how the thinking goes. The question that no one quite knows is how much of the workload for any particular company stays close to the frontier where, you know, it's very expensive. Literally, nobody knows the answer to that. But for human level tasks, there's a decent amount of stuff like scheduling movies, working with one's calendar, answering emails that have been answered before, doing research on competitors on a daily basis. Like all these kinds of things, I think, are trending pretty far from the frontier. And you can already use open weight models to do that really, really well.

24:51And so as soon as you know that, and you know the price every nine to 12 months halves, so you know where it's going to be so that you could price your product today at a point where you'll generate 20, 30 % margins in 18 months. That's the way that we mostly think about it. But the open question is, at the end of the day, are you left with 10 % of your tasks being frontier or 20 % or 30 %? And we don't know the answer to that. And that will change the economics of, you know, these companies.

25:16Harry Stebbings:What percent of tasks go through open versus frontier today? For us, it's mostly Frontier. Why is that? With the greatest of respects, the tasks being asked, I don't imagine are actually that sophisticated. And this is where, sorry, with the greatest of respects, we talked about instinct earlier. I give instinct hard problems. I want Odyssey tickets at the IMAX, continuously monitor it for days, by the minute that they're there. For you, in the greatest of respects, I ask for email tagging and pre-briefs. Much easier. Well, actually, a lot of people ask us to do hard things. So a lot of the custom workflows that people built will be quite complicated.

25:53And so that's where we will use most Frontier. I think we still don't use Openweight for things like labeling, but we will use much cheaper models from one of the Frontier providers. The main reason is because as a company, our focus, like imagine I can improve our cogs by moving to Openweight, but it doesn't give me much product advantage. It doesn't make my product work better. So if I have an engineer hour, what is the engineer hour best spent on? Is it taking my current AR and making it more efficient? Or is it figuring out a way to grow the product faster by working on a better network effect feature or making the model better and integrating with a new data source that makes its trajectories much better for a set of our users?

26:34And we're very focused on growing the pie faster, much more so than getting the ideal economics. And our economics are fine, right? They could be better and I could move down the cost curve faster, but that's not the constraint to success for the business. So that's why we don't do it.

26:49Harry Stebbings:On the network effect side, have there been any interesting lessons or observations? What have you learned on expansion from wall to wall? So first of all, interesting aspect for us of network effects is if the company has one person who is a tinkerer and who starts to build things like team skills, team integrations, team routines, that is like building, those are all building blocks on town that everyone on the team gets for free. Then we tend to see a lot more adoption faster. It's interesting, right? Because we're trying to build a product that doesn't require the tinkerer. Because for the single player experience, we want you to be onboarded and get a ton of value.

27:24And if you're a real estate agent, you have automations that are real estate agent specific. And if you're a salesperson, you get automations that are salesperson specific. We're trying to give that experience to you out of the box. But what happens is if there's a power user that's next to other users, they find ways to make those other users much more successful. And I think you'll find that with a lot of AI products. So one of the predictors actually is, is there a tinker on the team? So one of the questions we ask ourselves a lot is, can we identify those folks? And can we make it easier for them to create virality for their other team members?

27:53And then the second observation is, there are a lot of functions that are underserved by AI within companies, even enterprises. So I'll give you a very simple one. If you're a sales team at an enterprise, you've been sold AI like in every direction now for three years. If you're a sales ops person and you do not have 10 emails a day from like an AI company, you're something you've not on LinkedIn, like something's wrong. But then there are other functions like executive assistants, chief of staff, HR team members, finance, some more junior finance team members that don't have that much AI in their day-to-day.

28:26They like really don't. And a lot of their workflows still operate out of email or like recruiters. And so a product like Town, I think often we find early adoption and growth. And I would say like some functions that seem from the outside, like less juicy, but actually that are really hungry for technology to help make their life easier. And so as soon as they adopted, there's an interesting effect because they often work with like leaders or execs or people in ops teams and then we get penetration through the op teams.

28:54Harry Stebbings:How important is time to wow or time to user delight? Yeah, I think the only reason our product works today, honestly, is we have very low time to value for a single user. So the fact that with us no configuration, you get out of the box, it gives a magic moment. Then the user is like asking questions. What else could I do with this technology? That's for us all the like our focus is on getting that right. Can we give you time to value there really quickly. And then we play the longer game on all the other integrations. For us, that's working really, really well. Since we've had town and again, sorry, but instinct in the last two to three weeks break out, seemingly so, I've been pitched four to five European towns or European instincts.

29:36Harry Stebbings:I mean, literally four to five separate ones. Some are we're enterprise, some are consumer, some are both. How should investors be thinking about this space if you could advise us we were talking about moats so you know we're making like a town we make some bets right on why we think the product will last i'll answer your question about europeans but we've made some bets one of the bets that we made is you only get one ai system it has a name you give it an image we call it a townie and we have a whole brand around really building this relationship between the human and the ai and for a lot of our users that resonates like They want that.

30:09They want something that they trust, that they shape, and that they color, that's in their image, that they name. They like that a lot. It's silly, but actually, I think that is a form of defensibility. Much like Snapchat structurally in the market is defensible, even though it's not nearly as good a business as TikTok or as Facebook or Instagram, because it's fundamentally different. It has a strong opinion about how it operates. There's some people that are drawn to that opinion. So we have a very strong opinion about the relationship between the user and their townie. And for a lot of our users, that really resonates.

30:39So we have that. We have a bet on network effects, which we've talked a whole bunch about. And then the third bet that we make is we are big believers that through a lot of pre-processing, you can get better outcomes for users. So we spend a lot of compute before you even ask a question to build a mental model of the user, like pre-creating context in a way that allows us to be really effective at things like work networking, right? Understanding the projects that you're working on, understanding your company and those kinds of building blocks. So those are like three things that we think over time make a difference for a product.

31:10So the question, if I were an investor, is like, why does someone deserve to win in Europe? And is it a distribution thing? Is it a GDPR and privacy thing? Is it a like, town is not in fact doing any marketing in France, and so you could win in France if you're the town of France. And so you have to have some specific reason why some local company will win endgame because these products are expensive to build. Like you said, GrokBot earlier. My R &D, a lot of my R &D is just keeping up with the Joneses. Your agent has to be as capable at least. Forget your distribution strategy. Forget the fact that you're good at work.

31:45Forget the network effect features. If Codex can do something that you cannot do, and that thing is something that matters to users, it's over, right? So you always have to be at least as good as a harness and capabilities as everyone. It's very expensive to do that. It's not like I have two engineers of the team trying to keep up with Codex, right? Codex is like 100 people making that thing better. And so we have to somehow be as effective on a lot of tasks as Codex. Otherwise, the user is going to be like, why would I pay$50 a month for TAM? It doesn't make sense. I'm going to pay$24.99 for OpenAI.

32:16That is, if I were an investor, I would be like, is this local competitor have enough TAM? Are they going to be able to have a war chest that's big enough to just keep up with capabilities? And then do I believe they have a reason to win in this very horizontal market? like where they are. It'll be hard.

32:31Harry Stebbings:Is hiring in the Valley as insane as everyone says it is? I don't find it crazy, honestly. Like I think when I was at Plaid and we were competing with talent for like Stripe, that felt no harder than what I'm doing now. Can I ask what's been the hardest thing about the product build that you maybe didn't expect? The speed of the market is insane, Harry. I've never seen anything like it. Before in the past, you talk to customers, you build a feature, they would use it and you would be like learning from that feature. And the learnings would go into the next feature and the next feature. And then eventually someone would copy your first feature.

33:03But then you had like your three learnings ahead. Do you know what I mean? You'd been able to like use your product market fit to generate more product market fit. You know, for startups, usually you're like milking these user insights for a really long time. Eventually you run out of user insights, but that would take like 10 years, right, to happen. So you have this entire period where you can, you can just because you're number one or number two in a market, learn more and iterate. It's really good. The problem today is it is so much faster to build that as soon as something is working for somebody, everyone notices and is able to get there within like two weeks or four weeks, like copy really, really fast and learn.

33:41You can only learn at the speed of humans. Do you know what I mean? You can build now at the speed of machines, but you can only learn at the speed of humans. And so I'm not able to extract quite as many learnings as you know that allows me to get to the next feature so the way it feels right now is like speed is such a it's so necessary but everyone's moving fast you know when we started the company like i would think first quarter and second quarter of this year my mentality is like there's like 15 competitors in the startup universe that are competing with us like maybe 15 companies that matter and now i'm probably down to like two or three competitors like i feel like it's gonna be like only a couple companies are gonna win this space right and we're like close from the startup starting gate.

34:22There's the like Apple, Google, Grokbot, Cursor, OpenAI and Anthropic starting gates. Like you have to clear the clouds, right? For the startups. Usually also the startups would be really fast, but the established players wouldn't be that fast. But you got to be honest, like Claude, like Anthropic is very fast. Cursor, Grokbot, they're operating like at a speed that is, it's uncanny, you know? And one of my best friends runs engineering over there. So I'm always like, you know, whenever I talk to him, I'm sad that we're competing, you know, we're competing. And I'm like, that guy's good. That dude can get shit done.

34:55I got to beat one of the best people in the Valley at a company that has the DNA of a startup, but is operating with huge cost and scale advantages. Right. You know, that's what's super stressful because I think you can't rest for one minute. You don't have the feeling that the competitors, it'll take them six to 12 months to catch up. And I feel that like never, yeah, never before.

35:13Harry Stebbings:You mentioned, you mentioned the two to three that matter on the startup side who would you say those are and why do you choose them no i'm not gonna say that i'm not gonna give free marketing i'm not gonna give free marketing to competitors you've got you can't blame me for trying i tried to do the louis the row you know it's like hey how do you think about that like tell me yeah look it's a blue ocean market right you gotta understand like i never when we go to to most customers they've not heard of anything it's blue ocean because people people are using chat gpt as a google enhancer like that's the market competitors are are great they put pressure on you they make you feel like you have to execute at a really high level but what's important is you have a different strategy than a potential competitor like you you mentioned instinct earlier like i don't think instinct and town are trying to do the same thing you don't i don't think we're trying to monetize in the same way i mean we will see endgame, but we generate revenue from companies that are using us for work with network effects around multiple team members working on it.

36:13Harry Stebbings:Their product doesn't do any of that. Maybe that is part of their strategy. I see a strategy that's more like customer acquisition, like with a free product that's fully subsidized right now. That might change, right? But if you look from the outside, the products have similar capabilities, but all harnesses have similar capabilities. But if you look at the ICPs, where the marketing is going, it just feels pretty different to me. I pay attention to like a GrokBot more than I would to Instinct because I think GrokBot is going after a similar market to what we are. For me, that is more the place where I'm like, how is our strategy differentiated from GrokBot?

36:42How are we going to acquire a different customer? How are capabilities and our harness going to really stand out and feel really different to users? Like that's more like my mindset than -

36:50Harry Stebbings:To what extent is GrokBot's integration into X, a feature or a bug, to some corporates into professional usage, it could be concerning actually the integration with the social? I think brand for them. I think some people just won't want to touch it because of brand. That's just inevitable. And it's they're going to have to deal with forever. But from a distribution perspective, and I think for some segments, I think in early growth, it is probably quite useful. I think a person on X that uses these products is not actually product market fit, meaning that those are not the mainstream users. And you have to keep that in mind.

37:23And I, by the way, I think they think about that over at Grogbot all the time. I don't think they think winning the power user slash influencer on X is where the market is. That is not where you win the market. That's the early adopter market.

37:37Harry Stebbings:Can you help me understand Apple's agent roadmap? I think the problem for Apple is twofold. One, they're not a cloud company. They're just not. It's just not their DNA. They don't know how to do cloud. And the reason why that matters is because what we talked about earlier, agents are better the more data they have. And the data is not all on the phone. So the fact that they're not cloud is like one big issue. The second issue is they've like contorted themselves for competitive reasons around a privacy and on-device story that is like absolutely like puts them far away from the frontier. Local models on the phone, it's amazing, but they're just, it's just slower and dumber than what's at the frontier.

38:20And so as long as they're committed to this like on-device, like privacy preserving stuff, it's the privacy stance is good from a human perspective, but they've tied it too much to the on-device. So not being good at cloud, then being on-device, and then from the privacy standpoint, making it difficult even on the phone to interoperate with all the data that they have. Those are a lot of disadvantages to play with. Now, you know, at the same time, they do have the devices. So the new Siri is going to be a much better personal assistant than the, I mean, that's room. but you know people who've tried it.

38:52So when you're in the Valley, you've, you know, and so we all know it's going to be good, but I think it's going to be good, but it's going to feel not nearly as powerful as Town or GrokBot. Like it's not even going to be there in terms of its capabilities, but it'll be on your phone. It'll be convenient. You'll be able to like enable more data with it. It'll have a cloud component. It's going to be good, but it's going to be like nine months away. I think capability wise compared to everything that we've been talking about today. I don't know. I mean, they have a new CEO and we'll see how they take it.

39:20But I think they just need to hire somebody that has totally different DNA and be like, you guys, you don't understand. Like the way people interface with digital data is changing. And we either are figuring this out and we may have to throw a lot of our principles away, or we're just not going to win this generation of the war.

39:37Harry Stebbings:I think that is like a real risk for them. Are you concerned by the data leakages that we're going to have and the kind of golden age of cyber threats that we're entering into? It seems like we've all kind of normalized cyber attacks and it's like, ah, Madden had one, Ah, Anthropik had one. If you want to build AI that is used for business use cases, you cannot get it wrong. We've passed the point where humans will read every line of code. That is never happening again. The most important lines of code around access controls and things like that for systems are still being read by humans. But overall, in the history of humanity, we have passed the point where we will go back to a world where humans are looking at lines of code.

40:14It's computers that are building code that is being shipped into production with various guardrails from testing to other models, like friendly models attacking you so that unfriendly models can't later find exploitations. That's where we live in. Obviously, in the history of humanity, in this new world, there's going to be points where there's bad events that happen. You know, it's a little bit like chemicals. In like the 20th century, we started to do cool things with chemicals. And then we put the chemicals in rivers. And then cities downstream, people got sick. And then we were like, oh, yeah, okay, let's pass like regulation like the EPA so that you can't just dump the chemicals in the river.

40:49You got to like clean them a little bit before you do. And then later you like label dangerous chemicals, not as dangerous, where they can go, how you get rid of them. Like we learned along the way there's a set of best practices, both like from a regulatory perspective and just like best practices in industry. And right now what's happened is the like cost benefit of a tax is just thrown out of whack. And we're trying to figure out what the best practices look like. and you can't imagine we're going to get that right every step of the way. But I think we will have to because there's no way we're going back to a world where humans are looking at every line of code.

41:19Harry Stebbings:When we think about usage, how do you define a successful user? I just define them as someone who pays me every month. If they keep paying me, no, I'm serious. I'm serious, right? If they keep paying me, I've done my job. I can't think of them as the more tokens they use. It's a dangerous way to think about it. Because if you think about it as like they use more tokens every month that's successful, what if they're using the tokens in a way where the ROI is less clear to them? Meaning they don't realize that they're using tokens to do things that they don't value as much. If you do too much of that, then they wake up one day and they're just paying you too much and they get mad and they churn off of the product.

41:55So I think you have to take a long-term perspective. The problem with token maxing, there's two problems in my opinion. One is like companies told people, hey, you can use as much money as you want on AI, which is bad. You want people to think, is the ROI of using AI here worthwhile? So now people are not going against employees using AI. They're like, no, no, we need incentives. So they use AI for good reason. One aspect, you need to think about ROI up front. But the second problem is sometimes it's hard to know the ROI of something like, let me be more prepared for a meeting. How worth it is it to be more prepared for a meeting?

42:29For people who have back-to-back meetings all day, being able to, in like one minute before the meeting feel prepared enough to not look like an idiot, it might be worth quite a lot. For people who have meetings where they have someone else preparing and are presenting in the meeting, they don't have to present anything and they're just sitting there. It's not worth anything, right? So I'm just using this example, like this workflow has totally different value for different folks, but it costs the exact same number of tokens, right? And I don't think that people think about it that way. So I think of success as paying me because if you're paying me every month, that means I'm mostly doing a job of delivering enough value.

43:01When you look at the $49 or the$15 or the$99, whichever plan you're on on time that you pay me, you're getting enough value. But I'm very concerned along the way with informing you about where you're spending money, because I think you need to feel like I am doing a good job of avoiding you spending too many tokens. So one of the most popular features for us for the last month is we started sending emails when it looked like you had like rogue routines, like routines that were just costing a lot of tokens. And then people are like, oh, thank you. I trust you. Now I feel that you're looking out for me using the product badly.

43:34That's the part for me. I don't know how to measure it, but I want people to success for me as you pay me and you trust that we are the right platform that helps you both use AI, but do so efficiently. And I think if we can do that,

43:46Harry Stebbings:we can have a pretty decent business. Yours is$14 a month,$49 a month and$99 a month? Yeah. And$199. Correct. Which is the most profitable segment and which is the least profitable segment? And the reason I think about that is like my friend Jason Lemkin, he obviously pays for like Anthropic Pro or whatever it is,$299. And he spends about$15 ,000 of tokens. He is the worst customer for Anthropic, but he's on that like Pro Max individual plan. Yeah, we don't have a Max plan and we have users who ask for it. And I've been asking myself, like, do we let the whales have a Max plan? Because from a marketing perspective, it's useful.

44:22You know, they're just advocating for the product all the time. So I've thought about that. The$15 plan is a really good deal, I would say, for users. We use it as a way for people to use the product enough that they realize they should pay$49 where the product is really powerful. So$15 has the worst. The$15 plan has the worst. Unit economics is the most subsidized. And then I would say probably the$99 plan is the most profitable overall because it's like a power user, but it's not a power user that's like trying to like, you know, spend unlimited numbers of spend. But we also have usage-based pricing, right?

44:52So what happens for us is once you run into the plan limits, mostly you go to usage based. And so we try to adapt the spend to the user.

44:59Harry Stebbings:Can you choose one outcome for me? A hundred million consumers paying 20 bucks per month or a million customers paying a hundred bucks a month? The more, more users, more users paying less. Why is that? Well, because I'm going to go counterfactual because I think over time in the work setting, AI will be used to do more and more and more for people. So I think the long-term potential for going for like NR, driving more revenue per user is extremely large over the long term. So you want to acquire the users in a paying motion because you want them to be for work use cases because you will keep finding more ways for them to use AI to generate business value for themselves.

45:37Whereas in the personal sphere, it doesn't feel like that to me. You know, I only have so many like restaurant dates I need to book with my wife or trips I need to organize with my friends. I only have so many like personal like doctor's files that I need to send to a new doctor. Like there's only so many of those things. And when I do those things, I save time and time is worth money. But on the business side, when I create something that generates value for the business, they make more money and then they want more of that thing. So like a clear example for you, if you want to like a recruiting firm on the platform, they can take more clients because of town.

46:11They've used town to automate enough of the recruiting process that they literally take more clients. And for them taking an incremental and without hiring anyone at this recruiting company, one more client is like an extra$3 ,000 a month. And they pay us like, you know, across all their users, like$500,$600 a month. And so the like ROI is like super simple for them for a business use case. They're like, oh, I pay$600 a month and I get$3 ,000 of revenue. That makes sense. I like that. They're making more money. Everyone's happy. And I think for them, if I could show them the way that they could take another client, and even if it costs them another$500 on town, they would be willing to do that.

46:46And so I think the growth potential on the business side is much larger. So I'd rather have lots of users paying us less because I think over time I can show them that I can deliver more and more value and it's worth it for them to spend more and more on town.

46:58Harry Stebbings:What is town not able to do because of model capability that you think will be incredible in two to three years? Voice is so obvious. I mean, it's happening right now. It's not voice like you just speak to it. I just mean conversational. Would you be an investor in 11 Labs at a$22 billion price? I think on 11 Labs, like we're users of 11 Labs. They sound the best. I'm not paid. I'm not an investor. It is very expensive. What I don't know is if it tops out. And that's, I think, the risk for something like 11 Labs, meaning like we just get voice is good enough and then you can get it. I can put open weight models on base 10 and get it.

47:32But it just doesn't feel like that right now. I just don't know how much runway they have before it reaches that. And so that's why I'm not saying I'm bearish. I really like that company, but like 22 billion is a lot of money.

47:41Harry Stebbings:And how price sensitive are you in a year or two? With the greatest of respects right now, you can burn cash. It's about PMF and growth and beating others. In a two to three year where you're bluntly trying to make economics work in a much more efficient manner. If we have two to three million users using voice, that's a hit to our margin profile. For sure. I mean, I care a lot more about time. That's why I'm saying like, if the voice capability, it'd have to be like maybe twice as good as today, especially tone and expression and like the emotional read. Like once you solve that, I would want to go as cheap as possible because especially for like, once it feels good enough, it's almost there.

48:19Like I don't need much better. But, you know, on the margin profile stuff, I don't ever think of it as burning money. I don't, that's like my mom, my parents would not be okay with me saying words like that. So I think we were being thoughtful in our spend in order to optimize for growth in the short term and gross margin in the long term. The voice is not the where I'm really stressed out about it, honestly.

48:40Harry Stebbings:Why are you really stressed out about it? It's just I think it's the percentage of tasks that are frontier. Because on everything else, I can imagine getting the prices down. But, you know, the thesis that I just said before is over time, there are more ways to use AI to generate more revenue for a lot of companies. The implication there is it's like there's like things at the frontier that generate more revenue. And the problem with the frontier is I have zero pricing power at the frontier. And I mean, I think this is what happened to Cursor right at the end is like you can have huge market share and customers love you and everything.

49:08If you're paying your suppliers and competing with your suppliers at 70 % margin, eventually it gets like a little bit difficult. That is the part that I'm worried about, the end game. If we are, but again, I have lots of ifs. I have to get to tens of millions of users. They have to be paying. I have to have a lot of scale. And then I'm like at a place where I'm still competing with my suppliers. I'm still competing with OpenAI and Anthropic, and I'm just giving them money for the 20 or 30 % of workloads that are at the frontier for me. And that's what makes the economics not work. That's the part where at the end of the game, I need some solve for that by then.

49:40I don't need it right now. The reason that's the only problem is that's the only part of my economics that's different from somebody else's. So then there's the macro question, which is, is all AI, you know, is there not real product market fit for AI products because it's all subsidized, right? That would be like the other take that some people could have. But otherwise, as long as you're not competing with your suppliers, you have the same economics as your competitors. And so then your ability to drive margin usually is driven by the competitive landscape more so than anything else. Right. And so the fewer competitors you have, the more margin you can have.

50:07Harry Stebbings:You are competing with your suppliers. I mean, like Astra. I am. You see as a direct competitor, correct? Totally. I am today. 100 % I am today. Yeah. But the percentage, the percentage, that was a face. I am competing with Astra, but there's still the, it's the open box problem. You would be shocked at how many people just don't know what AI can do, right? It's like the problem is having a product experience that gets a normal person to get value out of AI is really hard. That's why when people use town, they like it and then they start paying for it. The payment rate for us on acquisition is like more than 15 % of users who try the product end up paying for it, which is extremely high for PLG.

50:44Because the value delivered relative to what they were getting out of chat GPT is just huge.

50:49Harry Stebbings:what did you crack that other people didn't to get that 15 the really insight behind the product was if you ask people up front to connect their email on their calendar you can know enough about them that you can suggest tasks that ai can do for them that's like the only insight and if you're working at open ai i'm sorry this is where we joke before about me being more mouthy and gobby do it is that that insightful my chat gpt is always like going here's all the things that we want from you. And I'm like, no way, no way. Read, write email abilities. No. I think their suggestions are just like plain bad, to be honest, but they didn't even have suggestions until a few months ago.

51:28The delta is this. If you want to use chat GPT, you don't have to connect your email. They just don't force you to do it. They ask you a bunch of times to do it now because they realize the value is helpful. But the base experience, they're trying to show someone normal. Hey, you can have value in this product just because you have a chat box. And that's how most people experience it. Our approach is more like, listen, you have to connect email calendar. You cannot use our product if you don't do those things. But if you do those things, we can do all this magic for you. Here's what we know about you.

51:54Here's work that you normally do. We'll recommend automations that automate that part of your work. That's the part where people are like, oh, that's really cool.

52:00Harry Stebbings:I think of it a bit like a hard paywall. You know, when you land and it's like, hey, pay your monthly subscription. You're like, hey, connect your calendar and your email. What percent churn at that moment? 30 % right off the bat. Yeah, it's big, huh? You got to be willing to take that hit. What's the biggest internal product disagreement you guys have today? Oh, good one. We have product market fit for like some purely personal use cases that we didn't expect, like families, like parents. There's like tremendous product market fit for town there. Schools in America, at least, send a lot of emails.

52:34And they have a lot of like portals where things have to happen for sports leagues. And they're like this kids reports. And there's a lot of scheduling for kids that has to happen for like haircuts and summer camps and all of these things. And our products, because it's really good at email and it's really good at the scheduling stuff. It really has tremendous product market fit for families. The question is like, do we market to this group? And do we spend time on it? Because it's a great group and it has a willingness to pay, but it does not have the willingness to pay of a mid-market firm. You know, we can't do all the things.

53:06So, you know, to your point, it's like, well, we're a monetized platform. And so our metrics are growing month over month. Revenue is what matters to the business. And so it's why it's an argument because when you find product market fit somewhere you don't expect, you have a few choices in life. Like one choice is you're like, I love these users and I love parents. I like love the users, right? I love the use cases, use cases and the value super clear. But it doesn't, it's not fully aligned with how we've thought about the business growth. But I think that's why we're having interesting thinking internally because we're like, if we look around enough corners, is this worth it?

53:38or, you know, should we be more focused on our existing strategy? Which is fun when you build a company, you learn things from users and you got to make the right decisions.

53:47Harry Stebbings:What are you guys at revenue-wise today? Ah, no. Sorry. You got to understand. It's like ping pong. You give it a go, you sometimes get hit back, okay? And it's like that and we're like fundraising or like, I will use those moments to create PR and growth for the business. I'm not quite ready with that one. to do it. Yeah. 100%. And you know what I would advise you to always separate moments. Too many times I see people like combine a fundraise with a revenue milestone. Do not do that. Those are two separate PR moments that can be made into two big moments, not one. Why would you amalgamate them and lose the ability for two hits?

54:24The press, I think, is more skeptical. It used to be once upon a time, raising at a certain valuation was so rare, you could get publications to now the publications want more.

54:34Harry Stebbings:You're seeing a lot of skepticism on the space itself. You know, Instinct raised it two and a half billion dollars with no monetization. Do you think the skepticism around the space is warranted? I mean, for us, we have the revenue and the growth. I don't know what, you know, competitors growth is. If you can believe that some of these companies can get to tens of millions of people in the products in an area where the product will be the entryway for people to do digital things, right? that they're doing in apps on their phone right now. If there is a winner there that comes out of the startup universe, there is like a giant company to be built, right?

55:11Harry Stebbings:The billion dollar price for the new round, did it start there or did it get ratcheted up and up and up? Yeah, I can't deny or I can't confirm or deny. I love, I mean, Ari, I will not let you take any moments for me away from me. You're not commenting anything and I'm not even prying. but like the oh index doing it oh and that's not what's great for you is this all just pr like your name's just everywhere pretty good man you're you're amazing at trying i'm old you know i'm like 47 years old i don't even know how old i am that's how old i am when you know you're old when you don't remember if you're turning a certain age so i'm 47 turning 48 in a few months and i've been around for a while and there are times in my life where publicly i've done things that i'm proud of and publicly i've done things that aren't that i'm not proud of so the reason I mentioned this is like, I don't think it aligns with my value system on anything to like create PR just for the business.

56:06I think I want the PR to be created by my users because they love the product. So if you ever see any news about town that good or bad, that is, I'm not out there creating the PR. That's just not.

56:16Harry Stebbings:I think that's a mistake that respectfully, I would push you to change. And I, yeah. And I would say like, look at a whisper flow as an alternative, not a hugely dissimilar PLG motion. In all candor, I think they've done a brilliant job at generating PR themselves through their own content, through content that their users produce. Sure. Blake, content is a hack to customer testimonials. Totally. I agree. I just don't think a fundraising story, you know, is part of the universe of things that I would want to like create a PR moment out of. Like not the kind that you're referring to from, you know.

56:51Harry Stebbings:I do want to make a point on the fundraise, because this is as an angel, it's not about not about us, the fundraising in general is you kind of mentioned, there are these companies out there, this goes back to the ethics and who I am, like, I have seen deals where it's like, I invested like 200. And then the announcement is at 500. And then what you learn is that like, you know, they raise 65 million, and like 5 million at 500. And the other 60 is like 200 or 300, right? There's a whole lot of that happening, for sure in the Valley. Personally, I don't think it's ethical. I don't think it's ethical towards employees.

57:25It's like the dilution wasn't that number one. It's not where most of the demand was. It's not how you should be pricing people's offers. You can't, I don't think you can look at someone in the eyes and say an investor that made 80 % of their investment at like a 200 or$250 million valuation. But hey, they put the last 20 % at 500. And that's what I'm going to say. Like, I just don't like that. I don't think it is right. Like they're shaping deals like that.

57:49Harry Stebbings:Dude, we're going to do a quick fire round. What is your best angel investment? Oh, it's either base 10 or modal right now. Those are the first two that come to mind. What's the bull case for town being a$100 billion company? What is needed to happen in that world? I think if we can get 10 million people paying for the product, we can get to that. Is that it? Yeah, we make over$700 per year per user today. How does that compare to Dropbox? because Dropbox must have way more than 10 million users. You have to have the growth, right? I couldn't terminal a 10. I'd have to believe that I can keep getting a good rate of growth.

58:26The problem, I'm pretty far from Dropbox. It's been a long time since I worked there, but there was a huge pack of free users that were very costly on the cost side. And then on the paying side, I don't remember if the number was like 10, 20, 30 million, but it did flatten out at some point and there was no way to generate more revenue or growth from the users. I think what's different in the AI space is, Like I think you should be able to, as you do more, once you have a company on a platform using your platform as the core part of where AI works happen, you should be able to generate increasing revenue as the token spend goes up.

58:58Who would you most like to add to your board who you do not have? Wow. I think for the next board member, I would love someone that's kind of CFO-like. Late stage, our business is going to be like the economics are going to have to be really, really good. If you have a board member with real operational experience on the finance side, it's going to be very helpful as you scale this kind of company. There's a bunch of stuff like we're going to have to buy compute at scale. We're going to have to be like very, very good about thinking about token spend. It would be someone with that background. I know you're making faces.

59:26Harry Stebbings:You're like, hmm. That was sooner than I thought, though. I get that need, but I thought that would come in a couple times. Maybe, but I think we're in growth investor land for the next round. So I think once we're in growth investor land, they will ask for me to have, they will want for fundraise metrics that I can really defend. And I think having someone with that background will be helpful. Why didn't you subsidize completely? You could raise another 200 million more and growth is everything. Why don't you just go, fuck it, burn the boats? It's a good question. I would be lying if I said there aren't mornings where I wake up and I think about it.

59:59I believe that to prove value on the business side, you must make your customers pay. So I do think there might be a world where our PLG part is much more subsidized. But as soon as you get three to five team members, I really want to make money on that side. I really want to make sure I'm delivering value. I'll give you a story. When we launched the product initially, right, for the first five months, not launched, but we were like in private beta and then we opened the beta, we didn't have pricing. There were users who were spending, I shit you not, like$2 ,000 of compute a month,$4 ,000 of compute a month.

1:00:34There's someone on the platform who'd spent in five months was like$26 ,000 because there's no pushback on the token spend, right? There's no pushback at all. So I don't know, you're making face. It was one that we would like call them. It would be like, look, like let's figure it out. Like, you know, you're using the platform because you could just create like routines to automate more and more stuff, but is it really bringing value to them? So anyways, the reason I mentioned that is I'm a big believer getting pushback from the market about where you're delivering value and where you're not is really, really important.

1:01:02There would be ways to subsidize and do that. So for example, I could make the plans much cheaper. I could make them free. I could get free tokens to businesses. But what I've learned is like on the business side, they also don't like it if you don't charge them because they don't know how much it's going to cost one day. They want to know how much it's going to cost one day. You can't sell to a 500 person company and be like, yeah, just use my product for free internally so you get a bunch of usage. But then one day I'm like, I'm going to turn it off and all your business processes are running on it.

1:01:28So the way we've approached it is on the growth side, we may or may not subsidize more and because we're in subsidizing growth. But I really want a real business when a company is on this product. And we have a real business when a company is on the product. And I'm very proud of that. Because I think that is the ultimate test of whether you're building something successful if you're not a pure consumer company. And I'm doubtful of pure consumer ad backed for AI for a couple of reasons. Like I think the tokens are way too expensive to do ad back now. And then number two, there's an incentive problem with ads.

1:01:56And I think people are going to want assistance that are theirs, that are not being polluted by outside incentives like ads into the trajectories that they give you. Right. So if you ask to book like a flight and, you know, it uses an airline that is like paying for that flight to be recommended to you, that doesn't feel good. Right. So I'm a big believer that actually the economy around assistance will be paid for. And so I just want to pay for it as soon as possible.

1:02:24Harry Stebbings:What person, if when you open Twitter, would you be most thrilled to see Love Town? Elon Musk. Because he has a competing product and it's Elon Musk. How has your hiring process changed in an AI world? Well, you know, we have a weird hiring process. You don't know a fun thing about our hiring process. If someone on the team has worked very closely with someone else, we don't interview them. If it's a top person. Because why would I? I just sell. I will just sell. It's very rare that it happens, but it has to be someone that they've worked extremely closely, like literally like next to, and they're like, this is one of the best people that I've ever worked with.

1:02:59And for, for like Eng, we're just like, let's go. Because I know it sounds odd and people are going to like comment like this guy's a total idiot, but a person that I trust, that's great on my team, great on my team. They tell me this other person is like one of the best people that I've ever worked with. And then I'm going to make that person like spend eight hours doing stupid whiteboard interview or like paraclete. It makes no sense. So either I don't trust my employee. So there's culture match. So we will be like, hey, come in, spend some time with us. You know, like you can code with us if you want to.

1:03:27We have to sell because we look, you know, if you don't interview somebody, they're also like, what kind of clowns are you? You're not interviewing anyone. So we will like allow them to get signal about us, but we are not evaluating whether they can do the core role.

1:03:37Harry Stebbings:Brian Singerman, who invests in funds and then invests in the companies beneath those funds, has a rule that if the manager's like balls to the wall, I am all in on this company, he'll automatically write the check. Kind of the same. You trust the person, you trust the layer beneath them. What percent of developer salary do you spend on tooling? So Mark Benioff said at Salesforce, we spend 300 million on Anthropic. They spend 6 billion a year on Eng, 5%. I mean, the run rate's at least 75k per engineer. Wow. Split between CoreCode and Cursor? Devon, Cloud, Codex, and then Town. We use Devon a lot.

1:04:14I'm good advertising for Devon right now for a lot of bugs that come in for a lot of like simpler little things or little like visual tweaks we are kicking off devon because we just find the team experience and slack's really really good we have a few people who use cursor for like more visual the front end the model's really fast right composers really fast for front end and then i would say it's probably 50 50 right now between codex and claude and that's obviously changed a lot like i think five months ago i would have said it was mostly claude but the new codex codex is really good the mobile experience is really good.

1:04:44Harry Stebbings:What is that in a year? Is that 75k 150? Or is it 25? As costs come down? You just asked me an ROI question. People always ask me are the teams bigger or smaller with AI? And I'm like, Okay, imagine you're a normal company, and you have a million dollars of revenue, and 800k of costs, you make 200k profit, the 200k, you can hire one engineer with it. If the engineer can't make you more than 200k in revenue, you don't hire the engineer, and you take the money in your pocket as the business owner. Now AI happens. And AI means that suddenly that engineer can generate more than they could have before.

1:05:19So maybe before they could only generate 150k of revenue, maybe now they can generate 250k of revenue. So suddenly AI makes you hire the incremental person, one more person than you would have because there's an extra 50k of profit for you to make by hiring the engineer in the new world because they're more efficient. So we're at a stage of the business where like, I'm like, there's gold littered everywhere in front of me. I have customers, they want integrations in order to sign the contract. I have people who want audit logs to sign the contract, who want SSO to work with phone numbers to sign the contract to be bigger.

1:05:49I'm sitting in front of that. I have a DEX product where people want more exports in order to use the product more. It's all gold, all in front of me, everywhere. And my limiters are my ability to hire, how much funding I have, and the growth rate of my revenue, because I don't want to get too ahead of my revenue. So if you told me that there were better models and I could spend more that's easier than hiring to do the high ROI stuff that I'm like the money that I'm leaving on the ground, I would do it immediately. So that's like the level I wish I think about it today. So I think about our global spend on like compute, you know, like whatever a million or whatever it is, and on an annual basis.

1:06:22And I think like roughly like, it's four engineers, maybe a little less like three engineers, all things. So with equity, maybe it's more like one and a half engineers. Am I getting one and a half engineers in Silicon Valley at our inflated rates from the Yes, of course I am. So I'm like, it's not even close. I'm not even close to the place where I'm like, are we token maxing wrong? It's not even like ballpark there.

1:06:42Harry Stebbings:And then I think the other thing that we don't contemplate enough is like, do we see the tipping point in other categories that we've seen in coding, in legal, in sales, in marketing? Final one for you, JD. What are you most excited for in the next 10 years? Well, it's definitely my kids, growing up with my kids and getting to spend time teaching them things like math and playing soccer with my son. That's 100 % what I look forward to the most. But that's not what you meant. You meant, what do I look forward to most in the universe? Well, I am a believer that even though people are very skeptical about AI, and I understand why it may be scary, and why any change is hard for humans or anyone to take on myself included, I do think we are getting closer to a world where people have more of the things that they want and can do more of the things that they want to.

1:07:29So I just hope we come out of this with a better universe, more money for everybody, more ability for everyone to do the things that they want to. And I truly believe that. Like I wouldn't be doing what I'm doing to make money. I'm hoping that I'm doing it because I hope we can remove a lot of the toil of people's day to day through this technology. Not through just town. I think AI will help us make drugs and will help us build faster in the physical world. and will people be able to live further away from cities because they can self-drive in, which means they can have bigger houses with pools and be happy.

1:08:00Harry Stebbings:Like I'm very, very much an optimist. Dude, I so appreciate you giving the time today. I know it's a very busy time. You've been amazing and I can't thank you enough for putting up with my slightly pressing questions at points. Every bit of skepticism, I would say something that does keep me up at night, but I think there are paths through the dark forest and there's a giant treasure with only one or two dragons at the end of it. So got to go for it. 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.

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