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26:16And then you know tomorrow morning you're going to unveil the numbers and it's like you're going to take your clothes off and ever going to see what you really got. And that's when we'll find out what things are worth. You know, until then it's an ungraded test where everyone's getting ace. Roy, do you agree with the girly statement that you should go public earlier? It's great to be public for discipline. Everyone should go public as soon as possible. That theory. Builds in an odd quadrant, pro -going public early, which I agree with, but because they can. And as long as they can, they will. And at some point, I think we'd all be better off if they could go public earlier, right?

26:55That will happen, as I said, not when people, people don't do what they should, people do what they must. When they can't get cheap private capital, they'll all go public. And yeah, being public, it has some good strengths. Yes, it does force discipline earlier. It's not perfect because you also have to deal with activists. There are some good reasons why people stay private. Lots of being public is a bit of a pain in the ass. But I do think I think IPOs will come back and come back earlier once capital gets withdrawn from the private ecosystem Which I think it will you know when I was a kid because I was crazy I was like my dream was to be a public Tech CEO then I built three large winter back companies and two who which ended up being public and I was like The last thing I would ever want is to be public ever again Like in fact that took all the fun out of being a founder for me He's like all of a sudden, like having to create the annual budget, the quarterly budget, the update of the quarterly budget, like literally, if I could never go public, as a tech founder, I would do that.

27:55It is so painful and so expensive of time. All your information's out there. It slows everything down within the company. It's like, would rather not go public. There are significant negatives around being public that I think we have to fix as a country if we're going to have a more successful dynamic ecosystem. But I also think the cost of that capital is so much lower in most times than what you can get private, not for the last couple of years. But you know across two or three cycles, I think, but it just logically makes sense that liquid money should have a lower cost of capital than illiquid money.

28:33When I say it like that, it's pretty obvious, right? It is absurd to think that one person is getting capital where you can trade it every day, and the other company is getting capital where you're locked up for five years. How and God's green art, if the companies are the same, does the first company not have a lower cost of capital? But right now it doesn't. It's a pointed time absurdity and it will change. Everyone that I know directly and directly that has a sub -scale IPO, that tried IPO in the 100 million, 200 million range that's growing 20 or 30 % today. Or wherever they are, they're all miserable.

29:06They're miserable. They have to be profitable. They're not enjoying. Great. You have a six or $700 million market cap. It's sort of illiquid as a founder anyway. You could sell a little bit, right? But again, it doesn't go that far in London, right? You could sell your 10B5. You're selling a couple million bucks a stock a year, right? It's not fun to be a $600, $800 million market cap with no analyst coverage, no liquidity, 3X multiple, with no one to buy you and miserable employees that now exactly know what their equity's worth to the nano -cent. So sure, if you can go public at a, what was HubSpot?

29:44I mean, where are you guys invested in HubSpot? I mean, that was a rocket ship at IPO to 100 million, but I think it was growing 60 % at 100 million or something like that. Those do you as no one wants to do today? 60 % growth at 100 million. right? There's a shift between those two examples to be clear. I've come there at 150 million with 50, 67 percent growth should be able to go public as my belief. In other words, 500 is too high. You're exactly right, however. 200 million going at 30 percent. Yeah, the math starting to not work depending on the multiples, right? You're life's miserable. As a CEO, your life is miserable, I think.

30:16Right. The bar should come down from today where it's effectively zero. The year of the great .com and it was literally 350 IPOs, meeting and trailing revenue 18 million. And that was clearly too early. Coming back, interesting comment, coming back to IORs, that was the exit environment where a bunch of 1996 funds posted 6X net 100 % plus IOR funds. It was the best of times as Mr. Dickens would say. People are starting to realize that. We saw the CEO of Discord, we saw the CEO of Ironclad both leave this week. Is the realization, is the penny dropping that shit, being a public company CEO sucks?

30:55I don't wanna do it. 90 % of B2B companies at IPO have a founder CEO at the top, 90%. Will that go down with 20 year life, but now that it takes so much longer to get there? So that's my number. What I've learned is you really do have to reinvent yourself to the CEO every five years and sign up for another tour of duty. And so if you squint, a lot of these turnovers happen in these sort of four to five year cycles, right? Think coming to the discord point is Jason Citroner, coming to Jesus and say, listen, I don't want to be CEO post IPO. If you're a founder and you like big teams and you like scaling, but you don't want to do the IPO, leaving 12 months before the IPO is the right time, right?

31:34The market's not gonna be shocked and you like scaling, you like people, you just don't want to deal with Wall Street, that's the perfect time to leave like discord, right? That's the intended to the professional guy, right? When I look at the other ones, they go into terminal decay is my concern, but that's a different issue. I just think they go into terminal decay. They definitely do. The hardest thing to do is a CEO change when the founder CEO doesn't want to do it, but for whatever reason you think they have, you should make that change. And for me, that's an extraordinary high bar because a founder CEO with some managerial limitations usually performs a lot better than an excellent, a reasonably good manager with no founding DNA.

32:14I'm not one of these grandiose people who say, I'll never change a founder. I think statements that use the word never just don't tend to work as well. When you take longer to get to the same place, you're just going to have more change. 1999, as I said, it was a sprint, found the company got public in three years. Most people can do a sprint. Then it was 10 years. A fair number of people can do the 10 ,000. Now we've converted this into a marathon. Or by the way, at the end, you have to run a few Well, a few sprints at the end just for fun. It's not surprising that when it's a 10 or 15 year journey, lots more people tap out.

32:44You know, life takes care of a lot of this people. Get older, people have other things going on. So, along with this private holding company period last, the more this kind of dynamics you're gonna have to wrestle with. I find it easier to pick founders with that realization than with the shorter term horizon. Very specifically, because you have to be a fucking psychopath. I am deranged. I run two marathons a week. I'm an addict in every way. I have more energy for 20 BC than I've ever done before, 11 years in. I've done three. There is nothing normal about me, and I look for nothing normal in the family.

33:18You can't make money in normal people, unfortunately. No. But you can, if it's five -year windows or seven -year windows, where you can kind of scrape it by the 15 -year, you have to be so deranged and obsessed by a problem. It's your unwavering life's work. I find it easier when I was to pick. You know, it's funny when Harry, when you and I were in London this last summer at the Sastria Europa, there was a CEO speaking and he told me that he's in a WhatsApp group of, and they're at scale, they're at nine figures in revenue, he said there are 20 % of a club. They're all telling each other how 20 % growth is great today.

33:51I get it from as a human, but like you can't invest in these people that they're in the 20 % of a club. They've all convinced themselves for group therapy that 20 % growth at nine figures in revenue is as good as it gets, right? You need people who won't join, who log out of that WhatsApp group. I think there's a really interesting question, which is like, are we going to see the acceleration of terminal decay? And what I mean by that is if you look at companies like Pine Cone, they went up and they went down very, very quickly with changes in technology cycles, Squarespace, Wix, any of the website builders.

34:25I'm not picking on them or being horrible, but your love of balls and your bolts are absolutely killing them on the consumer. are we going to see the acceleration in that terminal decay rate? Short answer, of course. I mean, that's almost a given. I mean, look, one, all technology companies have obsolescence written into them from day one. You know, it's sad, but it's, you know, true. I mean, anything before Microsoft and Apple at this stage isn't here in Coca -Cola has been cranking for 100 years, right? So, obsolescence is inevitable in general. On top of that, periods of acute technical disruption are going to increase the amount of technical obsolescence that companies face.

35:03And then overlay that as we've been discussing longer hauling periods. I mean, I think I said this last week, but my number one fear is that the technology life cycle to obsolescence is now shorter than the hauling period of privately held software companies, which means every company at least one time before it gets to go public will have an existential reinvent itself second product crisis. It's a huge issue. All of them today, they're all too old. All of them today, all these ones, that scale are too old, aren't they? I talk about VCs, are you picking up? No, I thought you were talking about the portfolio companies, the poor.

35:34If it takes you 15 years to IPO, you're so far architected before the AIA age, no matter what you agent you add on top of it, you're having an existential crisis, right? Quick snide, when the argument responds back would be SpaceX, but I would be intellectually honest enough to admit that would be a snide answer, right? for things like hot, this is one of the reasons the brilliance of those kind of comes for really hard technical problems. You've got probably get a 20 or 30 year run, but you're exactly right, Jason, for kind of core first -generation, what we refer to as plain vanilla sass, it's highly likely that, you know, 10, 15 years in, if you have an exit, that you have some degree of technical obsolescence.

36:11Now, it's not fatal, but there's often a reinvention act required, which actually circles back to the founder comment. The ability to take that company and drive it to a new architecture like Yezarkovberg did with mobile on at a second product is in my view what will separate the companies who kind of Peter off at a hundred million at 20 % going to 15, going to 10 versus the companies that you know have a year or two bumping at 20, get that not a product out the door, we accelerate to 40 and make it. I mean I have some of both in my portfolio you honestly. I've won in particular, I'm thinking that latter quality, I'm just so impressed with the CEO.

36:46We hit a 20 % year, year and a half. We did some acquisitions. We really cranked an engineering. We didn't cut engineering in the downturn, we doubled. And now it's back up to 40 % plus. But it's going to be existentially tough. And it gets back to you guys, that's going to take winner, winner CEOs wherever they come from. Founder are hired. By the way, I think that's true in B2B SaaS. I don't think that's necessarily true in other categories. Right? Like, if I look at what my bread and butter, which has been marketplaces with B2B and consumer facing, the AI disruption is actually benefiting startup incumbents because they have the data modes.

37:23And so it doesn't benefit eBay, you know, because they're slow and big, but it benefits, you know, in a common startup that has already liquidity that is the most efficient to operate, that is at scale. And then now they're adding an AI layer and they have all the data to make the better decisions improve the funnels, et cetera. And so I don't think in these keyses they need to be, they're not at risk of disruption, actually. They're just, they're just improved. I totally agree for me. And that's perfect once again. The diversified portfolio has that advantage. No, you're exactly right. Are eBay not advantaged because of their touch points to Anaconsumers and the sheer distribution, the remaining brand that they have?

37:59I would just argue that they just have shit internal policies, slow decision making, and poor teams, Compat to startups. No, I don't think that's the issue. I think the issue is actually simpler. It's their horizontal and multi category. And even though they have the old information, all the cat, like their tech stack is not built such that you're a best in class in every single vertical. Right? So the collectibles that Pokemon marketplace is going to do better than eBay. And that's true of every single category you can think of. And so we're in a handbag marketplace called ReBag and that they have this AI where you take a photo and Pumit tells you the model.

38:32I hate whether it's Faker or not. the quality, the price, everything's done. And even though eBay as a data, their tech stack is not that flexible, but they could do best in class transactions in every vertical. So it may just be a vertical horizontal play where the verticals just do better, but eBay will buy a lot of these. So it's more tech stack, I think. And the new team is amazing for what it's worth. They're going back to the basics, they're going back to collectibles, use the notch or any B &A on Amazon clone. That's a super interesting and nuanced point, by the way, for me. It's equivalent to what you're hearing in enterprise software, which is with AI, the deep verticals will do better than a body horizontal, which because what you don't need is just the horizontal transaction management platform.

39:14You need a full solve the problem. And it's incredibly hard to solve the problem in insurance and solve the problem in retail and solve the problem for manufacturing. But here's the interesting point is I think that's true and add the application level, but it the fundamental LL level. I think the horizontal, you know, GPT may just win most categories. The same way the Google one search recently read large, except maybe kayak for travel. I think open AI and chat, GPT win most of the LLL type categories. Like I used to use mid journey, but like Dali is so good. And as part of my subscription, like I just don't use mid journey anymore.

39:47And that's true for many things now. It does it end up being true in every category. Like cursor or lovable. I'm not so sure. These are maybe still verticals that work. But the application area, I think the hyper vertical where you solve the problem and win over the horizontal. I think all of us idiots, by the way, I spoke to a friend of mine who is doing a quarter of a billion dollar SPV into open AI at 300 billion and you're looking at that going Christ there is a non -zero chance you're gonna three to four X that SPV on a quarter of a billion with a 20 % carry. It's not a bad deal. A dirt. It's not a bad deal.

40:24Not a bad deal. Especially because it's an SBV. You don't have to go into Rory's prior point. You don't have to talk about it if it doesn't work out There's no downside to the perfectly constructed SBV. There's especially if there's no GP commit you just don't talk about it I court of billions quite hard to hide I think I do want to also, you know We mentioned like incumbents reinventing your in your in your LP report Sure Your choral piece just get the main funds and only the SBV guys get a separate distribution That I do over on Carter and I got some of the email addresses wrong and I don't I don't know how to break it you Jason would you get a little bigger you'll hire a GC and this would be the moment in the podcast where your GC has a heart attack But it's okay for now keep it clean keep it tight Just why do the LPs that aren't in the SBV need to know the data and performance of the SBV?

41:08They don't do they worry Just get your inhaler. Okay, it's okay You see the GC's behind you just breathe Transparent person you'll see I just forget about the big GC I see a lot of stuff swept under the rug a lot of investments and it speaks to it on your point. I see it, even from my little vantage, right? Some people were the heart on those sleeves. Jason wears his cynicism on his sleeve. That's why I like it. Oh, I totally agree with that. But we imagine the reinvention of incumbents there, service now, popping 24%, growing 20%, well, almost 20%, at 12 billion in a year or, what do we make of that?

41:44Bill McDermott coming out with another monster stroke. How did we evaluate this? First of all, at a metal level, we're all trying to wonder. And everyone in enterprise exaggerates how much AI has had an influence in their business, right? I mean, Mark Bainhouse is great, but he said they've had 500 ,000 transactions on agent force. We've had over 100 ,000 on Saster AI. I don't think 500 ,000 if you, it sounds great at first blush, but if you think through it, it's early, and he's acknowledged it. It's not a criticism. He acknowledged it's early, right? So I think all the talk about service now of all these agenteic automations, I still think it's early, right?

42:15So on the other hand, we're all kind of wondering, listen to these guys all win. the most. You can put a really, really good AI on top of almost any system of record really good. You can make Zendesk better. And so service now up 24 % palentier even though you know it's kooky up. I mean SAP now was founded in the 1800s I think, Rory. It's up 14 % growth of 32 billion in revenue, right? That's the meta question is will they really benefit from AI, right? And the data doesn't totally support it. What I actually think, but Harry you hinted at it with square space and wicks, I think AI helps the enterprises on balance and hurts the SMB players on balance.

42:50The SMB players just don't have as deep, they have a lot of data, but it's not as deep, you can disrupt them faster, the sales cycles are quicker. I don't know this, we'll see this in 12 or 24 minutes, but we might. We might see the enterprise overall get stronger with AI, and the SMB leaders get weaker and weaker because they're disrupted faster. Yeah, no, I, I, I, I went and looked at the actual numbers on service now and the bit, yeah, it clearly it'd be the expectations but plus or minus it's been a little over 20 % growth of you know five or six years. It's just a really well -warned market dominant company so I don't have an insight on the minor question of the jump based on Q1 versus actuals.

43:28I don't know what they were thinking or what they were worried about and why pop 24 % on what was pretty much the prior logical estimate for revenue growth, right? But zooming out to the Jason point, I think that the bigger question is, there's two big questions. One is, you know, what happens to these two or three ultra -large SaaS companies? Does AI help or hurt? And you know, my mental model has always been that at any point in time that's actually three different players, the pre -AI Bohemite, if it's a service now, there's the AI teenager, which is typically accompanied pre -LLMs, that had been building something in AI from about 2018 on.

44:08And then there is the post -LLM YC next generation company and in all these spaces that's roughly true. You can name the service now You can name the mid -tier players you can name a bunch of new ones and we're just being by service now as they you know Made a true move they bought one of the teenagers. They bought move works just now and they said hey We had an AI story before we bought a small company clearly getting some traction But clearly not enough and they decided you know, let's take three billion You know, what's that one percent of your market cap and by move works and get really relevant in AI So I thought it was kind of a shrewd move.

44:39I think the market's saying, I don't think there's anything more profound in it than saying, this is a company that looks like it's going to be a winner in the post AI world that still has scale, that still has profits, probably worse. You know the one where I'd be curious what you thought that I think about in the middle, like the SMB enterprise is box. You were in an early investor in box with scale was, right? And like Aaron's all over AI and I've been in the document management space. There's fewer spaces that you could disrupt more with a good AI than documents because as all our goals since the early days of documents was how do we take this unstructured documents, sure we can OCR, we can extract a little bit.

45:14You couldn't do much with these documents, right? And this is why Aaron's in love with AI. The question is, will it be enough for Box? I don't have an, I'm just watching as a student, right? But I think it's in the middle. Like we don't know, will this re -accelerate Box because Box is a more valuable app or not. But there's no question we have a CEO that's all over it, right? An S tier CEO that's all over how to make AI, I had to make a 2005 company with AI better, right? I'm watching as a case study. So, yeah, my comment would be, first, not only do I like Aaron personally a whole ton, but more importantly, he's one of the CEOs on most respect.

45:49And going back to the comment earlier on, gritty and hard and sticking with it, that's a team that's been there now, probably for 20 plus years, doing the same job, never blinking when it got tough, never blinking when the activists showed up. So there's no one I want to win more. I do think, and again, back to the thing, if what it takes to make it as kind of that teenager plus company, if move works as a teenager, box is clearly a young adult, right? And if what it takes to add AI at that stage is great focus from the CEO and the team and just driving change, I think Aaron will deliver it. That's something the big thing.

46:25I'm still a stockholder, glad to be a stockholder. And you know, another day could riff long and hard about the negative parts of being public. I learned a lot from Aaron and what, and I've changed my thinking on how best to ensure founder's CEOs can be successful in the public race. He's done an amazing job. I'm sorry. I'm naive guys. You're right. Aaron's all over AI and you're right. You're right, Jason. The document management space is the most perfect space for it. Why is that not reflected in the excitement around their market cap? Their market cap has always been pretty depressing as a multiple.

46:56Sorry, Rory. And you can just recuse yourself. I think I worry we know more. I just think it's a question of what will it like AI it may not lead to breakout growth for some of these players Right, it's like has service now bill says it has for service now I'm a little skeptical. I think it's just think it's early, right if it was as simple as having An incredible AI on top of all the data you need box should win box should re accelerate to 20 or 30 percent I'm talking about a big public company like a VC It should re -accelerate it has it has all the AI and it has the data It has trillions of documents that you can't even find.

47:32Now I can talk to my documents. It should, if we're shooting from the hip as investors, it should re -accelerate. But if it doesn't, then I'm trying to learn how AI will change it, right? Because box is going to be in 12 months an order of magnitude better application than it was 24 months ago. In 12 months, it will be an order, not a little bit better. It will be an order, and will that be reflected in growth? That's the meta question, right? Well, the question does that actually come out in value extraction? Sorry to interrupt you, Rory, but like, can, can, can, can, was a better product, but actually they've just got margin degradation because they actually are paying more without charging more for a price.

48:08I think in the end, if you deliver value, you'll get value. And you know, contrary to S Scott Fitzgerald, I do believe there are second acts in American life. I genuinely do believe that AI could provide a strong boost to the barge value proposition, which needed it because the reason, you know, you give me grief from the stock price, but it's, and it's a compelling achievement to have done what they've done. But the reason the stock price is that was hard is we're competing against Microsoft and Google who give away for free. The fact that they've built this profitable, widely cashier, a positive business, competing as the two largest companies on the planet who give the damn thing away for free just hats off to them, smarty pants.

48:44But now the question is can they re -accelerate? And I think the interesting thing, there are examples in the past. Like, for example, Adobe way back in the late 90s, One of my partners used to work there. She said they were stuck at a billion in revenue for like three or four years and then they got the unlock and they were accelerated. I can't tell you what's going to happen. I'm not in the board, but that's obviously, you know, just as Bill McDermott is looking to grab onto AI, I think Aaron is wisely grabbing onto AI. And you know, I prefer to be playing that hand than the guy doing a billion, building a half an revenue saying, hey, I want to impact my business because he'll be gone in next month.

49:17Roy, you said if you create value, you'll be able to to extract value, I'm worried because you see people like Windsorf and Kursa who are creating the most insane amount of value, now doing like a billion lines of code a day, charging now Windsorf price slash. I don't know what the prices are, but they were like $30 before, I think now they're $15 or $20. Are we moving into a world where there is this dislocation between value creation and value extraction? My guess has probably been at first of all given the background noise, I don't think we need to worry about wind surfs ability to quote unquote extract value.

49:52They appear to have found a higher source of value to extract them capital market side. So I think they'll be doing fine if they get three billion bucks. But I think I'm pricing, I thought it was a clever move. I think that you're going to see this. I mean, yes, they lower their lower price down, but they have tiered pricing. It's the conjoined question you were asking about, you know, value pricing, which is very hard to do for a product like this. Having tiers of pricing where you get lots of people using the base product and then escalating steps of value as you deliver more value, probably is the simplified version of quote unquote value pricing.

50:26In much the same way as OpenAI has 0 or 20, 202 ,000. They're going to keep giving stuff away in the lower tiers, get you hooked and upsell. I don't think it's a charitable act or an act of madness. I think it's probably a pretty shrewd pricing strategy. Well, listen, I think what they're doing is vaguely similar to what HubSpot has done, which is they're going more and more low end. Like, up to about two years ago, didn't even have this essentials edition, which is like 45 % of the new customers, and more enterprise. So if you look at WinSurf, to get going, it's simpler and cheaper than it was, right?

50:58But the average enterprise customer pays like $60, $80 per seat and they have 200, 300 people and their enterprise go to market motion, right? So they've got a barbell where everyone can get on this platform, they're having incredible marketing from it, right? I mean, in three months, everyone says, this is better than cursor. or we can all have our own opinions. Incredible marketing benefit even from HubSpot from this long tail. And then they've got 203, 400 sellers selling six and seven figure deals at $6 ,000 to $100 a month per seat. That's a quietly better model than it looks, right? And it probably can scale and absorb some significant costs from open AI and entropic, right at that level, it probably can.

51:36I worry that these things are gonna be more competing than competitive people think, right? Why isn't GitHub competing with cursor, right? What are you doing? Go, go, yeah, but it's co -pilot versus cursor and one serve is number friggin' one on there, on there got a kill list for Microsoft, number one. So it is existential for that, forget hub to do. Exactly, so I worry, and again, again, this is the reason I've been avoiding these AAD deals that it's kind of like 21, where in every category you were going after, there was like eight great teams, well -funded. And the very fact that there were that many actually killed the economics of the category until eventually a winner emerges.

52:17Well, the problem is if you invested very high valuation in a company in a category where there were eight people going after it and and overspending a cash acquisition or are offering too low prices, it ultimately didn't lead, I think, to great outcomes for investors. And I worry the same thing is going to happen here. And so while I do think eventually a winner to emerge and they'll have the proper pricing fire. And I do think the long run, you're able to extract value when you create value, there may be a lot of investor value destruction in the way up, because people are competing on customer acquisition and on price.

52:52Like, if this ends up, when it takes most, you're willing to do whatever it takes to win. And as a result, you're willing to give up, give up a lot of value on the way there, and it's good to take a lot of capital. And that's what worries me about these models are at large, and that's why I've been staying on the sidelines, especially considering the valuations they've been raising it. I'd rather pay up when one of them seems to be the dominant winner, and I suspect that then price and traction will be more light. I think I've said this before, but one of my friends led around in one of the model companies at four billion, and now it's at 60 billion, and their multiple is a 3 .1x, and it's because they're shedding 9 % a year in employee stock on, and they've raised billions and billions and billions.

53:31It's not a really adventure -fundable asset in that respect. That's not the bad side. That's a bad side, Rory. Don't hit me. Come on. No, no, I hear you. Look, it might be the best venture we turn, but I just think on these broad trends, not showing up. Just walking away from the trend entirely is just too hard. I mean, I think you have to, I think they're still up 3X. I think they have upside from there. So I think in retrospect, they're probably still glad they did it. They might be nervous about the burn. I think you know, we're probably saying some version of the same thing. The best of all worlds would be a wonderful tech trend and low capital availability, which means only two companies get funded, they slug it out and they both make money.

54:14That, welcome to 2010 or even 1994 because I was in the business, it was awesome. I'd still prefer a really strong tech trend and five or six competitors to no strong tech trend. I do love where we are from a tech perspective right now. This is some of the most amazing technology we've seen in 20 or 30 years. I mean, we get so used to it. Do you set me a questions, Harry? I just lured him off the chat GPT and on my god of an expert on everything on the podcast 10 minutes later. It's just a wonderful world here. So there's a huge amount of value happening, right? But I do agree with it's incredibly tricky given figuring out how to play with just the capital.

54:50The capital is definitely massively eroding the returns. You find yourself as an investor trying to find a way to play the trends. I mean, we're not on it this every day. It's so hard. Do you go a little earlier and try and catch it just before when you know the bad news is you don't know who the winner is and there's eight Do you pay up for the winner at five or six hundred when there's only a million is that enough traction? It's damn hard. I'm not saying it's the only game in town perforbreece But it is the biggest game in town and pushing away the table entirely is a bit much Roy if I was on your team.

55:22I would be saying to you play the trends do we're pre -seed seed in a our game is backing generational defining founders. We don't play trends. We just try and find the best founders in this business. How would you respond to me if that was what I said to you? I'd say to you at the precedence scene that's probably true. And by the way, I like your tweet. Just to turn it right back on you. All you have is three things you said, I'll give you the three things you have for your tweet and I'll contrast it to where we are slightly different. You said there's only three things. I've got awesome fricking founders who are fully directly correct market and economics that makes sense.

56:01And you're exactly right. Those are the three things. But you did add the second one is there, right? You do need to have some semblance of directly correct market. You know, we're probably paying around in a half. By the time you get to an in revenue, A, which is where we play early revenue, a product market fit, you have to have product market fit. That's why we use the word, right? So, and the thing is, if you pay up for a company that has product market fit, and then you lose it and have to re -acquire it, by definition you've overpaid. So, by the time we invest, I wanna at least say, I believe that this is the right solution that has some element of product market fit, we're not gonna tear it up and start again on something else.

56:41That happens, and as we've discussed last week, it happens more in AI than anything else. But I can't afford the luxury of just saying, these are meat eating founders, and they're going to figure it out who the fuck here, excuse me, who the hell cares what they do. I want to at least know they've locked into something that can hunt and then the economics like you have to make sense. Yeah, but I don't think you can find that number two with number three today. Really a tool because I see these deals every day in a saffronry and they're 400K an error. That's not product market. Okay, you call me.

57:11That's the big 12 then, dude. Okay, you're nearly exact. That is absolutely the issue we're wrestling with is by the time you have our first criteria of product market fit and a good fund, the third criteria value. No, that is why venture capital is hard. No, you're exactly right. Is the solution to try and do what you do and go precede? I don't know. I think you have to. I think you also have to, given the fact that pre -seed funds are now $400 million like mine, I can do the seed in the A. Good luck trying to take my best pre -seed because I'm going to cling onto it as hard as I can. And I think that's why you'll see me.

57:45They may lead the seed for windsurf, because there's a realization that there's no frickin' way you can get in, unless you are there. But even there, that one, I mean, this is a good question. When both windsurf and cursor, any sphere were radically different companies when they were seed funded. They were not even the same company, okay? They were nothing. And then, I think I have the chronology. When Green Oaks doubled down on windsurf, it was codium, which essentially the company abandoned three months ago. Every engineer was repurposed to build a better version of cursor called Windsurf. So this is like betting in an STR founder, which Varune is, but those bets don't work out a lot.

58:22I don't think those bets work out most of the time, the STR founders, right? And the classic B2B investor is at 40 KMRR to your point and is attached to a trend, like the world has changed here. The world, it's AI, it's WebRTC, it's mobile, and they've attached to an early trend that even you couldn't see in the old days, right? There is early product market fit at 400KAR, right? It's just we used to be able to invest in those companies in the teens. I'm sorry, NSF is there really early product market fit? You're a YC company, you've got all your YC mates around you. You've left a firm, we've left Square, or you've left whatever.

58:57And you say, come on, I'm not for a 20K contract. You get 20K contracts. That's not early product market fit. It's having good friends with some kind of... I think 10 folks that weren't in your batch might be though. Totally. And more importantly, Harry, what turns out it's hard to make money, right? Tough shit. You know what? Yes, we're paid to figure out which product market fit is, bullshit and which product market fit is not. I remember back when the round that we now do, which isn't used to be the... I remember venture wisdom when the A used to be the seed was... Yeah, the problem with Series B is if you get it wrong, you end up effectively paying Series B prices for Series A risk.

59:33And it's exactly correct now at the A. You're paying serious aid prices for seed risk, but the whole point of having to be good at this job is being able to figure out which is which There's an element of the job that is picking and turns out that's what they're paying the comments in the salary for and you got to get it right And if you don't you are going to lose money because you're in a more forgiving capital environment Your margin for error would be much higher and that's the really hard thing about today You don't have enough room in the price to bury a lot of errors So you got to get your picking much better and you win way much better.

1:00:06So yeah, it's harder to make money when those 20 VC competitors than those three. Yeah, what are you gonna do? I love it for briefs I basically get a schooling every week from Rory last week. I was a hypocrite so this week is a definite improvement on that I want to I thought hypocrite was wrong. I just should have said you were just incorrect I have a thoroughly inflated ego and so it doesn't really harm me You also mentioned something in 1994. I was born in 96 and so I wouldn't have actually remembered that. But thanks to you, Red. Yeah. Maybe you read anything on social media. You might be able to read.

1:00:41We know that. If it's not a tweet, I'm out. I was a real guy. I want to just run through a couple of fundraising elements that I just have to your thoughts on and then we'll wrap. Manus raised 75 million for its last valuation, and lab by benchmark. It's a Chinese company. I love the benchmark guys, and like their friends, so this is no shade, but should we be funding Chinese AI companies? The first one I thought when I saw it was Rory's point before was where I'll take you more risk. So there's a political element here, right, which I'll briefly another folks and talk about. But when I saw it, Rory just rung in my ear.

1:01:17It's like, would any one ordinarily want it today? In today's world, want to do a China -based AI company? know, but it's disrupted AI at least for now. So you're taking more risk. You're taking more risk. You won't get liquidity. You're taking more risk. The government will take away your shares. You're taking more risk. You can't repatriate any earnings. I don't even know all the risks, but so many folks have walked back from China that they walked in. I just thought it's taking more risk to get the massive outcome. The second thing I thought when I saw this wasn't really benchmark. I just think in general nobody cares.

1:01:48Nobody cares if you're selling weapons, no one cares. Like people love defense tech that's off killing people. Now we could argue either side of it, but I haven't talked to a VC that thinks there's anything wrong with that. I'm sure there are. Everyone's like, I'm Mr. American Dynamism now. I'm all American. And maybe that's okay. But it was just a couple of months ago we were talking about that, I might kill us all and that we needed safety and control. And I haven't heard a peep out of that since Anthropic was formed. No one cares, right? So, but there's risks that Rory rang in my ear on risk.

1:02:19Yeah, and so much to unpack and what you said and then what Jason said and silence on some parts does not indicate consent So let's now go back to it and say On the decision I think you you led with the should I want to avoid kind of the should they shouldn't they you know playing Geopolitical guru because I'm not my comment was as a Fund investor you said yes the way I think of this this on an individual deal level quite a lot of risk but they're probably massively getting paid for the risk. And it's an idiosyncratic risk. So probably from a pure portfolio management perspective, adding one of 20 deals that has this very weird risk, where you're probably getting a lower price but have some exogenous political risk, you could say from a pure finance perspective might be a good idea.

1:03:04I wouldn't do it, because there's two other criteria. The second criteria is, are you taking individual deal risk? Are you taking firm risk? where the blowback from doing the deal slops over, not just from the individual one out of 20 deals into some impact on the firm. I can't assess it, and it can be clear, I'm not yet making a moral distinction, but I'm just saying, hmm, with so many people and so much congressional pressure around that, I wouldn't have had the courage to maybe bet the firm or the very least bet that I'm gonna spend some portion of 2026 in front of Congress, explaining this in a way that I we saw very intelligent investors sequoia people like that get out of billions of dollars of value because they just wouldn't want to be there having got out of something I wouldn't want to go back.

1:03:54So I think institutionally as a firm are probably wouldn't the donut. The last one is, you know, some vague model trying to articulate the moral stuff and I'm deliberately punting on that, which is not to say, I just want this. or your wife just said you couldn't say anything in that regard. So yeah, yeah, I get a list of band topics. Be start of every minute and that's one of them. But I think there's very different risks from doing a US based defense contractor, like Androle versus getting involved geopolitically with China, right? Not commenting on the specific company. I probably would be happy to skip that risk.

1:04:30Let's just put it that way. I don't have a developed opinion on the whole open AI closed AI, I open AI's open source AI. I don't know enough about geopolitics in China to blow the eight on it. And that product is available elsewhere from VCs. So I don't need to fill that market gap. But I just go, hmm, that would be a tough one for me. Look, I used to invest a lot in China and Russia back in the 2000s and 2000s and early 2010s. And you know, I was an early investor in Alibaba, right? And then and financial, et cetera. The thing is there was a path possible. were both of these countries would actually be US allies, right?

1:05:06Like it, Dinkshout Ping really saw the two countries and Dinkshout Ping's probably one of the greatest, you know, Seisman of the frankly ever and got a billion people out of poverty and the path he was he was going on was pretty profoundly different from the one she's in Bing is on it And so she's in Ping having this Nationalistic, you know, confluxual great power issues once Jokma was disappeared I pulled out of China completely and my remaining oldying is and financial which should have been a massive home run and that Xi Jinping just personally decided you know what I don't like what Jack said to the regulators I'm shutting down the IPO and I did the same thing in Russia Russia was an amazing market for us and then in 2014 Putin decided to invite invade Crimea when that happened all several of our unicorns were funded by like Tiger and Buster, etc.

1:05:59were all the capital pulled out. The only people who have to fund them were like local, well connected oligarchs, and they're like, okay, I'm at. And so would I take that geopolitical rest today? No, absolutely not. Do I think actually backing people that are counter -iter -interest is a good idea? Absolutely not for just moral perspectives? Now do I think that at some point this may change and they may become, again, and more aligned, we can get away from this great power war, great game type world that we're back in currently. Yes, I hope that that's true. And I'm actually hoping that in the long run, as China becomes wealthier, the masses will not want taxation with that representation and big turns into a democracy.

1:06:40But the problem with dictatorships is, people can see dictators have very long time, even if they don't do right by their people. Look at the Castro's or what's going on in Venezuela. So for now, I would completely avoid these geographies. I frankly, I even moved away from Turkey, which remains a democracy in a US ally, but that area again is like to me going against all the principles of Atteterk and the revolution, the positive revolution that happened there. And so I stick to my personal moral principles. I'm either a stream of defense tech. I'm investing a lot actually in Ukrainian defense startups.

1:07:18My vision is that Ukraine could become the manufacturing hub for defense. They, in general, and I'm an investor in general, the problem is their cost is extraordinarily high. So the way you measure this is cost per kill and they're not battle tested. You want to minimize cost per kill basically. And so these startups in Ukraine that are using super low, yes, I know that sounds horrible. I want to say if you investor Dex was CpK, cost per kill, I want to say it's declining over time and I want to make sure that cross is over by the series C that your cost per kill declines. Look, if you're backing defense stack, this is at the end of it's RRI, right?

1:07:55People want to make you be efficient. And if you're a country with lost resources, you need to be more efficient. And what Ukraine is doing is building an extraordinary stack that if we are ever in a great power war with China or Russia, we're going to need access to it because we're cost to too high. Right now, we don't have the manufacturing capacity. We would lose a war with China right now. And I think the only way out of that is like backing things where you can build scalable, cheap, massive manufacturing. The reason we won World War II is we out manufactured the axis. And that was the US.

1:08:28Today we don't manufacture. CAC, CLTV, and CPP are the metrics. I really run the fun based on. To be clear. I know you're so honest. Sometimes a high CPP can be disguised in the low CLTV and that's the problem with the lower margin of American dynamism investment is your CLTV can seem high but your CPK is high as well. You've got to get the cross. What is the magic number here for the ratio of CLTV to see if it works? 5 to 1. 5 to 1 is that how it works? Yeah. Maybe David Satsal will help us with the ratio, like a burn ratio. We can do the ratio. But I think this is existential. It's existential for Ukraine.

1:09:11I think it's existential for the West. I think we need to be in a capacity to be strong enough to defend ourselves. Otherwise, we're going to be bullied. And otherwise, we're going to lose. And if we are perceived to be weak, there will be... I think our perceived weakness is more likely to lead a war and enter an invasion of Taiwan or whatever than if we are perceived to be strong. And so it's distasteful. And look, I would much rather we all live in harmony to be clear. And I would rather we don't have the leaders we have on both sides. but it's existential and essential and we need to do this.

1:09:43Can I just add one question I know we're over, but for brief, since I haven't done any defense taking that, do all these new seed investors and folks that are excited about, do they have any idea what they're doing? Or are they just chasing trends? Do all these folks in dog patch, investing in hot startups, do they know what the hell they're talking about when they do, when they pop down to El Segundo for the day, or are they just flushing their money down the drain? I think no, they're doing what Rory said people should be doing, which is investing in mega trends and is defense tech mega trend.

1:10:12Absolutely. And they're trying to latch on and what are and by the way, they're very good funds in this like shield in the defense. They're amazing. They know exactly what they're doing. Do most people that are latching onto this are loving and look, I'm an investor in Dorault, but I think most people are like, this is the emerging winner we need to pile up the truck here in advance or how thoughtful are they and how they really looked at the cost for kill, etc. I think the answer is no. probably the something well there probably just a thoughtful as the dude who piled in 250 million on the SPV don't conflate over thinking momentum in that that may actually be impacted negatively by overthinking I think it's actually one of my faults is that if you just want to file on the dominant winners and the mega trends please stop thinking because that sentence is all you need and on the last just comment on that I mean listening to all this, yeah, I remember 15 years ago investors asking us why we don't do China investing and we didn't then and we have never done and yet my perspective as an immigrant coming here is the US is 25 % of the world's GDP 50 % of the world's software and enterprise technology market.

1:11:21If I can't make money on 50 % with the rule of law, adding another 10 % with no rules whatsoever isn't going to help me. So I'm so glad I haven't had to do that to make a buck and good luck to the benchmark boys, is it feels like a hard war to hold? No, well, every fanater, especially I'm European, right? I'm in a migrant as well. I came all my French fans. They're like, where should I build startups today? Does it matter? Like, no, come to the US. You have like 300 million rich people that are early adopters that are dying to buy your product. You're playing the game of life on Easy Mode and we're very easy.

1:11:53I mean, yes, it's harder to get a measus by whatever. Like, you can figure it out. There is no doubt. And by the way, if you're at 100 million revenues, it's easier to get from 100 to 200 in the US since you're at 100 anywhere else. And that's true to billion. and it's true probably maybe forever, just by being such a... For Greece, you've just kicked off Howie and... And having you push back classic glib statement from American... And American intern, Cate Coss, I add lovingly for Greece, lower salaries in Europe, higher retention, fantastically like to have both, okay? Easy access to cash, there's a lot of money in Europe actually.

1:12:31I completely agree and you can sell actively into the US from Europe. Pigment have showed that in scale to a really meaningful revenue size from Europe. You have to get on a plane more often, but it's absolutely possible. You can leverage cheaper engineering teams, higher great sales teams in the US. Very possible. What's the question? Is there an arbitrage here? Point being, you don't have to. How are you arguing? We can sit this out, Jason. No, no, no. When I started investing in European startups accidentally, pipe drive and ogoli and talk desk. It's not a great insight. I'm always shocked how much cheaper engineering talent is in Europe, S -Turk talent.

1:13:07In Paris, the best engineers, it's half the price and people stay past their cliff. Everyone at OpenAI, they leave it their cliff. And why that arbitrage doesn't work even better is the odd question. It's less understood that it exists, which is freaking true. I'll tell you just one thing, Harry, just on this. When I've asked a lot of the European founders that I still work with on this, right? And they're all relentless. They're like, they're just not driven. Our European folks are just not driven enough. I don't care about the cost. They're just not driven like SF. Everyone says this to me. The ones I've invested in, gorgeous Nicholas from Algolia.

1:13:43When I saw him at YC demo day, everyone, I mean, Nicholas is like everyone in every French startups they've got to come now. He's like, I didn't think this three years ago. And maybe he's talking the YC thing as a general partner. But everyone I've worked with, they're like, we don't care about cost or retention. It's just the pace we cannot yet our team in Nice or Barcelona to work at the pace of the US and we don't care You're made it lose a load of logic you're up disagrees. I'm not I don't have the data I'm gonna lose a load of friends in one sentence none of those are generational defining founders go to revolutes HQ I think I revolutes awesome.

1:14:16No, no, I'm not saying I'm just saying you know You're right and I agree but the founders set the cadence and if you all I think Then the ultra outliers will be everywhere outside of Antarctica, right? You will have the revolutes, right? But when you have to hire hundreds of people, that's where, um, that's where it gets hard, right? I just think then you're stuck with the average, no matter what anybody says, there aren't 500 S tier engineers that want to work anywhere about cursor. They're just, they just don't exist, right? They're going to work at your boring B2B company. You're lucky that four S tier engineers at your concrete B2B company with an AI copilot if you get four you're like if you have one person that would work at OpenAI that will join your it's a serious issue we look at you have one but maybe if you're an SF you can get two.

1:15:01Roy you're traded. Are you okay Roy? I don't know if I greet you Jason that gross generalization on you but I actually don't think you have to because the real truth is in enterprise software as a state from consumer work with Greece is like an enterprise software it doesn't matter where the R &D is and it should be wherever you can get good R &D. The spend is 50 % in the US, 20 % maximum in Europe, you know, 30 % rest of the world, and the US is the early adopter. So the thing that is true is for enterprise technology companies, your R &D can be anywhere, you go to market, will have to be in the US, and you can make that statement wonderfully without tight casting your confidence or not of the entire 300 million people in Europe.

1:15:43And as a European, I don't want to do that because I do want to be able to go home sometime. So I think we have those investments where they have European engineering staff, etc. And they're awesome and great. But I think in the end, the reason we mentally think about the American market is because, you know, Willie Sutton, that's where the money is. Yeah, but I just don't think you can win today if you're comfortable leaving work at five. I don't think I'm going to defend the European's. Now it's working. You pissing me off. I think there's a visible difference between the Europe of the people who get it and the Europe of the people who don't.

1:16:15And let's be clear, out of the 300 million people, not all of them are even most of them get it, right? But when you run into the people who do you like, yeah, you're with the program. And you're right, it's because it's not anywhere close to most. The generalization that you're making is correct, Jason. But that's looking at the whole working population. There are teams, there are critical mass areas where people do get it and they're cranking, you know, Allah America. I mean, look, Dublin and there's a great place for American tech companies. And fundamentally, it's because people are with the program and cranking.

1:16:46I think it's true. I think pre -AI, I agree with you. I've just changed my mind in the AI world. Just the value of a 10X engineer is 100X now. It's 100X. Jason, that could be super infrastructure. But your companies are going to go wonder if they're not dominating AI and their market and B2B, they're all going to die. If you're not able to win B2B, they're going to die. They're going to die. Let me tell you why Harry's hiding here. Let me give you the bad news for breeze. What happens, and I'm going to, what happens in this program every time as we crank up stuff and then by the end, Jason Escalitz, and that's okay.

1:17:17But the problem is this, the social marketing team from Harry's team, then picks up a more inflammatory quote that Jason made, puts it out on the internet, with your face and my face. So tomorrow morning, we're going to see a thing that says, no Europeans were to dam, it's going to be your light picture and we'll never go home again. No, no, I think there's plenty of revolutes. I just don't think going home at 4 .30 to have red wine and baguettes, I think you're going to lose today. You're just going to lose. I can tell you from all the French founders I know, they all think it's like not them themselves, but their teams think it's, I literally talk this week, if you, oh, we're going over, to someone that, for an SVP of engineering role that's incredibly respected in Europe, okay?

1:18:00And, doing the cycle on all the portfolio companies and media, he's like, well, I just got off for a month off in Europe for my vacation. And I want to spend some time really thinking about AI. He said, I really want to spend some time thinking about AI, right? And so I took the chat and I put in the SASTRA AI and he said, should we hire this guy? And the AI said, whatever you do, pass on this guy. This was something that is, you know, these candidates that get passed around all the VCs because they're a hot candidate. This was a hot candidate that like the month off, the bag gets and is going to dilly dally into AI and you're going to get destroyed by the kids in SF.

1:18:33You're going to get destroyed. But Jason right now if you're a 10x engineer with AI you're become a hundred X engineer the question I have is in the long run could AI actually have the opposite impact where the regular engineers become yeah They become themselves maybe they did an 100 X where they become 70 X and that's good enough I don't it's already half a regular HDR today is already went from one X to two X like there's no debate It didn't trick the gap. No, no. That's a question. But the problem is, if you have the team that knows AI, your whole team has already been 2xed in the last five months.

1:19:09Your whole team is at least 50 % more productive, right? Even Salesforce commits 20 % of their code through AI. So if you're good, you're 50%. And literally it's 50 % across Windsor, like 50 % productivity. No matter what anybody says, there's no 99s, okay? It's 50. But everyone has these tools. As Harry said, it's 15 bucks a month, 100 bucks a month, everyone's twice as productive, right? But the question is, in the long run, yeah, but in the long, long run, when AI becomes so much better, do you think that the gap will shrink between the very best engineers and the average engineer? And because if that happens, that changes the game.

1:19:44If it doesn't, you know, then it's not. It's a question about not. I'm still learning that I'm gonna make the best from all of history 10X engineers have become better and better. They've become better and better. and that's what we're seeing in startups today. That's why they can grow so quickly. That's why Harry's, this is a small, it's not just that there's small teams, it's that they're much better than they used to be. So I think we're gonna see, we're gonna see 10X engineers even better. And I think half of these sales teams will be gone in two years. Half of these sales and customer success teams will be gone in two years because they're mediocre.

1:20:12They'll be gone. They're all gonna be laid off. We're not gonna need any mediocre, two call SMB reps. We're not gonna need any customer support folks that don't even show up to the QBR. They're all going to be gone with AI and the engineers are going to be even better and but the arms race because The arms race between cursor and winsurf is so huge and that arms race is going to lead to bigger and bigger engineering teams that are better and better and better And I think both I know win surf is a hundred percent in the office I think cursor is two they're going to be these these Aggressive in the office six and a half day week teams that don't get but gets in red wine at 430 I still love Europe don't get me wrong and I'm a fan of project Europe I'll be but but I think we got to find the revolutes because bag get culture I think is worrisome but But it's crazy it is the rate of changes crazy and I do think all these people are just gonna die if they can't change fast They're gonna die.

1:21:02I cannot thank you enough for doing this. This has been so much fun I see it's like the highlight of my week now Real in deeply Real in deeply real in deeply Joe, we're gonna pause before we lose more friends You've pissed off a continent already Jason, so you're cool. But guys, thank you so much. This has been amazing. Thank you. Nice talking for Bruce. Thanks for the time. Likewise. I have to say, I just have so much fun doing these episodes. They are the highlight of my week. Rory just schooling me is one to remember. Jason always a dear friend and a fantastic addition to the show. I hope you enjoy it.

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