Circle’s IPO Soars, The Future of VC and Cursor’s Crazy Growth | E2135

0:00I think this is like a moment in time. this shows to me two things actually three number one jeremy allaire is an incredible entrepreneur he builds real businesses i've known him through three different businesses bright pove etc number two it's about crypto regulation so uh david zacks the czar of crypto uh and sec and this administration want to make clear rules under gary gensler it was you know our way or the highway unclear. I think people were unlikely to go public because they were a little bit nervous. What if it gets unwound? And so in fact, Circle was going to go out via SPAC two years ago, three years ago.

0:41They chose not to, I think because of the regulatory environment. So that's number two is the crypto regulatory environment. Number three is public markets. There's not enough opportunity for the dollar. this week in startups is brought to you by linkedin jobs a business is only as strong as its people and every hire matters go to linkedin.com slash twist to post your first job for free terms and conditions apply coda coda empowers your startup by bringing words tables and teams together strategize plan and track goals effectively with all your valuable data in one place go to coda.io slash twist to get started for free and get six free months of the team plan and sentry your team should be focused on shipping features not chasing down bugs new users get three months free of the team plan which covers 150 000 errors go to sentry.io slash twist and use the code twist hey everybody welcome back to this week in service i'm your host jason kelly canis with me again alex wilhelm we got a huge docket yes sir uh for the press and everybody wanting to aggregate my opinion on recent events on Twitter with some friends of mine and the president.

1:51I am going to demure Alex from commenting because all that's going to do is get aggregated. Friend of says X, Y, and Z. Yeah, my opinion doesn't matter. This falls under the umbrella though, Jason, if you're kind of 72-hour Trump, what we've talked about on the show a number of times. So wait a little bit and see what happens. I'll just, I said this before we started, but I'll just say this. It was once again, a very interesting and fun day on Twitter. And I have not had that much fun on social media in some time. So I do appreciate everyone providing the popcorn for us. But Jason, we have a lot to get to in the startup realm.

2:27And I thought we'd start with a couple of updates from Wednesday's show. Some big things have happened and I just want to make sure we kind of close the loop on a couple of stories. Let's do it. First up, Circle, the American stablecoin company, previously a startup, tried to go public via SPAC back in the day, went public this week. And I got to say, I am blown away by the results. For folks who don't recall, it was initially looking at a$24 to$26 per share range, Jason, back up to$27,$28, went out at$31, and then it opened at$69, closed yesterday at$83 per share. And then today, it closed at 107.70.

3:04And what I'm blown away by, Jason, is just the scale of the growth in value here. I mean, I've never seen an IPO of this scale go up so quickly so much. It's mind-blowing to me. Bullish for IPOs, bullish for stable coins, bullish for crypto. Seems like a big win, but I wanted to ask you, if you were an investor in this company and it listed at 31, how peeved would you be that it didn't price higher? This is a classic issue. When you do an IPO. You're offering the public to buy shares in the company. The public bought shares in the company at$31 a share. And then the market price for the shares is now$100 or apparently 107.

3:43So this means, and it was 25X oversubscribed. What this means is they left$70 per share on the table. So if they raised$1 billion, they could have raised roughly three times that, four times that almost, if they had priced at$100 a share. Now, it's hard to know that that was going to happen, but with 25 times the demand for the shares, you did know that this was going to really ramp up. And this is where having an auction for shares or a direct listing of a small number of shares without raising money is a better option. So what's a direct listing? You put the shares up, but you're not selling any shares at that time.

4:27You're just saying, hey, the shares can trade. Then you make an offering, right, Alex? And so Spotify, when they went public, they just went public. They started trading the shares. And then if they wanted to raise money, they would do it later when they got the market clearing price. If Circle had done that, they probably could have issued their shares at$50 to$100 a share later this week. So they did leave money on the table but i think this is like a moment in time this shows to me two things actually three number one jeremy allaire is an incredible entrepreneur he builds real businesses i've known him through three different businesses bright pove etc and he's just been one of these you know incredible you know entrepreneurs with a long track record so number one jeremy is what this is about number two it's about crypto regulation so uh david sacks the czar of crypto and sec and this administration want to make clear rules under gary gensler it was you know our way or the highway unclear i think people were you know unlikely to go public because they were a little bit nervous what if it gets unwound and so in fact circle was going to go out via spack two years ago, three years ago, they chose not to, I think because of the regulatory environment.

5:50So that's number two is the crypto regulatory environment. Number three is public markets. You know, there's not enough opportunity for the dollar. So everybody wants to own the Mag7, everybody wants to own, you know, these great companies, you know, that are right behind the mag 7 coinbase robin hood uber doordash you know that airbnb that whole cohort let's call it the class of uh 2010 sure and um yeah pent up market demand for uh you know these products and so we had core weave and core weave has done pretty well post uh ipo i believe that their stock has run up as well. And eToro as well has done well post IPO price.

6:38So, I mean, the way that I framed this was it's three for three for technology IPOs this year in the US. And they seem to be doing increasingly well, which is very, very bullish. But for the for the nerds out there, Jason, who are really into crypto, I came up with a new useless metric, which is what percentage of USDC circulating stable coins is Circle now worth? And it turns out they have about$61 billion in circulating USDC stablecoins. And their market cap is now about$20 billion, which means that they're valued at about 0.3 stablecoin AUM as a ratio. And that seems a little high. Yeah, that is actually a very interesting metric because what you're saying is how they don't own that value, right?

7:25The value of the stablecoins is money that was given to them that they have put on chain that they own treasuries for. but by doing a percentage the market cap is hey how much could we value what's the value of those stable coins of those deposits essentially sure so the deposits are making four or five percent a year so that you're giving them credit for six years worth of you know revenue coming in but they split it with some of the markets where they're at so maybe it's really like net two or three points. So you're giving them, in that case, if it was net two, you're giving them like 10 years or 20 years of revenue.

8:04Credit, yeah, that does seem extremely high. Obviously, it's overvalued right now, like Palantir is all overvalued. You do have these moments. That doesn't mean I would short the stock. It just means this would not be the entry price where I would buy in if I was making a trip. Yeah. And, you know, these things happen. Things spike up in value when there's scarcity and they're a scarcity core weave is probably another one of those where i don't know what their price to sales ratio is right now um or their earnings but you know price to sales is a pretty good way to look at these businesses and you you really do need to look at these crypto businesses with the fresh fresh metrics and fresh eyes the the problem with stable coins or the thing to be aware of is they are dependent on the return rate of treasuries of bonds of whatever devices, they're putting that money in very predictable 4 % or 5%.

8:57What if it goes down to 1 % again? What if it goes down to 2 %? Yeah. Or zero. I mean, we were Zerp for a long time. It's interesting to me, and this is just inside baseball, but currently Jerome Powell over at the Fed by not cutting rates is really throwing a huge bone over to Jeremy Allaire and Circle. And by the way, if you want more from Jeremy Allaire, we had him on Twist episode 2004, Jason, that was September 6th, 2024. Really fun chat with them in a kind of pre-IPO context, if you want to go back a little bit. I think you're dead on though about crypto regulations and regulatory kind of certainty being key here because we also saw today, this afternoon, that Gemini announced that they have filed privately to go public.

9:41If you don't know Gemini, it's kind of like Coinbase, kind of like Kraken. It's a consumer crypto exchange, does a lot of business. probably best known, Jason, for having the Winklevoss twins behind it. They're best known for their early Facebook era, but they've really had a crypto second act, if you will. Now, we don't have any numbers here because this is a confidential filing, but they made noise about it, which gives a lot more credence to them actually going out because in March, we heard they were preparing a filing privately, but it wasn't really from the company. It was more like the Journal and Bloomberg and such.

10:11But now they're really pushing forward. And I'm not shocked to see this drop right after Resaw Circle do so well. Clearly, they were watching this and hoping that it was going to go well to push the button. All right. We all know if you're a founder or even if you're on a small business, you're thinking about your company 24-7, 365 days a year. That's the life of a founder. This is not clock in, clock out, nine to five gig for you as the business owner. So when you're hiring, you want a partner that's as equally as committed as you are. And that's, of course, LinkedIn Jobs. LinkedIn Jobs is like your co-founder.

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11:27So find out why more than 2.5 million small businesses already use LinkedIn for hiring. So here's your call to action. Post your job for free. Why wouldn't you do it? It's free. F-R-E-E. That's a good price. linkedin.com slash TWIST. Once again, that's linkedin.com slash TWIST to post your job for free. Terms and conditions do apply. But we could see another pretty big IPO here in the States. So I'm just hyped. It feels great. Yeah, it's great. You know, I think these marketplaces have shown that there is a market for people who want to trade stocks, cryptocurrency, other financial devices, shorts, whatever.

12:12Obviously, I'm a long-term shareholder of Robinhood, never sold a share in it. And I think it broke$70 a share. It's at an all-time high right now. $74.88. It's worth$66 billion, which actually leads me to my question for you, because Coinbase is currently worth$64 billion, which sets up a really funny split screen between those two companies. Now, they started off different places. Robinhood was zero-cost consumer trading of equities. That moved into crypto. Coinbase, of course, started off with a crypto base, and it's been moving into other products as well. But they're worth the same now in terms of their market cap.

12:43So if you had a dollar, which one would you pick? Yeah, I mean, I'm team Robinhood, but these are great contemporaries. So you might be looking at a Amazon, Google, Microsoft, Apple, Meta kind of situation here. These are all great companies. I don't know enough about Gemini to know if it's a great company like Robinhood or Coinbase. I don't suspect it's as good as those companies yet. What makes Robinhood very special is Vlad is an incredible product guy who keeps adding products to the mix. And so I think they have many different products, including their credit card, which now has millions of people on the wait list.

13:21I have never sold a share. We distributed those shares from our first fund at, I think,$12 or$14 a share. I probably should have held those shares and distributed them two years later or distributed half and half because then we would have gotten credit for, you know, on our books. But I, you know, I did tell everybody when we distributed them, I'm not selling just as a one piece of data for you and making your decision. And then people who were LPs in that fund, I talked to a couple of them who didn't sell and, you know, that's a four or five X difference, right? More, you know, five X difference, six, six X difference that would have made that fund, which was close to 5x on paper and 1.2 or 3x dpi already and there's still a bunch of different assets in that first fund of mine i think it would make the fund like maybe double that right like and so you know this is um the nature of venture but these things going public when you see all these companies go public what you're seeing is a bunch of venture capitalists get their wings you know and a bunch of lps get distributions and then it's up to the people who are lps in these funds to decide if they keep them or not.

14:29I wouldn't sell a share of Robinhood ever. I mean, I think the amount of assets they have under management and the way they keep releasing great features to me makes it a huge winner. Stablecoins, you probably saw Uber. Dara was talking about maybe having, using stablecoins for currency fluctuations between their different markets. So I think the idea would be, you know, if they have dollars in South America, in europe in euros etc in japan wherever you know do you keep them in yen or do you move them into stable coins do you move it into dollars at some point and this will reinforce the value of the u.s dollar so we're going to see many more ipos and i'm hoping the regulatory frameworks around crypto continue to become really tight and regulated tightly so that we don't have people losing their money.

15:21I was just in Singapore, as you know, and I'm talking to a lot of people in Dubai, Singapore, about the possibility that venture funds will become tokenized. So Jason, tokenizing a venture capital fund, what would that look like in practice? Let's say we have a$10 million fund. It's Alex's first fund, and I decide I'm going to put a million dollars into it, and Mike Savino decides he's going to put a million dollars into it. David Sachs puts a million in, Chamath puts a million in, et cetera. So you got 10 people each own a million. Let's say one of those people says, you know what, Alex has done great.

15:56He invested in Robinhood. And it's, you know, we think this has, we think the value of his fund went from 10 million and the Robinhood shares have gone up 50X and Robinhood makes up 10 % of the fund. Therefore, it's like a 5X fund on paper. I'm willing to sell you my million dollars in that fund, knowing that million represents 10 % of the fund's Robinhood holdings. And I'm just going to write down all the rest of the holdings or put those at zero, but there's a winner in the fund. So I'm going to sell my million dollar position, which is going to be worth, you know, whatever you could debate it, but let's say 5 million.

16:32I'll sell it to you for four or three. Well, we have that destiny publicly trading open end or closed end fund that has SpaceX in it, right? And every time spacex news comes out if people want to have access to it they buy that destiny fund because it's a quick way to instantly get access to it well then it would be a way if i had uber in that first fund or robin hood or whatever it is from breakout those people could you know maybe cash in some chips and then people who wanted access to that pre that early stage fund that early stage startup could get in and it would then create a market for a market clearing price for a fund, which would then mean I'd have to release a little bit more data or people would have to be more speculative.

17:20And then I would have to put some rules on it like I need to approve who that LP is or we need to know who that LP is and they need to, I don't know, be an American citizen or have a certain net worth or we have to have their driver's license. We have to know they're not on a terrorist watch list. We have to know our customer KYC, right? So there have to be some rules of the road. But if anybody out there is working on this, it's not clear on regulations who can do this in the world, but there are definitely markets where people could do it. So you have to be thoughtful about it is the long story.

17:54It's so interesting to me because I see a couple of things that could get a little silly. Like, for example, let's say that the fund hasn't called all of its LP capital yet, but I'm an LP and I I want to sell my theoretical allocation of the total fund. And that only happened after all the capital calls, because then I could sell my interest and then not do my later capital calls and wiggle out. And that would get a little dicey. But my question is - That would have to be in the smart contract, right? That if you haven't completed it, you could only sell interest in the smart contract of the called capital.

18:24So if you had a million and you had 500K called, you could only sell that 500K. You couldn't sell the other 500K. This to me seems a little bit complex when we have venture capital funds that are already publicly traded, like Molten Ventures over in the UK, which shows that you can have a more liquid valuation set on a venture firm. But what are they selling when that company's public? Are they selling the management fees and the returns to the GPs? I think that's what they're selling. I think it's actually the assets, but I'll double check that and get back to us on Monday because I haven't actually looked into Molten for a couple of years, so I'm a little out of date.

18:59But that is one way to go about this. I always get a little concerned people want to tokenize something, Jason, because it sometimes can be a little bit more complexity than value. But if you're talking about it with that many people, I presume someone's thought this through. I think it's the next big innovation in venture capital would be, you know, if venture funds are going to exist for 15 years, as opposed to just like, you know, 10 to 12, because that will, you know, then maybe it would be good that they could trade. So maybe you can't trade them until year five, but, you know, year six on you could.

19:31So then you could leave the fund open for 20 years and allow people to trade in and out of it. So if you had Stripe in there and you were a 13-year investor in Stripe, 14-year investor in Stripe, or 12-year investor in Uber, 13-year investor in SpaceX, you wouldn't have to do secondary transactions of selling the shares. You would just sell the share in the fund and people would know the fund has this in it. I think it would also be fun for there to be like i would take that fund and i would have all of our holdings be public and i would release like quarterly statements maybe of those companies and what we've invested in so it'd be kind of like an index fund where you know i told you i bought that k debt the korean defense fund and boy that's up like 30 and you know i bought like a quarter million dollars worth of it just because i bought korean defense fund that sounds interesting oh Wow.

20:20All right, founders, I know you got a lot on your plate. Running a company means you have endless tasks. You're juggling priorities all while trying to hit your KPIs, right? You got to keep the train moving. And that's why I love Coda. It keeps my world under control. It's the all-in-one platform. And it's going to consolidate all your documents, all your spreadsheets, and most important to me, apps into a single scalable workplace. The user interface and the product's amazing. I use it for something like twist500.com and for Founding University. It's intuitive. It's powerful. And it's going to make all your workflow seamless.

20:53It gets stronger by the day. Coda empowers your startup to strategize, plan, and track goals effectively. So take advantage of this limited time offer just for startups listening to This Week in Startups. You're going to go to coda.io slash twist and get six months free of the team plan. once again that's coda.io slash twist to get started for free and get six months of the team plan for f-r-e-e your favorite price yes yeah i think i bought it at 28 a share and it's at 36 or something 37 and it's up a total of 74 so far this year if you bought it at january 1st that's incredible yeah i bought it like whatever three or four months ago i think people are starting to realize that like defense contractors outside the u.s are going to do quite well um you know and there's a bunch of them.

21:39Anyway, that's this is my thinking is like, there's going to be some very interesting opportunities. And then maybe the ability to tap into markets, where, you know, somebody sitting on a billion dollars of crypto, 100 million in crypto, but they say, you know what, I want to slowly move my crypto wealth over to startups over to real estate, I'm not in the real estate game. But if somebody was in the real estate game, and they tokenized, you know, their thousand apartments they owned across the u.s in a real estate trust or something and it was tokenized and you could buy in and out of it that person could then use different coins to buy it or they could get loans against their coins to buy into it so there could be some very interesting ways that money could flow and even programmatically maybe you say you know i just as my crypto wealth grows i want to move 10 of it into startups so if my bitcoin if i got 100 million in bitcoin and i bought it at 50k and now it's 100k it's worth 200 million okay that 10 that was 110 million of the 100 million is now 20 i want it to automatically buy into and buy more shares of these venture funds or real estate funds so that i stay in that you know private asset, alternative asset world, more balanced, right?

22:59So you could do interesting programmatic things. Oh, I just want to say I'm so blown away that I've heard you say both tokenization and programmatic on the same show without you casting dispersions on crypto. I've also come around a little bit on crypto in the last 12, 18 months. It does seem to be these companies are maturing. I just glad we're past the NFT boom and kind of some of the silliness where there's utility, there's value where there's value, there's business. I'm fine with that. All right. Let's keep moving on. So on Wednesday, we talked a little bit about Windsurf, the coding service.

23:31They got cut off by Anthropic and they threw a very polite public fit about it saying, Hey, we want to give them money. We want to use their models. They've cut us off. And what we didn't have at that point in time, Jason was Anthropic's response. The good news is that we now do. and the gist is that they want to basically work with people for the long term and because OpenAI is broadly expected to be purchasing Windsurf that deal still hasn't closed oddly I don't know what's going on there it's a little weird that everyone's been talking about it for this long and it hasn't reached the sign dotted line yet but they're basically saying we're not going to let an OpenAI thief use our stuff so it is what we thought it was a competitive point but I just think that it underscores platform risk for foundation AI model companies in a way that I don't think people were thinking about before.

24:21But as Anthropic, as OpenAI develop their own cloud code and codex tooling, there could come a time when they don't want to serve competing companies that are building on top of them. And I wonder if Anthropic is going to regret this decision later because it's poisoning the well a little bit for commercial AI models, in my view. I think what's actually happening here is that there was probably an auction and Anthropic had the chance to buy Windsor. and they didn't clear the bid. And they said, okay, well, if we were the home team and we helped you get here and OpenAI is outbidding us, well, we reasonably need to not empower you.

25:03And we have this like one chance to extract some pain from our suffering that we didn't get to buy the company. So we're going to do it. You know, it's like there may be a little bitterness from Anthropic that they weren't able, this is all speculation speculation this is don't reblog i don't have inside information here i'm literally just speculating on what typically happens right the board of windsurf obviously would do their diligence and their duty to all shareholders by creating a marketplace if open ai was part of the acquisition marketplace so was google so was grok so was you know microsoft and obviously anthropic and amazon so they all had a chance at buying this i'm certain and probably anthropic was like you know what does jared caplan who's the chief science officer was like yeah their value comes from our model or some significant comes from our models so what are we doing here you know and uh yeah so everyone loves claude man i mean Claude's coding abilities get consistently high marks across the internet.

26:13People want to use it. And another company that does is Cursor. We'll talk about them in detail in a second. But I found it interesting that Anthropic, while talking to TechCrunch at their event about this decision, cited Cursor as a long-term customer of theirs. So I went back through the Cursor, which is the product made by any sphere, but we call them Cursor because it's easier. They raised some of their earliest capital from OpenAI. Okay. which just goes to show how how intertwined everything is here it's kind of no conflict no interest yeah i mean things grow and people place bets it happens all the time you know i'm an lp and other funds those funds might invest in a competitor to a company i'm working on a company i'm working on might pivot into a business that they're already investing in and yeah you know bad feelings happen and you know but all's fair in love and war and startups so So here we are.

27:06On that point, one last final question about this, because I've been trying to figure out what the advice for founders here should be. Because on one hand, you're not going to get cut off by Anthropic unless you're a big name and something goes awry. But at the same time, if you were picking a way to go about building your startup and you have closed models and open source models, would this Anthropic windsurf beef push you more towards the open source side? Of course, of course. Yeah. Yeah. Or being multi-model. Ah. so you know if you were building you know a product you would want to just be multi-model for sure absolutely and then we can swap out models as as needed as they improve that makes a lot of sense to me so essentially you just don't want to be have you don't want to have platform lock-in effectively correct okay yeah that makes a lot of sense to me yeah and i think they probably have the ability to move it over but you know who knows if they're ready to do that under what time frame and this is why you have a an agreement and a long-term agreement so So if Windsurf was being built off of Anthropics products, you would probably want to have a two-year contract, a three-year contract to avoid this kind of thing happening.

28:11So who knows if they're on a month-to-month contract, a quarterly contract, but that's what a two-year contract would do. If this was a two-year contract, they couldn't be cut off, right? Or else they would have a legal action they could take. So yeah, this is complicated stuff. Or there used to be a break clause that got them money or something other than, you know, having their API access snipped and then having to go tell their users, sorry. All right, moving on. One last update from some recent news. Jason, we've been covering the Rippling spying saga. Alleged spying? Sorry, the alleged Rippling spying.

28:43Thank you. Rippling is an American. Don't want Alex to get sued. What logo is right there, man? Yeah, I'm not Alex. I'm this week in startups. Yes, okay. Yeah, sue Jason, not me. Rippling is an HR tech and payroll giant. recently raised a Series G at about a$17 billion valuation. Deal in the same space was worth at $12 billion. Just giving people context about the companies. The background here is that earlier this week, Deal tried to create two bits of news, Jason. They said that one Rippling former contractor, now employee, had done something slightly untoward. Fair enough. And also that they'd reached the$1 billion ARR milestone.

29:22Rippling came right over the top of that with new allegations. And I want to get your take on a couple of things. There's some stuff in here that I would say is not surprising. Rippling writes in its new suit that Deal was regularly bragging about new hires bringing secrets from other companies, that I think the CFO said that he maintains, quote, spies at other companies, and that Rippling was behaving poorly. None of that's kind of a shock given the other allegations that they have said. But something that did catch my eye was this. And I'm going to quote from the suit here. So again, I'm not saying this.