The New VC Game | CoreWeave Sell-Off Creates Panic | Revenue Multiples Out of Control

Correct. And I think that's probably true. I mean, let me give you the contrast, though. At the same time, I don't think it's just going to 10 or 20 companies in total, because at the same time, there are a whole bunch of projects that probably in another era would not get funded at all that are getting venture money. Data centers in space, quantum computing. So we're very risk on for stuff that has ultra high upside. And I think the stuff that's struggling to get funded is, as you say, it's software for specific markets where there's some inarticulate fear that AI will make it all go away. Is that kind of a fair next level summary? Yeah, I think so. I think you're absolutely right. I think it's this like power law on steroids requirement where it's like, unless you can pay me the trillion dollar market cap, I'm not interested. To answer your question a little more, to be more tactical, Harry, I think you're right that you roll with a high powered crowd. I think if you want Sequoia and Benchmark and one of the better partners at Andreessen to fund you. The box is very specific, right? It's cursor better, right? Open routers, okay. But let's see what we can do better next time. I will say for companies like you described,

still growing at numbers that approach the iconic outlier metrics, right? Here's where I think

Jason Lemkinactually the world is today. You got to meet every VC. You got to meet 100. It is like the old days. And you will find someone that takes that bet. It will not be the seven benchmark

partners and all the rest. But someone will take that bet at a reasonable but still elevated valuation because it's the best deal they've seen this quarter. Someone will take it. You just got, it's the old days where you got to beat a hundred. And there are growth investors whose names are not Index and Dreesen and Bessemer. And they will take that bet because it's a good bet. To Roy's point, it will lead to a Listen Labs or better in some cases. It's just, you better meet everyone on planet earth now if you just have top decile numbers. But top decile for a while was like an automatic of term sheet, right? For years, it was an automatic term sheet, right? You'd walk into Rory's office.

Rory knew every deal since the dawn of time. He would know exactly if you're in the top decile, if he believed in you and trusted you, you'd walk out with a term sheet from scale, right? The world just doesn't work that way today. You might still walk out with a term sheet from scale. So what you're saying is there's a small number of extraordinary potential startups that the very best VCs are focused on almost to the detriment of anything else. That's your point, Harry, correct? No, I'm saying the whole venture landscape has realized that a certain few categories are the most interesting and exciting and everything else is uninteresting in a way that has not been before.

Rory, back me up here. If you're raising a $5 billion plus fund, you have to have billion dollar positions in everything. You even need a $5 billion position here or there, right? So a $2 billion ListenLabs is not good enough. Because the odds, unless you have 51% ownership, which most founders are not cool with, it's pretty hard to build a billion-dollar position. I mean, if I were working at one of those megafunds and we were playing our game, that would be my final question to the team. How are we going to get at least a billion-dollar position out of this? And I'll take 1% of Anthropic. I think that still gets me to a billion-dollar position, even with dilution, right?

The Eric Schmidt story. But you've got to have billion-dollar positions in everything in big boy venture today, I think. And I don't mean boy with a gender attribution, big, big, big folk. You got to have billion, it's billion dollar positions or nothing. There's no point in investing otherwise with large funds. Well, I still go back to the statistics we cited last week, which is, you know, 10 to 20 decacons per decade in the entire US tech industry. And we clearly believe that there's going to be 90 of them this year. And one of those two facts is going to be at variance with the other. And I'm willing to bet on the 50 years of data, albeit lifted up for growth.

You know, it's not going to be just predicting on the past because you allow some kind of growth over the years for bigger exits. But I don't think you can confine yourself to saying, I'll only do deals where I can get a billion dollars to work or a $25 billion outcome. And you want some of those, but the whole industry is not going to be able to say, we're all going to do those and have more than five funds, because it is not enough. Maybe five is enough. Jason, I think Rory is not going along with our thread here. Listen, I haven't sat in an Andreessen or Index partner meeting, but I'm pretty sure the math is something like, how can we make at least a billion dollars off this deal?

It's not even enough. Like that's, I don't know. I know everyone has like the four different scenarios when they write up the investment memo, a billion dollar position, not an exit, a billion dollar position is just the B outcome, right? This is 10% probability analysis, 25 billion or higher, 25, you know, this percent, we only make a billion on the deal, right? We're raising these funds every 18 months, these five to $10 billion funds. We have to have so many billion dollar positions, positions, gains to even be playing at this game. It's just math. It's just the maths. To take the other side of the argument, actually, to talk about seed, which is your role, Jason, you probably, I'm assuming you would agree that from a multiple perspective, it's going to be far easier for the best seed investor to generate a 5x net fund than it's going to be for someone who's writing billion-dollar checks into things.

No, it's harder. It's much harder.

Jason LemkinBecause unless you really do the Roger Ehrenberg find something in Antarctica, right, the entry prices are so high and the ownership typically is lower unless the seed fund is very large

that actually and all these valors are cutting my pro ratas rory how am i going to make it up on the back end with my spvs and my triple i can't make any 5x is so much easier i'll do it at 1 billion in town and we'll raise it 5 billion next week and i'll take the rest of the year off the entry price 50 million 100 million seeds you you can't make money just to add to that not only can you not make money you can't make money even worse because they're a multi-stage product for those big players in terms of they're the ones who lead them and they crush your allocation so not only does the price go way higher but your allocation goes way lower and You have three to five hundred K at best.

And I've got this and I've got this in a company that is going now to 18 billion. It still doesn't move the fucking needle, Rory. Because what? You only got 300 K in the deal? Because you have 300 K in and it's at a hundred million price. That doesn't move the needle. No, that I would agree. And so not only do you have a way higher price, but you have a way lower check going in. Look, over time, in a rational capital world, the return multiple from early stage investing should be higher than growth, just logically over an extended period of time, because otherwise, why would you do it? I agree. But would you not say for the first time ever that we're actually going to see that inverted? I totally agree. I think the last five years are going to be clearly inverted. It's clearly going to be. I mean, look, someone said it. It was a very good line. He said The aggregate market cap of SpaceX, Anthropic, and OpenAI went from around $400 billion three years ago to something like $5 billion, $4 or $5 billion today.

That means, sorry, trillion. I'd have changed billion in such trillion, $400 billion to $5 trillion, right? So you've got $4 trillion plus of value created in the late-stage business. Nothing else matters. And if your theory is there's going to be 10 more of them next year, then you're right, that's all you do. And if your theory is that was amazing, but it's probably not going to be a run rate business, then you make different bets. We will go back to schedule, which is, are we starting to see a crack in the AI trade? CoreWeave have had a tough week. I admit I'm a holder. It has not been great.

Rory, can you please provide some context as to what is going on? What do we need to know as background? Yes, CoreWeave had a tough week last week. I think down 15%, 20%. kind of bond prices went up, implying, you know, lowest default. But zooming out, when you think of the whole AI trade, these kind of neoclouds, they're always going to be more risky than anything else in the system because they have, you know, they're underwriting high growth with large cap X and lots of debt. So you try to thread the needle. If you grow too slowly, you don't make your customers happy. If you grow too quickly and demand slows even slightly, then you're screwed because I'm doing it from memory here. I think, you know, core weeks, I think it's like $7 billion run rate or whatever, 10 or 20 billion a CapEx, you know, 35, 40 billion a debt, right? I mean, that's the way you have to do it because you got to build these data centers and fill them full of compute. So it's just very tight. It's not like a software company where you can hunker down and cover your nut, right? There's just no way out here. So they're always going to be risky. So anytime someone wakes up and says, oh, AI is growing a little less quickly, all these things

are going to go down. And anytime anyone says AI is growing amazing, they're all going to go up. And last week was an AI go down week, probably because a little bit because of the anthropic numbers, which in retrospect is a bit silly. But there's no doubt last week was a things are slowing down week. And when that happens, CoreWeave jumps down. Was this a gross overreaction then? If the end user demand is there, then everything is going to work out, including CoreWeave. Because look, I think their biggest customers are people like Microsoft, OpenAI. Like, provided the demand is there, they want the data centers. It will all true up.

Is that not like a generational buying opportunity, though? It's like down 25%. Of course, demand is not cracking. We will see that every single day. More precisely. But the problem, yeah, well, if it was that easy, we'd all be doing it, Harry. But I mean, the real question is, how does the demand compare relative to what these guys are spending? Can they fill everything they have? Now, of course, they can fairly quickly. But if you're continually investing for next, like I said, if your CapEx budget is 20 billion, It's not enough that demand go up. It's that demand go up by a lot every year. The beating heart of the whole thing, and we're seeing people share it, is you add up OpenAI and Anthropics numbers together.

So that kind of gets rid of the shift in market share. And the growth rate of that overall is what's going on in the AI economy. And that's the growth rate you have to look at. You know, the question is, how does Corway's CapEx plans look at relative to that? The simple learning is the markets are going to be very sensitive, right? As Rory said. Any bump with Anthropic, any bump with OpenAI, any bump... anywhere. Of course, CoreWeave et al. and Oracle should be hypersensitive because they have massive debt loads and massive risk. But they're also the B-tier players. CoreWeave is B-tier compared to NVIDIA and Friends. Oracle is B-tier, right? So I don't know. You can make money in the B-tier, but why would you want to hold the B-tier? CoreWeave exists because NVIDIA and Friends need it to exist for now. It has no inherent reason to exist. It is not producing a singular set of silicon and GPU and software today that no one else can do. Oracle just can't sell enough enterprise software. People don't want to install enough of this crap on their servers. So they're stuck renting out their excess capacity and buying GPUs and doing Stargate. These are B-tier assets and B-tier assets should trade at a premium. And I think more importantly, they should be more

sensitive to shocks in the system. The B-tier assets, the A-tier assets should be in theory less sensitive the only comment i'd make is i think b tier a tier core we versus NVIDIA i understand what you're saying but it's almost like you're comparing apples and oranges i mean yeah NVIDIA's core ip yeah it's the dominant provider of the whole ecosystem look compared to NVIDIA we're all fucking b tier assets how about that yeah but why buy the harry just asked listen why buy the b tier if you just look it's like ipos why buy braise is getting acquired for for whatever 5.8 billion it's down 40 from its ipo like why buy any ipos that aren't a tier there's just nothing in the public you can make money as a as a if you if get your nice a seat entry at eight million uh post you can make money on the b tier right it's the start of this conversation it's a tier bus there's just the discount's too high what the hell am i gonna do with my core weaves yeah rory it's five or six i'm not going long on i want to hold i want i'm not passing core weave to my great-grandchildren i'm not putting it in their 529s that i'm giving to to my great-grandchildren you know there's no way this is the jason stock picking is dead

said, this is the public equivalent of the private comment, only the biggest companies matter. And again, the great thing about this is I can prove you wrong more easily in the public markets, because what you know, when you go back over a year, I mean, NVIDIA is up 18 percent and Nebus is up 50 percent. Sox, I mean, that's that's Micron's up 350 percent. I mean, the truth is you buy the second tier assets because you think they're going to pop. So, you know, I hear you, but no. Well, let's see if you put 20 percent of your of your personal portfolio into those into the microns and shmicrons there's a lot of risk there right agreed i wouldn't i wouldn't dare so rory you know we have jason's ic we're gonna have rory recommends no we're not you're not going to do it genuinely we're not going to do it because i'm not going to sit here have i one other thing i've learned about doing this now is pulling stuff out of your ass because you've done a little bit of work it's just not right but no i'm not sure yeah so no okay okay Okay, I'll leave it there. I'll leave it there. It's okay. And we can talk about what maybe caused a slight crack in that, which is Anthropik's numbers. Anthropik announced that they'd turned

profitable on an adjusted basis, gross slows, IPO price potentially rumored to be going down from $2 trillion to $1.5 trillion. Q3 revenue was $16.8 billion, up 45% on Q2, 85% gross margin, which we'll talk separately about. What should we take from these numbers? I think that was good. I mean, I think that, look, again- You should tell your voice that, Rory. Sorry, long day. I mean, look, growth is clearly slowing fairly quickly, but from an unsustainably high number. I mean, it had 10x for the last three years. It's highly unlikely to 10x, you know, what was it one rate coming into the year?

10 billion, if it, you know, if two more 10x and what was it, 100 billion, you'd be at a trillion. Yeah. So growth was going to decline. This is all about how quickly is the growth going to slow, right? And honestly, I thought, I'm sure people are sitting there going, if you add linearly, if you did five in Q1, 11 in Q2, 16 in Q3, you kind of lean in and you're at 20, 21 in Q4. If you keep adding 5 billion, billion bucks a quarter. I'm not saying they will, but right. And you do that. So you start next year, which would be when you go public the future year. If you're at a $20 billion run rate adding five a quarter, then you do a hundred and five, 110. And now you're saying it's 12, 13 times forward revenues for the most exciting company in the world. It doesn't feel crazy. It doesn't take a lot of squinting to make that work. I'd add just one thing for what it's just tactically, I thought, I think Rory, you'd agree. I mean, Chamath's tweet was just raise whatever you need at $1.5 trillion and move on, right?

If you can raise it $2 trillion, but it's going to stress your capital needs, like it's just evaluation. So in absolute terms, everything's great, right? This is unprecedented on all levels. Great team, great application. What I suspect will, a reminder is, it's going to be very choppy after the IPO because going to Dev's point when he was on the show, developers are not loyal. And the amount of market share since this show started, The amount of change in Anthropic versus OpenAI versus OpenWeights versus JEV, right, which didn't even exist, what, 45 days ago. This is a winner, but the amount of variability in the incremental growth and in the market share, there's only so much predictability in this revenue.

There's only so much R in the ARR here. And I think it, depending on how effusive the markets are, it may create stress. It wouldn't surprise me if at the end of next year, Anthropics market share is down 10% from where it is today. And it still could be great on an absolute basis, but down percent. It wouldn't be a shocker at all, not just in tokens, but in revenue. Easily could happen. Look at, despite whether it open as at 70 or 50, it's a lot. When you said, you mean the share is down. Yeah. Market share could be down. Right. And so when you're, when you're building your models, right, not just DCF models, but your top line models, you could be materially off from your good case, right? Your best case. And it should be expected. It should be expected.

To state the banal is a little scarier than the average recurring revenue business, right? And that's what people are wrestling with. How do I think about? I mean, if you have continued market share shifts between the key players, then the next shoe to drop is typically, well, I want to keep my market share, so I'll look at price. And I think, you know, everyone's trying to work out from a game theory perspective. You're right, what does that look like as a P&L going forward? which is why going back to the boring thing I keep saying is that provided the end user demand at the top is there, you know, everybody can win. And we all love businesses where everybody can win, right? If that starts to slow down and then price competition becomes literally the thing you got to do to take it from the other guy to keep your growth rate going, then it could get pretty tougher. Do you think Sam was super strategic raising his supposed round at 1.4 just in terms of some form of anchoring and message to market? I think when you need money, you take money. And I don't know if there's a big sophisticated, oh, 1.4 is a messaging versus 1.5. I think it's as simple as, you know, we spent a lot of money in compute. We didn't get our IPO done. We spent all

of Masa San's money, better get another 40 at a price. I mean, you know, what are the constraints? It's got to be up on the last round, otherwise the messaging is shit. And it's got to be down below reality to leave room for the upside you know there's only a finite number of digits between well there's infinite number of digits but there's only a finite number of one decimal plus digits between one and two there are a couple of elements beneath this story one of which or beneath anthropic as a week was replit made open ai its default jason i am intrigued here anything from you on that especially given your replit power user status i think it was a stupid media story I mean, we do use Replit about 14 to 15 hours a day.

Basically, Replit has its own router in it, right? Its own model selector. It can be invisible or visible to you depending on what category you're in. And OpenAI models are just cheaper for the same rough quality output in Replit. So they just made it the default. And TechCrunch miswrote an article saying they were no longer working with OpenAI, which wasn't true. They just flipped the default from Open. and Fable to Astra. That's just the default. And it's what we're all, we're all routing, right? We're all open routing one way or the other. It's just, if you're Replit or Lovable or Base44 or V0, you have these extra incentives because your average user just wants to have a high quality output. And they're very incented to get this quality price thing just right for you, right? Unlike, you know, the average idiot pre-configuring Open Router themselves, hoping they get it right. These guys are, it's more interesting to watch what Replit, Lovable, base 44 v zero do because they have an incentive to nail the routing right they have a very strong incentive they can only partially pass it on to the end user right so we can actually squint and see the future based on what these these guys are doing and what they're saying is listen what

amjad's saying is the quality is sufficiently peer level here and the price is 30 to 40 percent better for us today why would we use fable and opus and you know what next week he may be at a different event and get on stage and just go into this market share thing with Anthropic it may change it may change they may not have fully thought through how to use Sonnet 5.5 and Haiku 5.5 and and they have Kimi and others but if Kimi actually was so great you know what all those guys Replit would be using it entirely which is maybe the more interesting learning that was under discussed because it will route through them too and it doesn't Amjad didn't get up on stage and saying we'll route everyone through Kimi did he he said we're going from Claude to OpenAI because it's just as good and materially cheaper. What's the takeaway from that? That Kimmy is not as good as people think. In practice, not seeing the benefits for his billion dollar of revenue for his customers. He's not seeing the benefits or he would just auto route it. The customers are very cost sensitive at Replit and Level. Not just the SMBs are very cost sensitive because they want to get everything for like 25 bucks a month. So they even have free LLMs. But the enterprise customers

are very cost sensitive because they don't want these massive variable bills for the product teams going off and building prototypes. It's a super cost-sensitive model, right? Hosting, database, LLMs. If you slow down and see what they're doing, and they're each at like a billion in revenue, right? It's like a little lab that we should be paying more attention to. It's a more interesting lab than the idiots spending all the money and misallocating it and hoping it works. That's a great business model, but we learn much more from the massive investment these guys are making and optimizing high quality output for low cost. Maybe others are doing this each at a billion in revenue, but I don't think that many people are doing it for end users.

I think it's a great point because, yes, it is a very objective calculating test of what value, how do you think about the value you're leaving on the table by paying top tier prices for less than top tier intelligence? And what do you actually need? Because with a billion dollars, you've got enough time to really think about it. Jason, you are the best user and analyzer of these tools. Under the Anthropic What Happened This Week, Claude Code Review is out. We saw Boris shirney tweet about it i'd love your thoughts which startups are destroyed by this what did you think of it you know i don't want to talk out of my rear because it's so much change right i mean you know reptile is super hot they just raised whatever this week right 75 billion i think rory's and code rabbit or i could be wrong they're they're an epic player right there's all these great folks they all have benefits they all have the benefit of being i think in many cases of being able to run on llms which is very valuable right having one llm check another llms work having an OpenAI check, Claude, or vice versa.

So there's a lot of, just like there have been since the dawn of time in software, there's a lot of benefits to having pure plays, right? But it's also always scary because this is the core of Anthropic. Claude code is the core of Anthropic's engine we've talked about. And making code review, making all of this process, it's actually arguably much more important than building code today. You know how much time we spend now reviewing the code because the LMs are so good at getting you 95% of the way there. You talk to any engineer, they're like, oh, I'm out at dinner and I built the feature for Harry.

I'm having a barbecue and my phone is building the feature for Harry. And you did build the feature that Harry asked, but you're gonna have to spend the whole next fucking three days testing it. and fixing it. So it's a big deal. How big a deal is it? I have to imagine it's a bigger deal than the nothing burger, which was a, you know, Claude design or whatever the heck it's called, right? Which didn't kill Figma, but how much it's, it's so hard to predict. It's scary. If you're working at a competitor, it's always scary, right? It just has, no matter what you say on Twitter, it's always scary. Even if it maims you 30 or 40%, you just got to be better.

One of the things we said last week, and I stand by it, the best markets for standalone AI apps, and I put coding as effectively an app, the ones with the highest growth rates have also been closest to the sun. They've been closest to the foundation. I just did a tweet on that today, but it's the Icarus moment. Icarus had no choice. He wanted to get warm. He got to fly close to the sun. I think these big use cases are interesting. It's like code generation, code review, legal. They're all very close to the foundation models. And every six months you have the terror moment of, oh my God, they're going to do it.

Right. And that's the downside of being in that real estate. But the upside in being in that real estate is they are marquee. They are superb use cases for the technology. And as a result of that, you know, CodeRabbit, all these companies are going faster than we've ever seen. If you want to avoid that risk carry, then you go back to your like dull little 3x year on year software companies that you were bullshitting on about earlier. Right. That no one wants to invest in. Right. You can't have a boat waves. You know, you can't sit there and go, oh, I want infinitely fast growth rate, utterly undifferentiated from foundation models, even though the only reason we're getting the fucking growth rate is because the foundation models have unlocked new capabilities.

It just doesn't make sense. That's not a thing. I mean, I'd like to be, you know, a lot of things in my life, but it ain't going to happen. I don't know if this is true from a venture outcome or revenue, but I actually think code review is the single most important category today in software. By far the most important category. It does not mean it will make the largest fortunes. It does not mean there'll be a 600 billion code review cursor. But what I mean is you cannot vibe code your own SAP and Salesforce, but the rate at which we're building code is unprecedented. And the code now is pretty darn good, but it's never production intent. This is what everyone misses. It's never production ready or production intent. And so if we step back a minute and define code review more broadly, it is the most important category in building.

It is so important. Everyone is building 10, 12, 14 hours a day in cloud code or cursor, whatever. But the amount of time it takes to review and process that and make it production intent is still an order of magnitude more than building. And we have not figured out, we're pretending that this work is complete. It's not. If I could find the best next generation true code review brother, the best team, I'd make 10 bets because we need it. And they may all get killed by Anthropic. We'll see. But it's much more important than code generation. This is back to Amjad's point. I can rotate between Astra and Fable and whatever.

They're all great, right? And maybe Kimmy if it catches up, but how am I going to get into production? Agreed. Big picture. It's pretty clear that we're making way more software than we've ever made, right? Probably orders of magnitude. I mean, just looking at the Anthropic thing they did on employment and recent paper they did on unemployment. So given that, the whole software development lifecycle is going to change, right? Because how that gets deployed successfully, it's probably going to be very different in an agentic world. So I agree. I think there's a whole bunch of compelling related opportunities, not just around code review, but the end-to-end memory management, testing, sandboxes, Harry, where you and I have an investment.

So yeah, I just think, you know, I said it last week. I said, yeah, coding is the mother load of LLM value, right? It's where it all happens. And therefore, there's going to be a whole bunch of ancillary opportunities around that. And you know, there mightn't be $25 billion, so you guys might pass. But if there are $10 billion outcome, I will take my humble check and be very glad. Yeah, maybe I shouldn't call it code review because Rory's point, it might be construed too narrow, but build to prod is the biggest category. Build to prod. How do you go from, it's built, it works, it works in dev, it looks great. How the hell do I get that thing into prod? That's where the big money is going to be made now. The money's already been made in frameworks for build and they're great.

And let Sam and Dario and friends duke it out every day. We all benefit. But how do I get this crap into production? I want to move actually to one of the most interesting rounds I thought was Modal closes at a $15.75 billion valuation. Run rate surpasses a billion dollars. It's $750 million Series D led by Excel. I just actually interviewed Eric the other day. He was amazing actually in the studio. How did we think about this round and what it means in terms of the wider inference market? I like it better than CoreWeave. I like adding value to the universe rather than just being some outsourced racks of GPUs.

I like this one better, even though, to Rory's point, the competition appears to be infinite and limitless, right? So you better have some cojones in venture growth to do it. But, yeah, I like at least adding value to the universe. The interesting thing about modal is they were always perceived strong by developers, but I think they were like 60 or under 100 million mid-late last year, right? And that level of acceleration is just amazing, right? I mean, it's stunning when you see it. Yeah. So, I mean, the first big picture is, oh, my God, inference is exploding here, right? And yes, they are very developer-friendly.

They have a whole bunch of products. So, yes, that's the takeaway. The other thing I was just thinking about it is, you know, how big could this market be? I mean, I think you look at the four or five key inference providers. I mean, you add them all up and maybe they're plus or minus five or six billion dollars in run rate revenue, which is a lot. But if you think about it, they're all serving all the open weight models in a world where right now, and it's not like what like, the sum of the OpenAI and anthropic revenues is probably north of 100, 110 billion right now. So by dollars, it's less than 5%.

So it just points to the opportunity here. I mean, going back to Jason's Replit guy, think about Amjad at Replit sitting there going,

Rory O’Driscolldo I want to give money to Cloud Code and give them a 70% gross margin for this token?

Or do I want to buy it on modal and give them a 30% gross margin for this token? Well, if the tokens are roughly the same, you know what you're going to do. So, yeah, it does point to the upside there. I completely agree it does. I'm constantly shocked by like the infinite expanding size of the inference market. Absolutely. No, it's stunning. It's the one thing that I know today that I wish I'd known 12 months ago because I would have done things slightly differently 12 months ago had I been more expansive around my mindset here. Well, so you had to be smarter than me to understand how much this revenue could be captured outside of open an anthropic.

A year ago, I wasn't smart enough to really think through this. I didn't think enough of it would be captured outside of it. So I didn't think it was that interesting. Are these inference providers going to be worth three, four, five hundred billion dollars? I would say it's a race between two things. You can put your MBA hat on and say, you know, open weight. Going back to Jason's comments on CoreWeave, all the neoclouds are saying, oh, my God, let me get this straight. We do all the building work. We buy all the compute. We borrow all the capital. And then these bozos come in, buy from us, sell it to developers, and make a shit ton.

Why don't we do that? So, you know, you put your MBA hat and you can imagine a lot more competition here, right? And then you say to yourself, I doubt, you know, you get those kind of valuation. On the other hand, when you have this kind of growth rate, nothing else matters. It covers a multitude of sins. My best is their margins have crept up this year, right? They have. Fireworks are mid-30s now, and they'll be hitting 50 pretty soon. Even mid-30s, if it stays there, I mean, the public markets can tolerate that. It's just the multiple you'll ultimately get on all of it, right? There's plenty of folks like that.

So it's OK wherever it ends up, right? I mean, it's important for Excel, probably nailing it at $16 billion, but I think it works either way. Do you think the three kind of hyperscalers of inference are base tan, fireworks, and modal? Probably in some simplistic who's the winner, you're probably right. Those are the three biggest. But maybe the statement is this. I don't think it's like the hyperscalers where no one else mattered. Jason, this is a big funding round, but it's too easy for you in the investment committee to decide that you're probably going to do modal at $15.7 billion. Yeah. And so if we call an investment committee, there was another round that was announced, which was town at a billion dollars.

I think it was $108. Million Dollar Series B. Are we going to do this from our growth fund, Jason? Well, look, Harry, as you know, I regret passing on modal and letting the XL guys sneak in there. They're aggressive and they're behind in many ways on the AI investment. So, I mean, they did the deal over the weekend. You know, I asked for one business day and I didn't get it at modal. Modal was, you know, by all intents, it was cheap. Yeah. I mean, 3 billion to 1 billion in five months. At the end of the year, we end up at 1.4 billion. Next year, 5 billion. even if the margins never hit the 40s, we make money on this deal. Like there's just no question that the markets crash. Town I'm going to pass on, Harry. And if you and Rory and the rest of the team want to do it, I'm fine with it. You know, a billion today is the new 100 million, right? A billion is just the entry point for like a classic B round. In the old days, when the three of us met, they used Series B investors used to say, as long as it's 100 million or less, it didn't matter because the classic Series B wanted a billion dollar plus IPO. They wanted their 10X, so $100 million, $80 million. They didn't care, right? So a billion's

the new $100 million. Town has no data. It's sort of interesting revenue. It has a smart team. This is just a bet. This is just an old classic Series A, Series B with a bow tie at a billion. And if this is one of the 10 you want to make in the next 12 months, just do it. I just consider it a chip and I don't need to be at the rest of the meeting. But there's just not enough here for me to get excited either way. Bunch of guys from Plaid. I mean, it's a great one, but we wouldn't even do plaid today i don't even see a 25 billion dollar exit for plaid so i wouldn't even bring it to the ic it's too early to predict right where it's going to go it's too early it's just it's just it's just a classic bet so we're not doing it jason well i mean the good news is the team only predicts it needs about 500 million of inference over the next 12 months so that's much better than the instinct team which needs 5 billion so in a sense i like it for the fund because we were a little more conservative than our peers so all we need to do is round up some of our spvs and put in another 500 million to fund the inference. So in the sense, there's a positive here, right? Because I'm glad we passed on instinct, even though we look like fools, because I don't know who's going

to fund this bad boy. At least town, again, they only need 500 million over the next 12 months. So if we're about protecting our downside, let's do it, guys. I just don't know. Would you rather do instinct at 30 billion or town at a billion? All I want to know is maybe we can get back into modal at 20. We just blew that one over the weekend. The Excel guys, they're just aggressive. I think that we should put this clip in the vaults And two years from now, when you realize that a billion dollars still really is something, and we can just revisit this discussion. Whenever we're throwing blithely around numbers like a billion dollars, I mean, there's only, yeah, I mean, it doesn't sound like a lot.

There's only four or 5,000 billionaires in the country. It's real money, right? And as for 30 billion, it's pretty damn scarce, but OK. Well, you know what? You know what? You know what I was thinking as I was writing my LP report last night, for all seriousness, it goes to the next point on Harry's list, Andrel at 90 billion, right? And what I was thinking about with Town and all these is, listen, Andruil is clearly a generational company, right? Got in early on Next Generation Defense, clearly deep, has the contracts, has everything, right? But is this thing worth 40 times revenue with the margins and everything it has?

And it's like, I think the meta question is, are a bunch of the rounds we're doing, and maybe modal isn't one of them, are they so disconnected from public comps that we either need these massive public comps to to recorrect right in a way and have the anthropic do or or some of these deals just make no sense even though the companies are great does andro make any sense at 90 billion does does town at a billion make any sense i mean when braze was just the best exit in the whole public gtm category at six times revenue monday's at two hubspot's at two klavio's at two two times revenue growing 20 20 something percent right i'm not saying they're the same. The growth is here. But I do wonder if some, if the multiple, here's my point, if the multiples are disconnected from where they will land, the multiples, and that's just venture, right? I mean, my comment would be this. I think that's almost certainly true.

The multiples are disconnected. And the only thing that kind of makes that plausible as the growth rate. Look, if you're a mature defense contractor doing $2 billion in revenue, you're worth $8 billion best case. If you're a $2 billion revenue defense contractor and you've doubled for the last couple of years and you think you've got a line to the administration or the Pentagon for the next five years, then maybe you go $2, $4, $8, $20 and you justify the valuation. So it's not impossible. But to your point, Jason, it's leaning in a lot into the future, right? A lot. And all these valuations, you know, you could wake up one day inside, amazing companies just priced wrong. Because it's, you know, of all the things that are likely to bail you out, just because you mentioned one other in passing, it's highly unlikely that the US market, you know, which is trading at enough, you're not going to get huge multiple expansion from here that saves you, I would guess. Does it not go back to the point that Jason made earlier about the need to move large amounts of money? And actually, if you need to move a billion or two billion.

I agree with you totally on the multiple compression you're going to get from here. But, you know, is there a chance it's a $200 billion company? Yeah, not impossible. So it's a 2.2, 2.5 X. And you moved a billion to 3 billion. I just wonder, and listen, whoever's doing this tender, these are very sophisticated investors, of course, right? Let's not make fun of it. But I do wonder if some, we are just taking revenue multiples too far today. I'll give you a different example. I was like, like profound or Harry's and peak, right? these are interesting companies, right? But when you, my God, when you look at the public comps are trading at two times revenue. Okay. And you can say, no, no, these are agentic guys. Okay.

These are agentic, these are agentic players up high growth, but when the growth even just slows to 70 or 60, will it trade at a cloud flare revenue or will it trade at a better than Braze revenue, right? Which until today was trading at three times revenue. It's not, I'm not, I get the growth side. It's the job we're in, but I do wonder if the AI versions of low multiple companies will just will settle too early into the multiples of their of their peers. I just don't know. Right. Because I think they're being punished. I think the whole marketing category is the worst public category without question. Right. They're not dying. HubSpot and and friends are not dying.

Klaviyo is not dying. They're trading below three times revenue. I would have a hard time getting the IC excited about it. Jason, speaking about multiples and how public markets think about multiples where they're appreciated, where they're not. A fascinating one for me was actually Berkshire doubling down on Bending Spoons. Obviously, it bought $330 million of new shares, caused a massive bump in the stock price. And the assets that Bending Spoons is buying are traditionally slightly challenged assets, slowing growth rates, not the darlings. And then the price premium that's being placed on Bending Spoons, the holding company, right now in public markets is enormous. I'm just intrigued, boys. How did we think about this?

Did not expect it. I think it makes sense. I think Bending Spoons is like the Berkshire version of software, right? It's like Seize Candy or Coke. They're trusting that the boys, they're not flipping them. These are holding companies. Warren Buffett wanted to hold Seize forever, right? And Bending Spoons is saying, listen, we're going to be diligent. We look at 1,000 deals a year or whatever you have. What is it, Harry? 5,000 deals a year. We're going to do five or six. And we're going to find enduring software assets that we're going to hold for as long as we can hold them. And if you actually step back for a minute, the quality assets is improving. Vimeo, kind of a dog that they kept.

I mean, Evernote, kind of a dog. Now, they made them work with price increases, right? They're going to make money off both those deals, right? Eventbrite, kind of a dog. Like Miro and Airtable, I'm going to argue better. And so I think Berkshire is saying, listen, you're going to make these into a bunch of seized candies and Coca-Colas. And folks think you can't make them enduring, but you're going to make these endure for a decade or longer. Maybe maybe I'm wrong, but I think they ultimately probably see some similar attributes that they can make these long lasting assets. Yes, it's just like C's candy.

Get a C's candy from the 1960s and get a C's candy from today. And you look at them side by side. They pretty much look like the same thing. I don't think that would be the case for the. Evernote product of 2080. No, but my point is it may be as close as you get in software, the Bending Spoons model, because they're going to keep these and keep these assets, right, and invest them. I'm not saying it's the same as a seized candy. I'd describe it as it's conceptually the same idea as Berkshire Hathaway, but perhaps in an industry where the idea doesn't apply. Or maybe you let it's like Jane Street putting all the money into whatever his name, Leo Appalachal, like Berkshire's like, this is close to what we're doing.

It's not our core. we're going to let the italian guys do it and we'll take a meaningful position and we we think they have something that we we think that they're going to be able to maintain this incredible growth level because they will have a thousand assets to look at it a year and we'll be able to maintain them in a way vista can't guys you can also guide we can do general atlantic sector ipo we can do tesla the new roadster unbelievable videos of cars that literally elevate themselves with thrusters we can do benchmark on stage conceding that competition yeah it's a bit of a flimsy term in venture these days any predilection as to where you want to go you know i wanted to do the 37 signals one but um we can do 37 signals david hana mahansen who is an incredible race car driver has the most extensive library of race cars 37 signals made 370 million in profit since 2020. Bootstrapping ain't all that bad, hey? Yeah, I was going to say all, I mean, you know, going back to the conversation at the start, all these software companies, none of the VCs cares.

Well, if you hold on to it yourself and pull out $370 million, I think you'll be fine. That was a great result. I did not, I knew it was good. I think that was wrong for what it's worth. I think it's directionally correct. I think the point that was making, which is interesting, is they say they do 10% profit sharing, right? So if you do 37 million of profit sharing, it's 10%, Rory can help me with the math. I think that would suggest overall profits for 370. I don't think it could make that much money. I'm guessing it does 60 to 70, 60-ish million a year, right? And even if it's, even if 40 million can go to the bottom line. Yeah, 40 times six, you're right, 240. Yeah, it may be in the zone, right? It may be a little high. But when you look at the fleets of cars and all that, obviously, you know, they've been making this kind of money. I'll tell you a couple of thoughts. One is it's something to reflect on in the era. I don't think we're going to have a lot of one-person billion-dollar startups, but we could have much smaller teams, right?

The one I kind of, the one I thought about for the AI era is, man, Zapier should have been this. People throw out Zapier, Zapier as the one and done example in venture. Like, and for VCs, it's great, right? You raise one round of whatever out of YC. I think there was a quiet secondary round from Bessemer, but really one venture round and you get up to, they're at 300 million in revenue today. Growth is probably slowed, probably not gonna IPO as its current company, but a great company that did something generational. what if they raise nothing and the three of us just split 200 of the 300 like you could do worse yeah i think you could i mean the ga guys may make more but you could do worse right so i almost wondered if this one and done which i used to be a fan of is going to be a trap in the new age none and done is much better because it's tough to do dividends right in one and done you can do them right in one and done but it's it's tougher it's tougher to do dividends with the benchmark team right they're not really that interested in the dividends are they can you not just buy out investors. If you're a Zapier, you just go, listen, guys, say a 5X multiple will buy you out at a 1.5 billion price. You want the liquidity. It can. It gets, I mean, it doesn't happen that,

maybe we're working with some examples. It does happen, but it gets expensive to do it from free cash flow. Even if you have a lot of it, it's not that simple, right? It's not, it can be done, right? Buffer did it, Expensify did it, but they all did it at pretty mediocre outcomes to the investors. I think Redpoint made like nothing unexpensified, but probably more than if they'd held IPO, right? It's tough. I like none and done better than one and done. The reason it's tough is because the only way you can pay, if they own a small percentage of the company, then one or two years cashflow can take care of it. But if you're trying to buy out an investor that owns 30% of their company and you want to buy it out for six times cashflow, by definition, you're tying up two whole years cash. So it gets risky if you're doing it with debt.

So you're right. They're hard deals to negotiate. But look, if you needed a million or $2 million to get going, you'd do the deal to start. But yeah, what the big picture we're saying is there are a number of software companies that mightn't set anyone's little heart aflutter, but are kicking off cash and are extraordinarily valuable to their entrepreneurs. And I think that's great. And it just shows not everything has to be through the lens of venture. I want to make $25 billion or die trying. And it's really good that these guys are making money here. It is. My learning when I compare it to, I just picked Zapier because they were at $300 million in generational company in their own way, but probably won't IPO. It's like, I used to think this one and done was a nirvana, right? The three of us get together. We want to start a company.

We're first time founders. We don't have the money. We raise a couple million from 20VC seed or whatever. And we just keep growing our company, right? And it's not a lot of pressure. No one, we don't have to have board members. And, but we don't, we didn't, the three of us didn't have the resources to do it. I used to think that was a great outcome. Now in the AI era, I think it's a trap because you can't dividend out the profits as easily. You can't become a 37 signals that easily. Now they took money from Bezos or others. I'm sure they figured it out, right? But I almost wonder if no venture rounds is the way to go rather than one in some ways. Rory, how do you feel about GA IPO-ing? Are we going to see many more firms IPO? I think you have to be a critical mass. I was looking at it there. You have to be 800 million plus or minus a billion of fee income.

That's the real question. Look, these companies, step back. There's a bunch of, obviously everyone knows publicly held PE-backed companies like KKR, Carlyle, Apollo, TPG. And then the question is, can you do a bunch of these for the kind of growth and venture perspective? And the binding constraint is the fee income. And typically, the public investors give you a lot of credit for the management fee income and very little credit for the carry, which is really odd in a venture perspective, but be that as it may, to get to a market cap that matters. Because they trade at four or five times revenue is best case. So you're probably looking at having to have $800 million in fee income. Now you say to yourself at 2%, what's that, 50 times? Yeah, you've got a couple of million dollars, well more of actual AUM. So it's doable. Andreessen probably could get there easily from here, but that's kind of what you're looking at here. Now, maybe you'll get to be able to go on a lower amount of AUM because venture A gets paid slightly more and B has carry that's more meaningful. So the very largest companies will do it, but not many is the answer. And that's just purely, that was a very financial metrics answer. Let me make a totally separate comment.

It's really hard to do that and not change the culture dramatically and become a more risk averse institution, right? You know, it may well be someone like Andreessen could pull it up, but it's just very, it makes it a very different company. So a second separate and probably more important criteria is, you know, is that what you want to do, you know, as a venture firm? I mean, I think it's great for the founder who get to take a ton of money off the table, but then you become a corporate venture firm and that's just a different thing. I don't know if there's a difference. I'm not being a dick, but I don't know if there's a difference between at the scale GA is that now, like if GC became a public company, I know compliance wise, sure there's a bit more, but just like they're just they're such behemoths anyway my laugh is you get in the lift and you're like oh where do you work and the answer is here and you both go oh wow it's the same for both so interesting is there you know i should know this rory from from the public comps when you do ipo is there more fee pressure though i i assume when you're not public you can play a few more games right because it's the lp is all no but when you're when you're when you're public everyone's

scrutinizing all of this right where every single dollar goes i don't think it's scrutiny i think the comment is you always have to grow assets you know you're always launching products you always have to grow you all you can't you can't you can't just you can't just pay yourself 80 or 100 as the as the folks running it and kind of check out right you've got to grow yeah i'll even state like put it this way and it's a silly example because they're not big enough but if Benchmark had gone public at $450 million every three years. Wall Street would have had a shit fit because they're like, come on, dude. And now finally they're giving them what they want. Oh, good. You got the growth fund. Maybe you should do a crossover fund next. That's the way it would roll. Boys, what about Harvard's endowment? Harvard's endowment returned 27.1% to a $68 billion helped by venture. SpaceX state worth about $2.2 billion. They're an awesome team.

Narv CIO is amazing. Love him dearly. Work with them. They're great. Anything here? Yeah. I mean, if you invest in venture when you're in the big outcomes, it's good. And, you know, they've had a few lean years, but you're going to see that. I think one of the other universities who went in direct into SpaceX have made out even more like a bandit. I think it's Washington University. I wouldn't swear in which university, but someone did really well. So, yeah, I think it's going to be a thing. And it's interesting when it's concentrated in on a few assets. The good news, if you're a manager, not a manager, but if you're an LP, you probably have some exposure to that.

So, yeah, you're going to see a lot of this. If you are an LP and you do not have exposure to Anthropic, OpenAI or SpaceX, you are feeling a lot of FOMO right now. Of course you are. And I think the venture market is about to get a lot hotter, by the way, because a lot of people are starting to get cash back now from SpaceX. They're seeing Anthropic on the horizon, and they're hoping for OpenAI on the horizon in Q1, Q2. And I think we'll start to see that cash recycled back into the ecosystem that provided it. And I think LPs will come in with more money into venture. In 2021, the average college and university did 36.6% from venture and PE.

41% was top quartile, and Cambridge had 62%. So the Harvard's great, but I'm waiting for a banger 27. I want to get back to the nutty IRRs that we saw in the last boom, right? The outcomes here are an order of magnitude larger, right? Maybe even more than magnitude larger. But I want to see 60% IRRs. Good job, Harvard guys, but this is no 2021 yet, right? Yet. I feel that $68 billion is pretty impressive, to be fair. Yeah. Scale matters. The $68 billion, you do remember they are the oldest university in America, so they've been piling the money up for quite some time. wesleyan 95.3 percent returns in 2022 from the 2021 invention p from 95.3 percent returns westland wow any others that i've missed boys i think that you know the tesla one i think it's the last thing we're going to see before the merger with spacex i think it's the swan song if you want to know my view and i think elon kind of said it he said this is the last he said china's going to take over the cars this is the last car a human will ever drive both of which are clearly true right china is going to dominate global EV and autonomy. No one can compete with their cost proposition in electric and otherwise. And no one will drive their own cars in a few years, like literally no one. And

I think this is a, I mean, some of the, I don't know why I did all of it. Some of it's clearly for fun, but I think it's, I think it's the last standalone big hurrah before it becomes one big company over the next X months, which was always Elon's goal. Having these companies split up makes no sense for him, right? They'll all be, they'll all be merged. And so this is the last, the last Tesla party as an independent company. Is it not the most masterful marketing from Elon? The brilliance of Elon is the Elon premium and his ability to have extremely high valuations because of his presence. Doing these stunts justifies it like no one else can do and gives it life for another 12 months without any recompense. I think it was brilliant.

Well, that and giving a SpaceX share to every American is pretty brilliant. Kid is pretty brilliant too. I thought of it just from a sales perspective. It removes objections. There's so many Elon haters of which I've never, I think he's the greatest founder of our lifetimes. Politics aside, greatest founder of our lifetimes. I really don't see how you can argue with it, but there's a lot of haters out there. Not just on the left, there's a lot of haters on the right, like all across the spectrum. Pretty hard to hate them when you grow up with SpaceX shares in your account and you watch rockets blasting every day to the moon and to Mars. Pretty hard to hate the man when you're a shareholder. It's just that much harder to hate someone when you're a shareholder.

really that much harder, man. It's that much harder. I don't know. I hate CoolWeave today. I know, but he didn't get it for free. I mean, the thing is, Elon's going to park one share in every kid's account. These, you know, these so-called Trump accounts for children is a very interesting way for super rich folks to make meaningful donations, well, make significant donations to everyone if they want. I mean, I think the idea here is literally every kid gets one share in their account, which is in aggregate. I saw the numbers on like $10 billion. It's real money. So it's a super interesting way.

Now, I mean, you could argue 200 bucks, some compounding, what does that mean? But it's better than a poke in the eye and it didn't cost you anything. And because it's associated, as Jason said, with the share, there is an interesting element of marketing to it. So it's good. Yeah. Cool. Hard to hate the man that just gave my kid a SpaceX share. You can hate him, but it's hard to hate him as much. it's really hard to hate him as much right i mean michael dell is going to get some kudos too but this is this is the big lift i think this will just gain momentum too right this is the next version of the one one one thing which was nice but and it's going to remove a lot of the toxicity around the massive wealth creation that's only just begun and on a scale we've never seen before and giving it directly back to the people rather than through weird charitable gates whatever foundation this is a much much better way to deflect drama to give it directly to people that the ultra rich should do this it's it's brilliant boys the brilliance of elon is a great one to end on and charitable giving but before we leave you today base 44 is one of those products i used and i just thought straight away man i wish i'd had this when i started 20VC with 50 and no contacts

adventure. I wanted to see what it could do, so I built a guest research hub for the show. Upcoming guests, company notes, previous interviews, sponsor contacts, follow-ups,