20VC: Thrive & OpenAI Partnership | Eventbrite Acquired for $500M | Databricks Raising $5BN at $134BN Valuation: Cheap or Not? | Why SaaS is Like Japan and The TAM Trap in Software

24:05Someone else, very smart money, thinks these things are worth buying. And I think they're looking at it and saying, you, Mr. Seller, haven't created value here, haven't found growth, and I think we can. And if you look at the three companies we're talking about, because let's lump in SEMrush, because they were acquired two weeks ago by Adobe, and Jason and I disagreed, but we We definitely felt someone like Adobe could do something with that asset. I'm not sure what the direction Eventbrite could take, but I think, and you said it in your notes, Harry, PagerDuty has an obvious set of next products, including AI-agentic products around downtime resolution that feel obvious to me.

24:42And frankly, I wouldn't be surprised if an aggressive PE firm said, oh my gosh, I can buy this thing. I can then buy some small little hot AI startup, put them together and get this thing back to 20 % growth. valued at 10 times and looked like a hero. So the positive would be other people's smart, savvy money look at these assets and say, two times revenue is stupidly cheap. I'll have that. I hope so. I hope there's more deals. We see General Catalyst and others doing this. Let's add AI to services businesses. We see a lot of talk of this. But right now, we're not seeing a lot of these mashed together legacy company at hundreds of millions in B2B and hot AI startups and magically flipping it into a 20X, 15X era company.

25:23I'm not saying it's not coming, But we haven't seen PagerDuty.com and PagerDuty.ai magically mashed together into a winner yet, have we? No, you haven't. And you're right, Jason. But the funny thing is, I like PagerDuty. We looked at the deal 10 years ago. My then new partner wrote a term sheet. We should have let him pay a little more because he was right. We love that market. And I remember the investment memo from 10 years ago. And it said clearly, summary, this is a great market. It's going to tap out. and you have to add a whole series of add-on products around managing the process of downtime or security breaches, managing the process of getting something back up.

26:00And we didn't have it at the time, but now obviously adding AI-enabled operational resolution. The direction was clear and is clear. So you're right, Jason, they haven't done it. But I think that that's just a disappointing outcome, let's just say, right? I think that the direction of travel should have been clear. And if you'd been able to add it, I think we talk a lot about how distribution is a huge advantage in software. I mean, literally every ops team on the planet uses pager duty. For God's sake, it's pretty obvious what to add here, people. Get it done. Rory, as your views, and Jason too, if your views on market size change as an investor, given what you just said, every ops team on the planet uses pager duty, and it's a billion valuation.

26:4610 % holding, be$100 million back. It's just a very sobering reality. Has your view on market size changed when investing today, given where else you can put your money and the sizes of those markets that we're seeing with your lovables and your replas? I see more and more folks who I thought would grow out of a small tam, not grow out enough. When I started as a B2B founder quite a while ago, everyone seemed to grow out of small TAMs for the most part, some better than others. But it felt like we had time and it felt like you had four or five years to figure it out at each stage and you could see it coming.

27:25And now that the average public SaaS company is growing like 16%, it feels like no one figured this out. We've never grown more slowly, right? We literally just in my presentation before, we looked at this chart, no one's ever grown this slowly. So if the public guys can't figure this out, I mean, I know the next generation the kids should do better than the adults, but I'm worried that the majority of the public sass companies didn't figure this out. The majority of the public sass companies, I think, are in a tamtrap. A tamtrap. It's a good title for the public. The tamtrap? The tamtrap. The tamtrap.

27:55How did the Aaron Levy's and the Drew Houston's and the others not figure out, and I love them, right? I love Aaron. How did we not all figure out the tamtrap? What hope is there for the rest of us? I can give you a clear answer on that. First of all, I think it's a great kind of division of the discussion into the time trap for the existing. And then what does it mean for the new AI companies? And then maybe third, what does it mean for venture? But let's start on the first one, the SaaS time trap. You keep saying, Jason, how did they not figure it out? Let me just offer a different perspective.

28:23Maybe there's no answer. In other words, there's so many SaaS companies. It's not that everyone was idiots and couldn't find the market. I don't believe that at all. I believe that we made so many companies that we saturated the markets. And by the time you got to the point where you needed to expand beyond your market. In many cases, there were other venture-backed SaaS companies in the adjacent markets, so you just kind of ran out of room. I did a blog post on this in 2019 called Hunger Games and SaaS. Many of these markets, it's not that some of the CEOs you cite are idiots. It's that you have high penetration of the markets.

28:54Take the quintessential one you and I talk about all the time, Jason, Zoom. Everyone who needed a Zoom account has one. And everyone who has a Zoom account has a team account, the poor bastards, and they're done. There's nothing more to sell. You got to build a new thing. And the initial quote unquote obvious new thing for Zoom pre-AI was that whole contact center business. And they couldn't get that acquisition done. And there was already incumbents in the space. So I think pre-AI, you ran out of TAM. So Harry, to your question, as we've said many times, overpayment only works when the TAM is huge.

29:25In finite TAMs, you got a bit more tightly. It's so funny. I'm going to anecdote about pager duty. When they went public and we did our internal autopsy, because you do, I looked at the model we'd underwritten five, six years ago, and we were accurate within 3 % on the model prediction of revenues. And all that happened was the market was just willing to pay more for the asset. And now it's not. So I think on the existing space, it's the time constraint. And I think you just have to be careful on price. Now, the question on the new market, which I think is believable and credible is, does the AI labor expansion save us all and allow us to reach higher on price and still get these huge towns?

30:03Or are we going to be in the same place eight years from now? That's the actually multi-trillion dollar question, as it turns out. Well, I think there's two. One is, can AI allow us to tap more into labor budget? I think the second one, and I was trying to summarize this earlier today, is can AI provide so much value that you can charge an order of magnitude more than you could charge before? Gamma charging$100 a month instead of, I only pay eight bucks for Canva, right? Or cursor charging$500 a month when I pay$3 for Jira. So you wonder, can we do that? And we don't talk about Zoom much. When I think about Zoom, I can't think of a better technical founder running a leader than Zoom.

30:43I can't figure out someone I respect more on every level as a human, as an engineer, as a leader than Eric. There's a mean question, and I don't deserve to even ask it because you're so good, of it, why didn't they capture more TAM? Why didn't they find a way to add 4 billion of note takers when there's a trillion note takers? Why didn't they? And I don't know the answer. It's not because you're not one of the smartest people in the industry thinking about this for a decade, but there was no great second act yet. I do, going back to here, I worry. I worry. And this is why I tell founders to take their exits and then say no, because they can go bigger, but by default, take it.

31:21So many things in that to unpack. I mean, one is the multi-product thing. I think one of the big takeaways we've had is the need to be thinking about that second product much earlier than you would have thought. You don't want to wait till you hit. What was the word expression, Chase? I loved it. It was good, but I'm forgetting what do we call it? The tamtrap? The tamtrap. The tamtrap. Don't wait till you hit the tamtrap. I mean, we were thinking, actually, we were comparing two of our portfolio companies. We would say one of them has compounded really well because it's continually added a new product that for the first year or two is a couple of million dollars, but layered it in and now many hundreds of millions.

31:54So I think watching that time trap is key. But the other thing you said, and it was in the speaker notes too, is on the AI pricing, if you're pricing versus labor of value created, you're getting enormously great prices because you're saving a lot of labor. And I think you said in the speaker notes, what happens when there's two or three of these companies and the competition goes from, hey, I'm saving you $1 ,000 of labor a month to, yeah, I'm saving$1 ,000 of labor, but there's three providers of the same software, AI software, and they're all willing to do it for$100. So your ability to get$500 gets eroded.

32:27And do you start seeing that happen in AI very quickly? Is it super clever? I mean, it hasn't yet, I think. Speaking of the pricing challenges that we have here, we have Workday coming out saying seat reductions are an existential threat. We had Jeff Lawson from Twilio on the show with the three of us. And he said that we are unwaveringly going to see the movement away from seats. And that is going to happen. Can companies still price by seat in the age of AI? Our workday inherently is threatened and right to be concerned by this existential threat. You know, when Jeff, if folks haven't watched it, it's worth rewatching.

33:03He was so good, right? And he made that comment that Twilio, especially if he were still CEO, would have maybe somewhat insulated to that because it's based on usage, right? And in fact, Trilio has seen a little bit of a resurgence. It has seen some reacceleration. And he said he was very worried about seats. But he said, I hadn't been in the game in a little while. And I've been doing AI and working in my shop. It has resonated in my mind since, which is he is right. And everyone is shrinking headcount in tech, at least. Even if they're not shrinking headcount, ARR per employee is going to keep going up.

33:35I crunched all the data before this morning. Everyone is going up. HubSpot, 2.8 times more efficient than 2021. Salesforce, two times. Microsoft has said they're already past peak employee, permanently past pre-employee. We're all going to figure out how to get more AIR per employee. And if you're a leader, you're just going to run out of seats, right? Mark was kind of aware of this when he did the pod too. So I don't have the answers. I mean, in the early days, it probably doesn't matter, right? I mean, your model is your model and seats work well in some places, but it is existential. We are just going to get more and more efficient.

34:07One of my biggest worries for investments is when startups aren't getting more efficient. I'm not talking about profitability. that's an investment. I'm talking about where their teams get more bloated as they scale. I kind of am out. When I go to a board meeting and a CMO says, well, I could do that, but I need 50 people. Or a product guy says, the reason we're late is I need another 80 people on the product and engineering team. I think it's time to part ways. Give them a nice package and a good recommendation. And I'm not saying, can we get AI to replace you? I want to see you grow 100 % next year with 50 % headcount growth.

34:43Yeah. I think that's healthy today. The way through early 2023 is I need a 200 % headcount to grow a hundred percent. And there's still a lot of that DNA in the ecosystem. It's still ricocheting around probably in the majority of executives people will talk to. It's still ricocheting around. So I think all these things just, I don't think the seed is dead, but as time goes by, I get more and more worried that it feels like Japan, like our population is organically shrinking. SAS has become like Japan. That's another time. It's a great economy, but if everyone only has 0.9 kids, there's only so many seats to go around.

35:18So Harry, first of all, my camera is right in front of your smiling face, so I literally have not seen you. So I'm going to slide the camera. Oh, there he is. Is it still okay on your side? Because I just miss seeing you, Harry. You miss seeing me? Yeah, no. That's sweet. How does Rory moving his computer change up? Am I missing something in AI video technology? Doesn't the camera have to move? I know. Oh, don't be a smartass, Jason. I'm not being a smartass. Harry's with me. I don't understand. I was expecting him to like something to change. It's like, Rory's moving. No, no, I'm moving back there.

35:52Got you. Okay, we'll let it go. I'm assuming it's working and we're continuing. I want to come back to the last comment first almost. Your comment on two to one. And you're exactly right as I think about it. I hadn't thought it until you said it, but in 2021, every discussion was some version of, look, to get that extra 10 points of growth, we're going to be twice as inefficient at the margin as we were overall. And the result of that is overall efficiency has deteriorated. What you're saying now is at the margin, we're trying to be twice as efficient, not inefficient at the margin. So you're exactly right.

36:21Everyone's efficiency is creeping up. And I think that's obviously independently. That's totally correct. And super insightful when you said it. And by the way, it might explain why even though the growth rates of of public companies have gone down significantly, the valuations and the revenue multiples have not gone down as much. And I think it's because in return for slower growth SaaS companies, they are at least getting wildly more efficient SaaS companies. And it's not one for one, as we've discussed, but at least it's better than nothing. But then going back to the existential threat from Workday, I think software prices on value delivered.

36:53And when you couldn't measure value, all you had was per seat pricing. And therefore, that's what people went with. Everyone has to access the software, everyone pays so much. Then you had usage pricing, starting with AWS, which was inherently a more rational for buyer and seller way to allocate value, attract value more closely. And I think the trend in everything is just to get more efficient. I think that's how capitalism works. To the point of, if you're using AI to deliver value, and if the AI is doing the work, it's going to be super hard to have a per seat model because it's irrelevant.

37:23Now, I don't think for a lot of workday, it will be as irrelevant as for some. There are other areas, like for example, some areas of Salesforce, you can imagine to the extent you entirely automate an SDR team, it's going to be hard to have a perceived SDR model. My guess is Workday will still be able to have some kind of X dollars per month for end employees served and then Y dollars per month for HR staff actually using the software. But there probably will be less HR staff using the software, to your point, Jason, because if half the make work that HR was doing is now done by AI, you're not going to get the same price.

37:58So therefore, maybe you have to charge on the value delivered versus simply the seats. And that's a more complex calculation. And I think that is true, is that all our companies are wrestling with this. You deliver a ton of value in AI, and maybe now you get the innovation budget, no one cares. But a year, two years from now, you're going to have to link as a startup your pricing to the value delivered, and you're going to have to measure. And it's a lot harder to measure value than seats. You can count butts in seats pretty easily. Every login is a butt. when you're trying to measure value delivered, that's tricky.

38:30Can we just go back to the growth and efficiency element? Because I always think when you're creating content, you have to think of your customer. And the customer that I always have in my head is the founder on their way to work or the operator on their way to work, listening to our podcast or watching it. And they're hearing, I want growth, growth, growth. And now they're hearing, I also want efficiency, efficiency, efficiency, and 2 million per employee for gamma and lovable at whatever it is. Do we just need both now? And it is a higher expectation to meet the bar for VCs. Or when you are looking at those two, I want growth above everything and I'm fine to see less efficiency in the early days.

39:09I think in the fastest growing companies that I've invested in, no one gives a rat's ass about the bottom line. That's a different metric than how you scale today, right? And then Rory made this point. There's actually fewer and fewer companies are true outperformers. So as soon as your top portfolio company performs, everyone wants to give it$100 million today at every board meeting. And no one really cares about efficiency per se, as long as they can get their money into the deal. So I don't think that's the issue. I think we're confusing the fact that everybody is just generating more revenue per employee.

39:41But you're going to this, we've talked about before, going to like this, the iconic data earlier in the year, the fastest growing AI companies, even with high inference costs, even with high costs, have the lowest burn multiples because their revenue is growing so much faster than the inference costs. I think that's what we're hoping for is that companies have never gotten to 100 million ARR more quickly. If you do, I don't think we care how you get there anymore. I don't think that we care. But we know deep down that hiring 1 ,000 people isn't the way to get to 100 million in a year. You can't hire them that quickly.

40:11As Maggie said, they're not all gonna be great. So you literally can't brute force 100 million in 10 months with humans. It's just maybe Larry Ellison or Mark Benioff could, but I don't think anyone else. There's just not enough calls. You can't go from one to 110 months without massive inbound demand and a lot of AI. Yeah. I think you should break it up in a couple of areas. And in fact, as we think about it, Jason, it's given me an insight on your eternal question on employment. Because big picture, divide it up into AI startups and mature companies. The comment on ARR, efficiency per ARR, is very much a mature company comment.

40:43If you're a public company and you're only growing 10 % or 15%, you better be kicking off cash or you'll be in trouble real quickly. Even if you are kicking off cash, you'll still get grief. But those are the companies that are optimizing their ARR per employee and are just focused on FCF, free cash flow. And that's a very different set of people with a very stiff set of dynamics than the AI startups. So we'll come to them in a second. So public companies grinding on efficiency, which means, as you say, lower employment and all that stuff. Now, come to the private AI companies. I think there's two categories.

41:15A small number of companies which are taking huge amounts of capital because they need it for model development. And primarily, it's not humans. It's they got to spend it with NVIDIA. So look, no one's telling open AI, be efficient, or if they are, he's clearly not listening. To a rounding error, those companies, as Jason said, able to get all the money they want, spend it on compute, have relatively small headcount relative to their size, and no one's saying be efficient. They're just saying grow quickly. Then separately at the apps layer, you're seeing something slightly different. And Gamma is a good example of that.

41:45The interesting thing is because of this amazing new capability, for lack of a better word, you call it the foundation models. There are people in apps land building a product, shipping it, and they're getting such traction that the traction is ahead of their ability to hire. I mean, there's no way to spend the money, right? So we're seeing some of these apps companies be astonishingly capital efficient, especially at the early stages. I mean, Gamma is a great example of that. It's like you ship the product, it's freaking amazing. People buy it, they give you credit cards. By the time you get around to hiring a Salesforce, you're doing so much money already that you're kicking off cash.

42:16So at the apps level, not all the time, I think some companies at scale are spending, but we're seeing the combination of hyper growth, even reasonable margins, not as good as Fastland, but still 60%. If you have that, then you have quite attractive profile. Not all of them are that case. Obviously the coding companies have margin issues, but a lot of the companies are getting a long way on not a lot of capital and definitely not a lot of employees. So I think those are the three categories. And the interesting thing, Jason, this goes back to something you've been talking about and I've been trying to figure out the answer to, what's going on on employment, right?

42:48And what's the consequence? And I've been more, it'll all be fine in the end. And I still stand by that. But the interesting thing, when I listed those three categories, the one thing they all have in common is they all don't need people. The big companies can't have people because they've got to be efficient. The model companies don't need people because they just need geniuses and GPU. And the small AI app startups are going so damn quickly they can't hire people. That's not great if you're people. And overall, I'm an AI optimist. I think all this unemployment thing is bullshit. But in the near end, what you recognize, it's why it's a toughish market for employees in the tech marketplace.

43:20Because labor versus capital discussion is, you need more capital relative to labor at the moment. The topic we have to discuss. We talk about rapid the whole time. Yeah, I love it. But then Google have come out with a competitor. I think we've always been waiting for Google and ChatGPT to come out with one. And it's been very good. It's tied to Gemini, which has obviously blown past a lot of people's expectations. When we look at this, how did we analyze this? And is this a case of incumbent waiting for enough traction in a market and then going, thank you very much, Mr. Startup. I'm going to come in now with great models and distribution and it's game over.

43:56Or actually, have they left it too late and lovable? Replit have built enough user base, enough brand, enough brand trust that actually there is still a real dominant threat then to Google's new product with it. Well, look, for what it's worth, you know, I did try it. They launched this week. They launched a Replit-lovable clone with no database, no OAuth. They said it's coming soon. And sometimes that's okay for big companies. So we'll see. We'll see if, you know, one thing that hasn't changed in the age of AI is big companies only have so many priorities. They can introduce a lot of little tests.

44:29But at the end of the day, it takes a lot of energy and a big company to keep a big initiative going because there's so much else to support. So we'll see. It wasn't impressive on itself. But on the other hand, you know, Google launched their competitor in less than 10 months. So you don't get five years anymore. I mean, Datadog just launched their PagerDuty competitor like in the last 24 months. Windows PagerDFound in 2008, you don't get that much. Now you don't even get a year. The incessant pace of cloning and competition does worry me. Man, if you only get months before the big guys come into your space if you blow up, I mean, it should make sense, right?

45:05If you go from zero to 200 million in a year, you should attract some competition. It's not a free lunch, right? But is there something that we take from this? Like Roy just did, you did a GCAI, I think it is, like where we're like, okay, they're not going to go into GCAI, but they are going to go into Lovable. They are going to go into Decagon. They are going to go here. There's themes where they're like, they are going to go. And there's themes where we're like, hey, model providers. The cool question being, hey, where will model providers go in the application layer and threaten our businesses?

45:35This is, I mean, competing with coding tools is not that big of a jump, right, with whatever happens. Rory did a deal, I think, in the last week or scaled it. I really liked personally, even though I didn't examine it. You did sort of an AI for like wealth management or asset management, right? I love this for a lot of reasons. I have some questions, but Google isn't going to copy that. They're not going to copy automating trust, estate planning, investment advice, tax efficiency, your investment, legacy planning, or maybe it doesn't do all of that, the investment. Those are spaces where you have incumbents, but maybe you have some space to run, right?

46:08Agreed. The model provider is not the constraint there. And I, for the record, would say I don't think the model provider will be the competition in many apps. And going back to where I started, I think the OpenAI Code Red this morning was frankly tantamount to an admission that we need to do our core mission for the next year and probably less foots and around in other things. I mean, that sound you might hear is the consumer hardware products slipping out a little. So I do believe that more of these apps are defensible. I think the model providers will be there. I think coding is obvious. But even when you get much beyond that, I think if I was on the board of OpenAI, it would be like, when the chat GPT wars and you were worth$2 trillion, let's not fuss around with little vertical markets that can be worth a couple hundred million bucks.

46:53Why are you even talking about this? Especially when everybody poked Paul at Google and Microsoft said, we'll make them dance. OpenAI kind of laughed at them and now they're poking back. and you put all your effort behind that. I think we may have seen peak, the models are going to do everything. I mean, they're going to do coding, but I don't know if they're going to expand into all these verticals at that level. And then, yeah, thank you, Jason. On the range wealth management, I think the interesting comment, and again, we're always low to just push our investments, but I think the big picture story there is, can you use AI, not just sell software to wealth managers, but automate the business of wealth management?

47:28And this is the key sentence that I like, because I hate the word wealth management. The idea is you can go much further down the wealth continuum and give the same kind of product that the super rich get in terms of managing your stuff, managing your taxes, which is how he knows in the UK are now north of 50 % and getting higher. So you want to be able to manage your affairs, file your taxes. And there's a whole ton of that work that's done expensively with humans that can be done really cheaply with AI because it really is just follow the law, fill in the forms, do the work. and hopefully the idea there is you automate a lot of that and then you can deliver a high quality product to a much broader marketplace.

48:07And one of the big picture things I think that's always true in investing is whenever you see a product that only really rich people have, if you can find a way to get that in the hands of the rest of us, we all want it too. Just on, what do we call it? The terrible TAM? The TAM trap. On the wealth management, what's the vendor called? Sorry, I should know. Range. Range. I love it. I get the problem. Anyone's lived it that has gone through any of this stuff we could talk about it. But I think you do have to be smart about the TAM, right? Because they're going to charge eight to 10 grand for something that you pay a bunch of numb nuts now, 30, 40, 50 grand a year if you're wealthy, right?

48:42Maybe more, but it's not 10 times the price of the existing product. You just got to be smart because you can pretend everyone in the world will pay you 10 grand, but you also have to be rational to not have a TAM trap, right? Because like Wealthfront is trying to go public, right? In theory, maybe it's a comp. In theory, Wealthfront should be a$10 trillion company. I mean, everyone could use this product, right? But in reality, there is some time limitation for Wealthfront. I totally agree. And it's all about segmentation. I love Wealthfront. As a comment here, the Wealthfront and Betterment, I really love those companies.

49:14Because again, it's back to the same thing. I get uncomfortable in the wealth discussion because who gives a damn what the ultra-wealthy have to deal with, right? What I loved about Wealthfront, what I like about these is Wealthfront was saying even paying 50, 70 bps to someone to manage your money is crazy because we can just put it in this automatic thing and do it automatically and for 10 bps. And the thing about those business year, Tam comment, is they actually take a long time to build because the whole value proposition is we're charging you less and you just get to compound more. But in the end, they're lovely businesses.

49:47And we looked at, actually not Wealth Fund, but Betterment 10 years ago. And we figured it would take about this long, 10 years to just build. Because remember, if you're charging 1 % of assets, a billion is a lot of money. If you're only charging one-tenth of that, you need 10 billion to get to the same place. And if you're targeting people with less money, by definition, it takes longer. So these businesses take a long time to build. But I think when they do, they're way more powerful than some quote-unquote wealth manager that's really good because he takes you golfing and gives you a PowerPoint once a quarter about how badly your money is doing and they're really sorry.

50:19Or even better, they ask me if I want exposure to private equity and venture. That's the main value I get from Morgan Stanley. Hey, Jason, it's your advisor this quarter. I can get you into a hot venture fund you've never heard of. Stabbing's Lemkin 4. The returns are negative at the moment, but it's a lengthy J-curve and it's a hot deal. It's a 3 in 30. Yeah, 3 in 30. Triple layered SBV. Have you ever looked at my account? Do you know anything about me? OK, I didn't actually... Sorry, I don't mean to be divisive. I didn't like this deal. I saw this and I thought, oof, gosh. Sorry. I didn't see it.

50:53Why don't you like it? What big business and what good business, like really big, has been built in the wealth management space? Wealthfront? Merlin. Wait, pause, pause, pause, pause, pause, pause, pause, pause. OK, one very old, but we're looking at Wealthfront. What, 17 years? Index and every good investor in there? How big is that? In the opportunity-class world that we live in? But you have to - Really? The important question is, why does - Okay, listen, there's a gap. There's the wealth front and vanguard at the bottom. I want to hear Rory's thoughts. And then there's the world's crappiest product, which are Goldman Sachs and Morgan Stanley, which take 1 % of your assets and do nothing, I can see, other than give you loans, which are very valuable, right, for folks that don't know.

51:35Like, literally, if you're sitting on$50 million of NVIDIA stock right now, you can sell it and pay$25 million in tax, or a bank will give you a loan. Now, it's not cheap today. It's 6%, but that's a lot better than 50 % if you can deploy. That's the only product I know. They'll tell you they'll help you with your trust. They don't. They refer you to someone that doesn't call you back. They'll tell you to help with your taxes, and they'll tell you we're not allowed to talk about taxes. So they can't really do anything except give you a loan. There is such a gap in the middle if AI can do estate planning, taxes, all this.

52:06So Murray challenged to me if I'm wrong. The question is, if AI enables it, then something that was shitty, to Harry's point, might become great if AI lets you do it, right? It might become great. This episode was brought to you by Goldman Sachs Wealth Management. That's exactly what I'm talking about. First of all, I got to ask, you just nailed it. That's exactly the value proposition. Yeah, I like it. You deliver trust, you deliver estate, you deliver all taxes. Because when you file your taxes, the fact that you do your estate with one person, you do your taxes with another person, you wealth management with a third point is absurd.

52:35It should all be under one roof. But I want to go back to your comment, Harry, on Wealthfront, because again, I'm always uneasy just pushing our company. So let's talk about, I think, an excellent company that's not ours. Yes, it's taken a long time to compound to here, right? But not everything is a tech first where the adoption cycles are five years. I think when you launch an investment in a company like Wealthfront, the adoption cycle of something like that is going to be 10 or 15 years. So in my view, it's just on track. And the financials are lovely because at scale, asset management is a wonderful business.

53:05They are providing a cheaper product than anyone else at 10 bps. And they've lined up a bunch of millennial and whatever the generation, a little bit older, 30-year-old and 40-year-olds. And over the next 10 or 15 years, that generation is going to get rich. They're going to get rich with Wealthfront. They're going to keep their money there. And it's going to be a compounding machine, just like Charlie Schwab was a compounding machine when they started in the 70s with cheap brokerage. It took a long time. They went through a lot of it actually owned by BFA and then spun out in the 90s. I was there.

53:34But in the end, it just compounds because you just, over time, the only good thing is it does compound. And early on, wealth management in any form is a tough business because it takes a long time to build. But when it does build and Wealthfront is over that gap now, it's going to be there for the next 30 years in, frankly, a way that a lot of your tech companies want. I get you on the compounding machine and I share your view in the beauty of those businesses. But actually, you're competing for dollars against the same people like your Kleiner Perkins or like your Andreessen Horowitz where LPs can put money in their funds or your funds at a B and C stage and they are in Glean and they are in Replit and they are in the races to 100 million in faster than we've ever seen and those LPs will be going wow those funds are they're more exciting and you're going oh but it's compounding it's Charles Schwab 2's coming I promise you watch the pod like I don't know that that's 100 % true though, Harry.

54:30I think it's 80 % true, right? I think if you're going in to raise capital for your fund and you're being compared to glean and everything else, I think as long as you have the numbers, actually LPs are kind of excited if you have a slightly different way to get there. Slightly. But you've got to have top 10 % numbers. Do you think so that if you've got companies that are kind of, and actually to your point and to our point on like, hey, bluntly, growth rates are so much higher, growth expectations are so much higher. If it is a slower compounder, the next round is less certain than ever. It's less guaranteed.

54:59Yeah, but LPs are looking backwards. If you're sitting on multiple high-performing funds, you're going to get a fair amount of flexibility today, right? I think the point is that it's hard to not be seduced by the hottest deals today. And by the way, LPs love to see great fall-on investors. Well, Sequoia came into this and Andreessen. I want to push back a little. I do take on board your point, and there's no doubt that the velocity of validation is super strong for AI companies right now. If you want to do a deal with the highest probability of a step up in the next six to nine months, you should do an AI company that's raised at a billion pre because 40 % of the unicorns in Q1, I said 23 % last week, and one of my colleagues corrected me 40%.

55:3940 % of the unicorns that raised in Q1 as a unicorn for the first time have already had a follow on round. So I think, Harry, you're exactly right. If you want to buy short-term momentum, that's a great place to play. And it's not just short-term momentum, it's also driven by great performance. So yes, that's absolutely a good plug of what you're doing. But in the end, the biggest uncertainty is not, can you get a markup? That's nice. The biggest uncertainty end is, can you build a big company here or not? And there's so few times when you can say, I believe you can build a big company here that you shouldn't then screen out and say, oh, I can build a big company, but it might take a little too long.

56:14Because there's a rule in engineering that you're only as accurate as your least accurate variable. In other words, if you have six or seven variables that goes into something, your accuracy is determined by the thing you know has the widest variance. And if you have high certainty that something can be a company, that's the hard thing to do. If you've got that and everything else, you can adjust for valuation, you can adjust for time, et cetera. I would love to be in Wealthfront, for example. I think it's an awesome company. And even if again, I think that will compound and you'll hold it. And 15, 20 years from now, and it's going to sound pejorative to AI.

56:46It's not, I love that space. It's where I play most of the time. Okay, let's do it this way, Harry. I think Schwab went public in either 82 or 83. It's public today. It's worth 60, 80 billion dollars. Name me five tech companies that went public in 1983. Dude, are you fucking kidding me? I was born in 96. But my point is this. Tech companies, they come quick and most of them go quick. Now, by the way, if I'd said 1986, you could have come back to me and said, um, Microsoft, Oracle and Sun. If I'd said, I think, 82, you could have said Apple. That's why I think I picked 83. The point is that these singular different companies, and a little like, you know, maybe Andrews, these companies that are off the beaten track and are just a different thing, they often take longer to compound, but they end up with more empty space.

57:28And as I say, Schwab has compounded for three or four decades, and God you wish you were in it. But sorry, I just think we're playing a relevance game. And I think this is the honest truth about New Age venture. We're playing a relevance game where Ram praises four rounds in a year, where media matters more than ever before, duh, all of us here, and where you're like, oh, it's slow compounding, coming soon. It's slow, by the way. It's just a tougher game. And I think LPs are seduced by incredible follow-on investors, quick up rounds, and numbers still. I'd rather be playing that game than the, it's coming.

58:02And you're right, Harry. You shouldn't have been getting provided. You're also right about the underlying investments. So if you play that game and you're wrong about the investments, then you'll just be the guy who did a large high-priced rounds in a deal that didn't work. So I agree with you. But again, I go back to my comment. When you have high certainty that a big company can be built here, you weight that more highly than everything else. I think actually Peter Thiel, as all intelligent venture comments, when you go back long enough, you discover Peter Thiel made them already. I think he said somewhere in his book, something to the effect of, all that matters is, can you build a big company here?

58:35And literally he said, because it's so hard to find them, they have no other rules because their perspective is, once I filter for that, I can't have any bullshit rules on stage, on sector, I just want big. And it's what gave them the courage to do biotech, defense, and software. We're not as brilliant as that, obviously, but I think it's some version of that rule, which is when you see a company that can be big and you see its tracking to be big, prioritize that over hype and FOMO. Rory, can I be absolutely savage? Do you have to be in that slow compounding, picking, which is, because there's two worlds in venture.

59:09There's obvious and really, really competitive. Insane growth, really, really obvious. And then there's, I'm going to be smarter, pick the compounder, see beauty where others don't. Do you have to be here respectfully, because you're sitting in the valley at Series B, and you're against Andreessen, Founders Fund, Sequoia, and you can't beat them? I think you have to do both. And you can do both. I think, again, going back to my comment is I'm not sitting here going, I want to filter for X, Y, I want to filter for great companies, then I have to win them. And you're right. If you're identifying a great AI company in XYZ space, then you're going to find way more competition, which means either you'll lose or you'll win and you'll pay the market price to win, which won't be cheap.

59:54And that's one way to make money. That's most of what we do. But you can also go and look at spaces where you go, oh, I think this is interesting and differentiated. And as long as I have the same conviction on the ultimate outcome, you can do both. Again, it's back to the, you're trying to apply a momentum and hotness rule, and I'm trying to apply a, will there be a big company in the end rule? And I get the interim consequences. To be very clear, someone said it to me 20 years ago as an LP. He said, there's no such thing as blue collar venture. It was a brutal comment, but I think it's your point, Harry, right?

1:00:25You see what I'm saying? It's like, there's no such thing as off value, new, randomly, non-cool stuff. At the end of the day, we're building high growth companies, and you're not going to make it on value. You're not trying to choose on value. You're trying to choose on certainty of a big outcome. For what it's worth, it might be a fool's errand to invest in things that you're just very interested in, but I think there is an advantage to it. And I'll tell you what I'm interested in for 26, 27. This is why I like Rory's investment. I know this sounds obvious, but AI for coding is great, but we didn't even figure that out.

1:00:54Claude figured that out. Cursor didn't figure this out. Replit and Lovable and Bolt didn't figure it out. I can tell you the story. Claude figured it out. Anthropic, the guys, you know, once they quit OpenAI, they figured it out and everyone grafted on this, including Gamma. What I like is the next generation. Can AI take large markets like wealth management that don't work today? Can AI really for real with Claude 7 and everything utterly disrupted? And I think that can be huge. And I'll give you an example. Like I set up three trusts, okay? The wealth management didn't help at all. And then I went to the lawyers, okay?

1:01:29And it took me 11 months to set up three trusts. And I said, I'm really frustrated this took too long. To this guy that's like a celebrated trust lawyer in Silicon Valley, he's like, well, good news, most of my clients never even finished them. I'm not saying momentum investment isn't the right thing today. If you can come in with AI and magically take every single frustrating part, how many Americans, like I think the Wall Street Journal just said today, the average American retiring is like $1.8 million in cash and equity, okay? If you can take all the friction out of that, all the friction out of retirement, wealth management, investing, trust, redeploying, QSBS and everything because of AI, I think you could build a 20, 40, 50 billion dollar company.

1:02:10I would at least want to take the meeting because this is something that if AI, okay, listen, you can, well, I'm just interested intellectually, can AI solve some of the biggest headaches that we see that maybe you don't see every day. Maybe they're in environmental compliance. Maybe they're in other things. But it's at least worth the meeting to see if it can utterly disrupt how it's done, right? Jason, I totally agree. And I really like the pitch here, which is, it's not the ultra well. They got a million people who'll flatter them and do their work for them and charge them a gazillion dollars.

1:02:39It's the entrepreneur. It's the doctor. It's the dentist who's earning good coin because we discussed earlier dentists and doctors are well paid, but their affairs are modestly complex, but they don't want to screw up the Roth IRA withdrawal. They want to leave their house to the kids. They don't want to have a big estate tax problem. Those are the kinds of things more complex than nothing, but not where you can spend 20 grand on a lawyer to fix it. I think that's a huge market. I'm sure people in the UK know this, but in the US, unlike the UK, everyone has to file their own taxes, which is just one.

1:03:12I mean, I've paid taxes in Ireland, England, and the States, so I know the different systems. Everyone has to file this god-awful tax return every year. And the minute your affairs get even mildly complex, you do a rental property, you have a distribution, you have a capital gain because of an investment you made in a restaurant, suddenly your tax affairs are complex. And if you screw it up, you end up paying more money. And those are the people who need that kind of mass market wealth advice on how to handle their affairs better. And right now, it's a disparate group of attorneys, accountants, and it's quite messy.

1:03:44And I do think AI, like a lot of other markets, it's a little like healthcare. There's a whole bunch of this knowable, but nonetheless complex information that has to be assembled and marshaled. And at the right time, the person who has the question has to get the right answer. That question can be, what form of cancer is this based on the CT scan? Or how much do I owe to the US government based on these facts. But you want the right answer at the right time. And it turns out machines do that a lot better than humans. My takeaway is you need a new wealth manager, dude. Seriously, a Goldman... OK, we need...

1:04:17I'm not just doing the Goldman Sachs. I can introduce you to... Harry, not everyone has a wealth management problem, Harry. How about we focus back on the problems of the people, the founders that are trying to build wealth, rather than you as a rich guy trying to spend it. OK, come on. I'm a humble podcaster, Rory. I believe that AI will disrupt some of these categories and build huge businesses. Okay. I believe it. Maybe be capital efficient until you prove it. If Rory's deal does 100 million growing 150 % or 200%, everyone will flood into this. Okay. Absolutely. And say it made no sense back in the day.

1:04:49I mean, not every founder can directly compete with Cursor as founders. Like we have to play to our strengths. And if you find someone like I might have invested just because I'm passionate, maybe it was a bad idea. I mean, I'm into it, but you might've convinced me, maybe just don't spend all of it. I think that's going to be a little more conservative. Did he not bring you into the deal? Not bring me into the deal. Oh, he brought me into the deal. Yeah, he did not bring me into the deal. Shut up, Harry, because Jason's made a really important point that I think is relevant to our wider founders.

1:05:15Your discipline as a founder on capital is exactly proportional to, in part to, how hot the market is perceived to be. And if you're playing a game that's in a market where you need to make progress before you can raise, then you don't have the ramp for raises before Friday strategy. you have the capital discipline to prove your point. In the end, if you prove it, you'll get the capital. But I think, Jason, that was, frankly, a spot-on comment. We could send you as a board member, literally. It's like, here, guys, build value. If you prove it, the world will be beating a path to your door. But if you have proved it, you'll be screwed.

1:05:47I think that's a great note to close on. Guys, thank you so much for being part of a live show. There's no Calci Quickfire? You want a Calci Quickfire? Yeah. One quick fire is Superbase is now at five billion. Lovable is at six. Now, obviously, Lovable uses Superbase for every instance. Would you rather be in Superbase or would you rather be in Lovable? I'll say Lovable. And I'll tell you why. I think Superbase is benefiting by the trend of vibe coding. And Lovable is a bet, fundamentally. It's in the front end monetizing on vibe coding. One of two things happens. Either vibe coding is a category or it's not.

1:06:27If it's not a category, both of them are screwed. And if it is a category, lovable gets more of the money than Superbase, just because it's the front end and it gets, I don't know, 20 bucks and they pay two of it to Superbase, some version like that. If you're in a highly risky category, the dumb bet is to be, well, if I win, I get a little, but if I lose, I lose 100%. You may as well be in for a penny versus in for a pound, as we would say in the UK. And the thing about the lovable bet is if you win, you're going to win big, which, of course, is why a smart young man like you are in lovable, Harry.

1:06:56See, I thought I'd put in one pitch for you there, David. Thank you so much. I would take Superbase. No, I'll tell you what. For what it's worth, this is how I'm feeling today because of stability. I think Superbase is a harder problem to solve. Yep. And so right now today, this is where I'm conservative. There's just so much change. I don't know what Google's going to do. I would just prefer a harder problem today. And even if my returns were the same or lower, I mean, I'm sleeping fine. But I'm just anxious about clonable stuff, and I want hard problems are reassuring. Like only so many people.

1:07:28I mean, at the end of the day, Superbase is just, I think, a fork of Postgres. It's open source that they've redone. It can be done again. Neon did it that Replit lose and Databricks bought in for a billion. But databases are a hard problem. Like you can only lose so much data. You can only have so many issues. You have to figure this out. And five years of investing in a database that everybody uses, it ain't so easy to turn and leave your database. Right. And so I just this is what I'm thinking going into next year. if we want to close. This was a year where we didn't, we tolerated a lot of churn.

1:07:57We only cared about, this was the year of growth, but nothing. And so is next year. But I'd love a little defensibility. I just love a little hard, frigging problems. And, you know, we're past the thin wrapper layer, but I'm going, what are you picking between lovable and super base? Oh, dude, I'm... A lovable all the way, Ben. A lovable all the way. We'd love to lead the season both. He's loyal to his paycheck. The loveliest thing about this is we knew each other well before, but the friendship that we have as a three now, having done this show, is just freaking awesome. Like, honestly, it's one of the highlights of my week, doing this show every week.

1:08:36And I've never said this to both of you guys. I so appreciate the friendship that we have. And thank you for doing the show with me, because it's always so much fun. I learn so much. I get so many messages from founders who learn so much. So thank you for putting up with me, both of you. I know it's not always easy. but you're awesome. And thanks for everyone that stuck it out to the end. We appreciate it. Take care, guys. Thanks for you in London. I promise. But before we leave you today, now most people who get scammed never talk about it. And if it can happen to tech savvy professionals, CEOs and investors, it can happen to anyone.

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