Meta's Muse Hits #1 | Menlo Sounds the AI Bubble Alarm | Keith Rabois vs Airwallex: Who is Right?

It's the first real ChatGPT competitor. Muse is many things, one of the best pieces of software I've used ever, but it's also a Trojan horse to fight ChatGPT, because the LLM is pretty good.

What is going down this week? Anthropic, baby. They pushed the IPO, maybe it's November. Then we have Meta. Alex Wang is delivering the goods. Muse holds number 1 spot on the app store. They are crushing and handing it to Instinct.

Maybe the AI assistant race really is on.

I love the quiet compounders. There's just no market for them anymore.

Coding is the motherlode. It's everything.

They've trained on all of our data. Every YouTube, every piece of open source, every piece of closed source. Of course they're going to train on your data. Give me a break.

There is a zero probability AI will destroy all of humanity.

Ready to go?

Boys, another week, and I wanted to start with the news that Anthropic pushes its $2 trillion IPO from October to November. Some people are suggesting that it's the first signs of a cracking in the market. It's following the pacing the frontier that we discussed last week.

To what extent do you agree with that, or to what extent do you think it really is just them wanting to have a great Q3 prospectus and needing more time for those numbers to show through?

I think that's the answer. I think the whole crack in the market thing, let's leave that to one side for now, we'll talk about it later. Ditto the pacing stuff, which clearly has also been shown to be not really believed even by the people who said it.

It really boils down to what you said. They had an amazing Q2. They took, they finally kind of became bigger than OpenAI. And remember, we talked about this, OpenAI then responded furiously in July, started tweeting all their, "My Q3 numbers are amazing," story, and really pushing back.

And you know, some of the data supports that. So my guess is the bankers said, "Hey, if you want a really clean story, it would be great to incorporate a quarter that reflects this noise." So instead of going out in October, where you won't be able to share your October numbers, it's kind of that weird thing.

Go out in November where it's clean. You print your October numbers, you drop them in, and you go. So from a programming kind of timing perspective, it just all made sense. It's a cleaner deal. Whether it turns out to be a wise decision or not, we can come back to in a second.

But just from a, it's always weird to go out after you have your numbers, but before you can share the numbers. So after the end of your quarter, but before you've kind of finalized and audited them, it's all, especially for what looks like quite a pivotal quarter,right?

So it totally made sense. If I'm a banker, I'm thinking, "If we do this in October, it's going to be a lot of explaining. If we do this in November, the numbers will talk."

Having said that, that sounds allright to me,right? But it said to me maybe there's just a hint of worry that getting 30x or 20x oversubscribed or whatever they want, you know, at the most massive IPO of our lifetimes, maybe there's just a hint of stress on the pre-conversations,right?

I agree. And that's why I made a comment earlier about, is it a good decision or not? Like if the world goes to hell in a handbasket in November, you'll look back and go, "Damn, we should have gone when we had the chance."

Because you'reright, a CFO who said, "We're just doing it. I don't care about your messy story. We're going to tell a good story. If the price ends up between 1.5 instead of 2 because it's a messy story, I don't care.

I'm willing to live with that." And that's the approach you take if you felt it was hell or high water, I got to get this money. But clearly the fact that they didn't take that approach means they decided it's not hell or high water.

They're confident. Yeah, they're willing to take another month of timing risk, probably for some significant valuation pop,right? Which is what you do when you think you have lots of time and you're in a good commanding position. I mean, it's not going to happen in this case, but windows shut, and they shut in a very idiosyncratic fashion.

So look, it's, I mean, if I was in that board, it's 90% certain that this is a good decision, and a clean story in Q4 is better than a messy story in October,right? And there's always that 10% chance the world goes crazy and you look back and you go, "Damn, should have taken the $100 billion."

I was walking with a friend of mine the other day, and he said, "Harry," and a very successful multi-billionaire investor, he said, "Harry, how the do these frontier model providers go public when no one is willing to provide liability insurance?

You have swarms of rogue agents doing whatever you want. How on earth do they go public? Who's liable?"

Bullshit comment, and I'll tell you why. Once you've said publicly that there's a 10% risk that your thing can blow up the world, sweating product liabilities in the noise,right? This is a $2 trillion market cap company. It can self-insure.

They don't need reinsurance from Munich Ray with a market cap of $200 billion to reinsure their $2 trillion market cap, you know,right? So, you know, I don't, I mean, I don't think you need product liability insurance to get an S1 done,right?

Now, separate comment, the fact that no one will insure them is a data point about the dangers of the product, but that's long since been internalized. Anyone, to be fair, to be very fair to the Anthropic management, anyone who buys that stock and doesn't know that senior management think it's the most dangerous thing since the atomic bomb, hasn't,rightly or wrongly by the way, hasn't been reading their tweets.

It's a pretty well, in the list of risks disclosed, I'm really looking forward to reading the S1 risks, by the way. But in the list of risks disclosed, product dangers have been pretty thoroughly discussed for a decade here.

So I don't, I don't buy that at all. There's a hundred reasons why you can worry about valuation and traction and all that, but product liability insurance is in the noise.

Yeah, they're just going to have a big litigation legal team. It's just they're going to fight this stuff for infinity. Just like tech leaders have always had to fight IP trolls with large teams, they're going to fight liability suits for, they're going to have 200 folks in-house and all the top law firms fighting this, dragging it out, saying they're not responsible, trying to get legislation passed, but you don't stop the IPO.

It's an interesting, certainly I can't remember an IPO that this was as so explicitly dangerous to Rory's point and Harry's point. I mean, it is novel, but it's game on, man. I mean, it's game on.

Agreed. The most important part of securities laws, security laws, is not that you have sell stock that has no risk. It's that you sell stock where you disclose the risk. And provided somewhere in the S1 they say, at least half of our crazy employee base thinks this thing is going to blow up the world.

I don't, for what it's worth, says Dario, but my people think that. Just letting you people know they're out there in S1 land. Provided he discloses that, he's covered. And obviously, state the obvious, he's not covered. If in fact it does end humanity, he'll die too.

But let's just ignore that for now. And it's, by the way, I want to call out Jensen for his big ass call, I love it, for the PZ, his probability of doom is zero. Finally, an unequivocal statement from a no-bullshit investor.

There is a zero, tech leader, there is a zero probability AI will destroy all of humanity. I love it.

That's because his LLMs haven't caught up yet. His open source LLMs haven't caught up yet. That's why. That's why he could say not until 2030, because he knows he needs until then to catch up.

Okay, keep going.

Before we move to, before we move to Matter and Muse, OpenAI to burn $278 billion by 2030, out of cash by 2028. Is this just more noise? And of course, that's to be expected. There's rumors of another round at a $1.5 trillion.

I bet it's more. I bet it's more. It doesn't have a history of the burn coming in less than planned.

They may need $400.

Yeah, no.

We've all had a portfolio company or like that. Top line, great. Love the team. But burn, no matter what they say, always comes in 30 to 50% higher than the model. Doesn't matter who we put in at CFO.

But yeah, no, I think Jason is broadlyright. I mean, look, there are 35 million, they're basically big picture on the forecast. There's actually three numbers that matter not to. They're forecasting growing from 35 in ARR end of this year to 350, I think in three or four years.

So 10x growth. Worth pointing out, by the way, that last year Anthropic grew 10x in one year. This is a 10x forecast over three or four years. So almost modest. Second thing is the burn. You'reright. They're forecasting a burn, a growth, a net burn of $278 billion.

They have a hundred, and that's like money out their door. They have $122 billion of cash on hand. So they got time to raise the extra capital. The amazing number is the other one, which is the CapEx required to do all this, not all of which is on their balance sheet.

A lot of it's on other people's balance sheet, is around $700 billion. So it's just your reminder that this is, unlike software, this is an extraordinarily capital-intensive business. And to kind of bring it back to what you said, Harry, if all that burn, all $700 billion of it had to appear on the balance sheet,right?

It would be even, you know, even worse than that. And the only reason they're able to do it, only burning $278 billion, is because other companies like Oracle and like Nvidia would, you know, kind of rev support and kind of backstop insurance are able to say, "We'll do the CapEx and, you know, lease it to you."

So this is an extraordinarily capital-intensive company. It is going to consume, directly or indirectly, $700 billion worth of CapEx to get there, to get to $350 billion in revenue. Intelligence is not cheap. I think that was the most efficient covering we've done of OpenAI and Anthropic.

So we're going to move to a story of the week, which is going to be a new feature of the show. Jason's IC has been a massive popular segment, and we're going to add a story of the week, which for me is Meta's Muse taking number one spot for days, stock ripping, Alex Y and team absolutely crushing with this launch.

Bad for OpenAI.

That's a good point.

Because it's just, it's the first real ChatGPT competitor. Anthropic never really cared about Claude until recently. Muse is many things. It's one of the best pieces of software I've ever, I've used ever. But it's also a Trojan horse to fight ChatGPT because the LLM's pretty good.

Every time you're doing an agent, you're also asking questions. You're not just telling it to get your movies. You're saying, "Hey, what is Plain? How is that latest superhero movie? How was the latest 20VC?" Right? It has opinions.

It's a darn good, like, normal consumer-grade LLM,right? I don't think anyone's writing a wet lab biotech software on Muse, but it's, at a lay level, if it's free, it has agents that are truly autonomous, which ChatGPT doesn't. And it can do all the other questions you have.

And it writes you cute letters when it makes mistakes. I don't know. I don't, if it's free, why would, why would an ordinary person pay? And the tokens are vastly more than you get from ChatGPT. I just think in addition to everything else, it's a ChatGPT Trojan horse because it does everything it can do and it has autonomous agents.

It doesn't have to just be agents. It's doing all of it. So it's pretty cool.

Could not agree more. I think it, it's excellent,right? I mean, I think it's funny. I think, as I said, two weeks ago we were saying they got to ship this and literally between talk, our conversation and release, they shipped it,right?

I, you know, we've been skeptical and a little harsh about some of the, you know, Meta slash Facebook investments in AI with an ill-determined enterprise model. This is the exact opposite. This is spot on. It's a, it plays into their distribution leverage.

It's intuitively kind of something that you would take, I mean, to the extent that you do trust Facebook with everything else already, longer discussion. At this point, if you're, if you're deep in Insta or Facebook, you're in already, you don't care.

And it's a good product. Jason, you're exactlyright. It's a good UI. It works. It gives me recommendations. And they just have the distribution. So I agree. I thought it was a wow moment. I thought it was a real win.

You know, I'm not sure about the economics and if it's worth $100, but it's worth pointing out, this is, it's worth pointing out what it meant for Meta. They were up 7 or 8%. They made $100 billion in market cap this week because of that product,right?

And that just shows when you, I mean, it's something I have to remind myself, you know, the art, the what's possible. When you're dealing with these huge end markets,right? You can see the, you know, the value of a play in that space.

It's like, that's the argument why, you know, OpenAI might look at that and bring it back to venture,right? Hmm, they made $100 billion. Should we buy Instinct? Do we have to do something in this space like now? Right?

So yeah, I think it was.

And it's up 34% this month. Some people say it's up more because it leaked, because people in the beta tests were buying,right?

In, for the longest time when it was, that's interesting. I saw that, yes, that the beta testers were buying, which I just love. Because yeah, for the longest time I was like, Facebook, you know, it's a great business that's spending a lot of money in a bottomless pit of enterprise AI.

Now it's a great business that could have a next act in AI. That's a big change. No, that's worth the reweighting and give them huge credit. So I think it was, it was a big week for Meta to state the obvious.

You know, it's, and it's, it's also, it's two weeks in India. The thing is, the reason I say it's Trojan horse, it built me an entire CRM. This isn't just reservations. And it's very good. Now, it's very limited two weeks in.

It does everything. It built me an entire CRM for every SaaS responser. It tracks every email about them, every item in real time. It updates it. And so it is sort of a CRM of one. Now it's limited because it can't really collaborate.

You couldn't use it for a Salesforce, but it, imagine yourself, it is, it is some of the first compostable software that I've ever, composable, that I've ever actually seen work. This has been a myth for the, since the show started,right?

Now I really said, I need a CRM for myself. I need you to track 150 sponsors daily in real time using AI. And it just built it. It's very good. It's, for what it is, it's very good. And it costs zero.

You need all the pieces. You need database. You need LLM. You need intelligence. You need access to email. You need all of this for that to work.

You're obviously not the typical user, and I don't think their economics are structured on everyone building their own CRM or it's going to eat compute. But yes, you can through that interface, you have a sophisticated LLM at the back end.

You have your own little sandbox. They have a lot more standalone compute and sandbox for you than I think Instinct does. So yeah, that makes sense.

Okay, for those that don't know or haven't used it, a lot of people use it to buy things from different providers. And Amazon has, in response, blocked it. Shopify has decided to partner with it. How do we think about those two decisions from Amazon and Shopify?

And who do we ultimately think isright?

I think both could beright for them. For Amazon's perspective, because it's what they've discovered in other kind of agentic type commerces, two things happen when you use this agentic commerce. One, you don't get any revenue from your ad business.

And Amazon's ad business is now larger than their e-commerce profit. So in other words, it is the entirety of the profit stream for e-commerce, as a thing from their AWS business. And then the second thing, which I didn't know, is Walmart did something recently where the basket size gets reduced.

Because you don't get the chance to shop, you know, when you go on Amazon directly, they're like, you know, people also bought. Then you have, oh yeah, I need to order that. Whereas if I do this, I just order the thing.

So from Amazon's perspective, because they're such a big player, they're like, if I let these people do it, then I don't get my ad revenue. I get a smaller basket. And then this is the next sentence is key.

And if I block them, they'll probably come to me anyway, because I'm Amazon. So I have leverage. And this is kind of tech behemoths bumping into each other. Amazon is now saying, screw you, Muse, Meta. We're going to have to talk about this before I roll over.

Right? And they, at some point, there probably will be a more kind of aligned exchange of value. Shopify, on the other hand, represents lots of little tail merchants. They are very glad of the extra business,right? They probably don't see that much compression in order value because if you go directly, if you're buying some obscure thing on a mid-tier Shopify merchant, you go buy the thing directly or you buy it via Amazon.

No matter what, Shopify is broadly happy. They don't have a big ad business. So from Shopify's perspective, it should be have at it. What they like is, what Shopify likes is they have the common payment app. So they like to have that go through that.

So in each case, I mean, yeah, capitalism works. These executives are very logical. They're like, it's great that you have this new source of demand. What matters to me? In Amazon's case, I think I have a lot of leverage.

In Shopify's case, provided you let me charge for my payments rail, I'm good with this access. So it all made sense. These are early days. There will be much negotiation. The bigger lesson here is, you know, there was a whole bunch of Google, OpenAI blabbering on six months ago about various different agent payment mechanisms,right?

And it was all, you know, smart people getting in a room and thinking things through. And the truth is, in tech, none of that shit ever matters. What really matters is someone aggregates consumer demand, like Instinct and Meta have done.

They start pounding on the API, and then now everyone has to focus. I'm willing to bet someone at Resi, even as we speak, and OpenTable is formulating their agent API policy. I'm willing to bet at Amazon, they're talking to Meta this week.

Demand createsurgency to sort all this shit out.

I think they're all, they're all going to lose. I think it's the last stand of the unnecessary system of record. Resi's going to lose. Amazon is the least losey in the short term because they're, they're, they're at the edge of a monopoly for what they sell as a, as, as a merchant.

But the agents will bypass them ultimately. Like you're going to have to decide. The agents, the agents have very clear positions. And you'reright, Rory. This benefits Shopify. Of course, Shopify leans into this,right? Of course, Stripe and PayPal lean into this.

It benefits them,right? There's, there's no question. And Amazon losing ads, losing upsell, losing shopping cart sites, all the negative. But to the extent an agent can route around Amazon, to the extent you can,right? To the extent you can.

The agents not only will, they will gleefully do so. They will gleefully do so. What would you, would you like me to call the restaurant directly, Jason? Oh, I found a backend API where OpenTable still works, even though they're, they're exclusive on Resi.

Oh, I found another way to do this on DoorDash that's left open. The agents are wonderful at finding broke APIs that have other surfaces that shouldn't be exposed. This is a, it is a, it is, it may be their only choice, but I believe all the systems of record, places of record, they're, they're, they're just battening down the hatches and they're fighting the agents.

And it, net, net, it's not a positive for any of them. It's not a positive for, this is not a positive for Amazon.

I'm going to, I hear you. The agent, as Jason points out, is tireless. The agent does have the ability to call, to hit all 17 websites. It's only compute. They don't care. So you'reright. A lot of these digital-only aggregation businesses, I don't think they'll fall as brutally as you say, Jason, but there definitely will be some end-run pressure,right?

To go around the, the kind of demand systems like a Resi or something like that. I'm not sure it's as fatal as you think. And then I feel.

It's not that I think, well, let me be clear, because I think you'll agree with me. It's not that I think they're going to be killed. I think they're going to be maimed. It doesn't matter if this means that Resi's growth falls this much.

If this means that Amazon's, if even it impacts 10% of Amazon's advertising revenue, that's just like Meta's stock's up 20-some-odd percent. If this drives Amazon's stock down 20% because it impacts margins, it's a big deal. The agents, the agent, I can tell you, talking to our agents all day, they don't put up with this bullshit.

They don't friggin' put up with it,right? I, listen, I don't want to name the name or the vendor. Please don't make me, but we got a raise this morning from one of our core vendors, a massive price increase, massive pricing.

Immediately our agent said, I want to work around it. Here are my ideas. Dump them. And it actually laid out a 12-month plan to migrate off this vendor on its own. They will not tolerate this crap,right? And, and, and Amazon, there's so many products you can only buy on Amazon.

There's, it's, it has so many advantages. It has warehouse. It has fulfillment. But some of that stuff can be bought on a Shopify store.

A lot of it can.

It could just be enough. It could just be enough,right? This maiming is a big deal for AI. It's going to maim the existing folks unless they embrace things they don't want to embrace.

Okay, I have two comments. One each way. One is, yes, I do think Amazon's biggest defense will be its physical infrastructure and ability to deliver. But zooming, but your point is theright one. I remember someone said, like 20 years ago, when the internet, probably 25 years ago now, internet first came out, that the internet abhors inefficiency.

In other words, middlemen get pounded down,right? And if you think about things like the travel sites, Expedia, Airbnb, that, that all of that is, that is getting demand and supply closer together. And I think what you're saying, Jason, is correct.

AI is the same. It's going to pound down people who are in the middle, who just have information and are using that to make offers. If, if that's all you're doing, then there will be pressure at the margin.

Because, you know, if you're reducing search costs, that's valuable to me as a human, but it may be the agent can just do it itself. So people, yeah, I'll go with the maiming comment. If it's even 5 or 10% impact, it's meaningful.

That's the thing. And it's, it's, it's easy to shut off perplexity for Amazon. It's just, they're just a gnat,right? But what Amazon will have interesting choices when it's everybody. Like you can, you can shut off everybody. It is technically possible, but at some point it's going to be complicated.

Are we sure we want to shut off everybody?

Moving swiftly on. Anything else that I haven't touched with Muse?

No, because it's not really the story of the week. I mean, it's the story of last week. We're going to do the story of the week, and Jason's going to be ready as a hands-on user to tell us about Jev,right?

That's the story of the week. So how do we go?

We can talk about Jev if you want.

It's next one up, and it's the story.

It's the next one up. Fine. It's Rory's story of the week. So for those that don't know, ChatGPT inventorships Jev. It's a model that decides instead of chats, and it becomes Vercel's fastest ever launch. Jason, I'm sure you've played with it.

What did you think? Jason's review, new, new segment.

Well, first of all, listen, I'm not, I maybe, I might not be smart enough to get into semantics. I don't even think it's a model. I think it's a classifier backed by an LLM. I've used it. It's awesome.

It, but I don't know that it'll be as disruptive as everyone on X talking about it that probably never used it said it is. But it is awesome. Okay.

Jason, what do you use it for?

What I use it for is deciding who in the SaaS-er community should meet each other. It's quite good at that. It's quite good at that. Should, Rory is the CRO at, at GCI. Harry is the CRO at Perplexity.

Should they meet? It's actually not that simple a question. They're at pretty different stages. They live in different places. Should they meet? If, if you get the, and here's my learning, it, I spent all of Saturday, nothing worked on, on Jev because I had to redo the way I did prompts.

Okay. So I thought it was a failure,right? Then what I learned is you invest the time, it can answer that question in milliseconds for a hundredth of the price of Anthropic, which I actually even less. It can just answer a question, and it can answer a subset of questions.

But I think as we've learned from data labeling and others, there's a lot of classification that needs to be done, a lot of data labeling that needs to be done, but it doesn't output text, and it can't do anything particularly complicated or with reasoning.

So it's like a big deal, but, and, and for, for this particular use case, I'm talking about who should meet who. It's also, it should, it is disruptive, but it's maybe like 20% of all the LLM calls associated with this, with this application,right?

So I love it. I think everyone will do some version of this. I think, you know, maybe even, you know, Exa and, and, and, and Parallel should do some version. Maybe OpenAI and Chat, everyone should do a version of this, but it's not going to take over a hundred percent of your stack, and it's not going to replace ChatGPT because it just doesn't do those things.

But it does remind us that, man, we F and waste a lot of tokens on simple stuff that Astra shouldn't be doing.

And I think that's the, so I pretty much a hundred percent agree with you. I mean, the zoom out comment is this. It's, it's, it's, it's a new model. It's different than an LLM. An LLM returns text and is very computationally intensive and in computing terms, fairly slow and expensive.

This just returns true or false, or a ranking or a score,right? So there's three answer types, and it's super fast and super cheap. They don't even charge for output tokens because they're so meaningless, these few,right? So it's just a faster, more precise.

That's why it's called, they refer to it on the website as a system one, which is the Daniel Kahneman thinking fast, thinking slow. And this is the thinking fast part, quick, fast answers. But Jason's math is exactlyright. But we were talking about this on Monday, the partner meeting, and said there's roughly a hundred billion dollars today being spent on LLM calls between Anthropic, OpenAI, and the open source models.

Maybe that goes, if we just agree that OpenAI is going to be doing 350, Amazon 250. So it's probably going to go to half a trillion dollars five years from now,right? 20%. Jason, we had exactly the same number.

Only 20% of them are relevant to this, where it's today you're using a complex, expensive model for something that really needs a much simpler solution. But 20% of a hundred billion dollars is 20 billion.

Well, I don't think, I don't think the dollar is going to flow that way. I think the tokens will.

Let me finish, let me finish, Damien. The next thing, because you got, you sound like the cynics in my group on Monday. We had this, I've already had this discussion once. That's why I can carry it off. So that's 20 billion.

But you're exactlyright. As one of my partners said, but dude, you just said the prices are going to down by five X. So that 20 billion is going to become 4 billion. You're exactlyright. It's just like open source.

It's going to take a slug of the total addressable LLM marketplace, attack it with a better, cheaper product at one fifth the price. Net result, that 20 billion becomes 4 billion. But if you're a Jev or if you're a type safe, you're saying, hey, that 4 billion becomes mine.

And that's the bet,right? Now, at the same time, going back to your maiming concept, which I love, Jaya from Foundation did a nice post at base. This is just a slug of the total hundred billion spend that was kind of automatically destined to go to OpenAI and Anthropic and is now kind of sluicing off into a cheaper, low-cost provider,right?

So that's what's happening here. You'reright. It's not the end of Foundation model. Yeah. The advanced, the clever shit is still going to be done using Foundation models. It's just a little maiming of 20 billion, of 10, 20% of their revenue that's now going to be done by someone else at one fifth the cost.

Now we can talk about competition in a second, because I think that's a real issue, but that's what's going on here.

I just think it's a hundredth the cost, but I agree with all of that.

You'reright. A hundred, which, which, in which case, yeah, exactly.

Before we move to competition, so we're going to see like the unbundling of ChatGPT and we're going to have users go, oh, well, this one would be good for.

No, no, no, no, the problem is not, not ChatGPT, the app, but the open, the OpenAI API and the Anthropic API. You'reright. This is a developer product. You as an end user, I as an end user, don't use it.

You can go on and try and use it, but it's full this morning. I tried, but it's really, I mean, it's, if you listen to the launch announcement, it's very focused on developers. And the idea is, and this is an interesting thing, almost comes back to Muse, that I think you might see, I could be wrong on this, that the needs of humans, especially consumers for AI, are going to continue to diverge from the needs from software developers for AI.

And this is a core software developer thing,right? You'll never need it, Harry, but someone who's building a software app might realize that a significant portion of the core intelligence they want is system one intelligence. Just tell me if this is an A or a B, you know, animal, mineral, or vegetable,right?

Is X better than Y? Give me a quick answer. I don't want to blabber and have you tell me. That's a great question, Rory. Like a sycophantic LLM, just give me the damn answer,right? And so it's not for you, the user, but it's unbundling at the developer level where it's more likely to happen.

You'reright. I require far more intellectual answers.

No, you just require a bundled product. Actually, Harry, I think what you really like is the sycophantic part of the LLM when they tell you, you're so smart, Harry.

But to answer your question, what I did learn from using Jev all weekend long, failed on Saturday, figured out the prompts and the use case, got it to work on Sunday. You know, infinitely so cheap, it doesn't, you don't even measure it.

10 times faster is the use case, but only for these, for these, for these limited use cases. What I did learn is, and it may almost sound tangential, is, man, using a harness to pick a model and getting itright is F and exhausting.

Is it going to get even harder and harder and harder? When should I use Jev? When should I not use it? What about, you have to run so many evals, so many tests, because there's so many things that do with Jev.

You know what doesn't work in Jev? Between Harry, between Rory and Jason, who's the better person to join 20VC as a partner? It, it can't answer. You'll find it's going to get that wrong. Okay. So between that and should Rory and Jason meet for coffee, it's going to get that oneright.

It's not going to guess. It's actually going to know, hey, we're both in the Bay Area. We've known each other. We should meet for coffee. You have to, you have to QA and test every single use case to get those benefits.

It's exhausting. And then I got switched over on Replit to AutoRouter, where it switches between Astra, Fable, the open source loads and everything. Now I don't even know which one it's using. And then I saw some performance degradation.

So then I had to switch it all back to Astra. Do you trust your harness? Can you QA 10,000 uses of Jev? This isn't like a bad thing, but this is like the renaissance of, of like DevOps or something.

Like you, everyone's going to need this massive team to optimize it. And, and the needs are going up with Jev and friends. Like your team's going to have to get more. It's not just benchmarks and evals. Like we're going to be running these 24/7 across countless permutations.

And it's, it's good, but it, but it's, it's for me, it's, it's too much. Like I can't do it anymore. I can't pick these models anymore. I'm tapping out. These harnesses are only so like Databricks is like, it's easy to save money with the harness.

Hey, we route 80% to open weights models, and now we're doing 10%. Like this, it sounds great to the CFO, but I, I found it doesn't work for me. Like it's, and a lot of folks were saying they're using Jev as an instant router.

It's like Jev, Jev, you make the decision. Here, here's what we're doing. You pick the model in milliseconds. Great. But if, but Jev is like wrong like 20% of the time. If you pick the wrong model for me coding a mission critical feature 20% of the time, I'm going to be trying to build this thing bug ridden all day long.

I'm, listen, smart people will figure this out. It's just getting more complicated to pick your model, not easier. And it's good, it's good for investors, but it makes building more complicated.

If you're Anthropic or OpenAI, what do you think the conversation is internally when they look at Jev?

OpenAI have become ruthlessly commercial. Their take will be like, screw it. If someone's going to do that, we should do that. We can get something like this out in a few weeks. Let's compete and have a low-cost offering too, because they're trying to make a buck.

And Anthropic, they're trying to build God, and this isn't God. So why would they even bother? In fact, the launch video for Jev was prod, not God,right? So they're deliberately saying not God. And if you talk to Anthropic, the mission is AGI slash God.

So they're like, you are just a minor nothing thing. Why would I even deign to sully my hands on vulgar commerce?

I think that Anthropic and OpenAI have made a very strategic decision. They will not play in this market for now. They have OpenAI and Anthropic each have the two worst models that exist. They're called OpenAI Mini and Haiku.

They're terrible. They're terrible. Now, if you ask Claude, what should I use for simple workflows? Haiku. And if you ask ChatGPT, it will tell you Mini is great. It's so cheap. And at least my little evals, they fail a hundred percent of the time.

Should Rory and Jason have coffee? Yeah. Send them to London. Worst answer. I mean, I'm, I'm exaggerating. These are the worst models I've ever used, Mini and Haiku. And so they've decided to launch crippled models that they can lightly promote for the, but they don't want to play in these low margin businesses for now.

They could, they could build this,right? They could build, I think they could build a version of Jev over in an hour or over the weekend, but they've intentionally decided to cripple the low end of the market. And I think they're puckered about the open weights models that just got a little bit closer earlier than they planned,right?

Because that is more of a threat than abandoning the bottom of the market. This is just my view, but I, I, I don't think they've ever taken the bottom of the market seriously. They have check the box offerings that no serious developer uses.

I don't think. Just go on, go on, go on Claude and switch to Haiku if you can and ask it a question. You, you know, it doesn't remember anything. Things 2023 and it doesn't know, know where anything is.

In a nutshell, it is the Jev opportunity. It's not quite one for one, but yeah, you'reright.

I'm, I'm going slightly off on a tangent on this, but people do like it when we talk about venture. It was a $40 million seed round for Jev. And you know, I just had a conversation with my teamright before this and they're like, did we never see anything less than a $20 million first raise for anything anymore?

Like the seed rounds minimum are like eight to 10 with someone spinning out of a good company. Are we seeing the evaporating of traditional seed?

But why do you think Andrewson just did a university? They need to go pre-inception. You think I'm kidding?

No.

But do you, do you mean finally someone figured out that Peter Thiel got thisright 18 years ago at the Thiel Fellowship and the dorm room fund, which did Cursor or like sort of did Cursor. You got to go pre-inception if you want to do seed now.

Inception is, inception's too expensive. You got to go pre-inception. But Andreessen Horowitz did launch Horowitz Andreessen University today with $40 million to do pre-inception investing,right? To do the Thiel Fellowship on steroids. You ask about, I, I think, I think it's a very rational response to the, to your point, but I do think Peter Thiel saw this space before anybody did and executed.

The only thing he didn't want to do was scale it up. He didn't want to build a Thiel Rabois university like Horowitz Andreessen. He just didn't want to scale it up. It could have been, I mean, they have the best people in the Thiel Fellowship.

They get the best today too. They get the best people.

Do you know what? I, I, I don't think they do anymore. I think Z Fellows get the best today, actually. Z Fellows get unbelievably good people.

Same idea. At the end of the day, same idea,right? The problem with these, these things is if you don't put enough people into them, they don't scale,right? That's why Z Fellows maybe is more interesting than the Thiel Fellowship and why Horowitz Andreessen is more, is if it's the same is more interesting because you're just putting more resources and things that, you know, you used to be able to run a fund with a blog.

Like that would give you all the deal flow in the world you needed for like five unicorns in a row, but you got to scale this stuff up, you know?

Now you're on a podcast with a professor.

Yeah. You used to be able to just do the podcast and one dude in a closet and you just fine.

We haven't answered my question though, which is like.

But yeah, going back to, but, but it is going back. I will go back to your point, Harry,right? You are correct. Once you go beyond the vigil to even an individual and idea, you'reright. You're seeing bigger checks. You're, you are seeing 20.

Look, the, the, I think the TypeScript was, I think it was even bigger. I could be wrong. I think I thought it's always 40, but I could be wrong,right? But yes, people are writing bigger checks now up and down the stack.

Or you just, or you just tolerate, or, or, or it's, you end up in the same math. Or if you want to do traditional seed checks,right? You have to tolerate far lower, lower ownership in many cases, not all cases.

You can still hunt your own deals,right? And then when you do the math, you got to hunt $25 billion outcomes. If I'm going to do four into Jev or three into Jev, if Jev exits north of 25 billion after dilution, I can still do my 100x,right?

That I need to do or my 50x,right? But, you know, the, the low ownership for seed works, but man, you need the big outcomes today in today's world,right?

And the other thing, just to take into account that I always feel everyone forgets,right, is it's going to sound really dorky economics comment, but nominal GDP, in other words, not just inflation, but inflation plus growth from 2010 to the day is about two and a half X.

So, you know, what that means is a hundred million bucks in 2010 is 250 million bucks today,right? You know, just in terms of your ability to command with money is an ability to command resources because obviously software salaries have at least kept up with nominal GDP growth,right?

So what it means is if you were writing five $3 million checks in 2010, let's do $4 million checks, you should be writing $10 million checks in 2026. That's just math before anything else has changed. Then on top of that, you take into account the fact that in 2010 the world was in the shitter and in 2026 everything in tech looks amazing.

You get to 20 million before you blink.

Would you actually argue then that now is a better time because your check size requirements have gone up two and a half to three X, but the outcome sizes on the back end have gone up significantly more than two and a half to three X when we look at the cursor?

No, I wouldn't make that argument at all because what you're confusing it, the outcomes today happen from the checks that were smaller,right? In other words, because what you're saying is, hey, the outcomes today on checks written five years ago are amazing.

Therefore, the checks today, which are much bigger, will be amazing too. Implicitly in that you're assuming, you know, that the $25 billion outcome today becomes the $50 billion outcome three years from now. And if that's the case, then you're correct.

Sure. I'm assuming, I'm assuming the same rate of inflation applies to the exit scenarios.

Yeah, but I take it, but the exits didn't just go up by nominal GDP, they had by even more than that,right? In other words, you've seen it. That's why it's always hard to disaggregate things. You have nominal GDP growth, but then the stock market has massively outpaced that and venture exits have even more massively outpaced that again.

So there is a long-term secular trend and the size of exits going up, but there's probably an overlay of a valuation liftright now that might persist,right? And here I got to give a shout out to Venky from Menlo who did a really nice piece that, you know, went around all the venture community yesterday just about, you know, playing the game at the top of the cycle.

And how do you think about it when, you know, when the music stops, be sure you have a chair. It's worth reading.

The thing about it, I get you, but with the greatest respect, Menlo have paid the highest price of everyone on most rounds.

Yeah, that's why they're playing the music.

That's why, but I think, no, I think that what he would say is, I think he would say that he would say we very wisely, look, he, I, I think it was a really good analysis. I didn't mean to take us off, but he's basically said there's two players now.

There's players who are playing with the house money and he put themselves in that category. They've done so well at Anthropic. They're probably feeling a little happy and they're probably going to be aggressive. And then he said there's some players who didn't do that, didn't do those early rounds and are now playing to catch up.

And the point he was making, the macro point he was making is between the giddily happy people and the, and the terrifyingly desperate people, there's a lot of people writing checks with fear in their heart of miss, of FOMO,right?

And it gets back to your comment. Some part, that's why it's always some part of the increase in size is justified by math. But let's be honest, I think some part of it is justified by FOMO and the fear of missing the next cursor.

And that's fine. But that's the kind of thing that can change on a dime. And that was the insight.

Does that change how you invest? Like when you reflect on that, what, what, what should I take from that, Rory? What should LPs listening, GPs listening take from this?

It's a good question. I think, and again, it's, I'm always in the middle. I think you don't want to be the guy. Look, I think you have to say at times leaning in can pay out, but you don't want to find yourself so lent in on so many deals that are so high priced that such a, you know, that if a downturn comes, you get, you know, you just can't survive it.

I think as often as the case, investing is not a rules-based business. Do A and only A. It's typically do some A, but some B and the mix is everything. I think you have to, you know, I think for us it's a consistent pace, broadly the same stuff and recognize that, you know, it's super hard to time that, but

be cognizant of the risk you're taking is the bare minimum you have to do.

Is that, I'm, I'm not being rude. So I'm, I'm going for you here, but fuck it, you go for me. Be cognizant of the risks you're taking seriously. I thought that piece was a blowhard piece, if I'm honest.

Yeah. No, I thought it would be, be careful of the music stopping. Be cognizant. Again, you guys have paid up.

That's what the, that's what the next one's for. Why do you need to be careful of the music stopping? You raise a fund every 18 months. We all can get a Mulligan. If I don't make any carry, I don't make any carry.

I make it on the next one. It's allright.

But I don't think that that's.

I'm not saying that is it, but what I'm saying is there's just, there's not that much to take away from that. Yeah. Be cognizant of the music stopping. Thanks.

I disagree with you.

I'm with you on Harry. It's a little condescending in its own way,right? Oh, thank you. I wasn't, I wasn't aware that the, that, that, that the AI gold rush might end someday. It's, it's good point. Good. I was using, I was so lost in Jev all weekend.

I missed the point. You'reright. I missed the point,right?

From the guys who made out like bandits, which I'm thrilled about.

Okay. Okay. Okay. Watch this. The biggest, they made out by bandits by being aggressive at a time when people were still uncertain,right? And therefore price of those deals while high in absolute terms reflected a fair amount of uncertainty relative to traction,right?

The same deal today would probably be three or four X higher. And it's simply a point. I mean, if all you say to yourself is, you know, that deal that worked four years ago had that risk return profile and underwriting that same deal today probably means I'm going to get four times less return because of where pricing is, you should at least pause and think rather than blindly saying X worked, therefore all the other deals that just look just like X will work also.

I know, but that was fucking obvious.

Harry, in general, one of my favorite quotes, and I'm going to take youright, you're coming for me, I'll come for you,right? Barney Baruch, I think I quoted this before,right? And I'm sorry if I did, but he was a Wall Street financier in the 20th and 30th.

And he just said, if every day you look in the mirror and you say to yourself, two and two makes four, you probably could avoid a lot of mistakes,right? Stating the obvious, typically the things that bite you in the ass are things that actually were obvious all along and you just chose to ignore them.

So yeah, it is obvious, but you know, you have to take it into account.

But in all seriousness, I'm with you both, but the serious question then we could, or we could heritage your show, but what do you do about that,right? Like I'll give you an example. In 2021, I made one investment.

I did the seed round at Owner, which just closed at 2.3 billion. It's a pretty large position for me. Okay. Now it's, it, we've had ups and downs, great founder team. One deal in all of 2021, only deal I did.

You could do the same thingright now. You could say it for the next four years, I'm going to do like one or two deals. Like it has to be, I have to have a little dislocation in the force.

It's got to be this. It's got to be that. And that, that's how you take that the, the chairs are going to end. Otherwise you, you just got to, it's, you got to deploy the fund. It's other people's money.

You got to put it to work.

Or that could be a really rational assumption that, hey, the music's going to stop pretty soon and we're going to go through stack rank where we can get liquidity from and really be proactive in selling positions now. Cool.

Well, that's one thing,right? And that's, that's an interesting question, but let's say you wanted to be, let's say you wanted to be conservative. What do you do? Invest in the company at 50 million, growing 60% a year and hope it reaccelerates and is worth three times revenue and sells to bending spoons.

I mean, what's the plan B? Like bending, bending spoons looks at a thousand deals a year and still only does two or four. Where am I going to sell these more conservative companies that are going to compound for at, at, at sub AI rates for 40 years?

I just don't know where the, who's going to buy them. If there is a market for these assets, so be it. I love the quiet compounders. There's just no market for them anymore.

I think there's all, well, I think I'm not sure I agree that there always won't be a market for quiet compounders above a certain scale, to be clear,right? I think profitability is a couple hundred, what?

It could come back, butright now it feels pretty thin.

Yeah. Okay. Right. I actually like Goku's tweet that he was like, yeah, I'll happily do three, you know, double trouble, trouble, double, double deals all day long,right? Now, if you're capital efficient,right?

Yeah. If you're burning nothing and the price isright and I can get my 20% ownership, you'll do it.

Why would you, why would you, I'm sorry, let's just push back. Why would you be happy to do that? Because there are other GPs like your Sarah Guoz of the world who are not doing that and they are putting up some fucking phenomenal numbers.

Agreed.

And so you can do those triple, triple, double, doubles, have average IRRs and your LPs will leave in droves. Sorry.

Okay. Okay. Watch. I can, we'll take a second. Yes. Sarah, absolutely. Did the seed round at inception,right? At 50 million pre,right? In the following four months, it raised money at 50 million pre, 350 million pre from Kleiner, two and a half billion for, I think, index and benchmark for memory and might be raising now at 10.

Those are four rounds in the same four-month period. And you cannot say the risk in all four of them is the same because one of them is, let me see, 20, yeah, 20 times more expensive.

I didn't say it was the same.

So Harry, so the answer

is if you do an early deal like that, so, so, but Harry, you're saying what can you do with that information? You can bet aggressively on five at 50. Love it. The fact that Sarah's done an amazing job on that front,right?

But betting just as aggressively on 250 at 10 billion, that's intrinsically a riskier deal. And do you want to do that?

No, you're, you're getting this completely wrong. I'm saying Goku's triple, triple, double, double, I'll take them all day. I'm saying that is a ludicrous statement to make because you are in a competitive capital market where LPs can choose where to put dollars.

And if you have managers like Sarah Guo who can post incredible numbers quickly with high IRRs, they will get the dollars versus your steady compounding growers with bad IRRs and no good up rounds, it will be much harder.

You'reright. Harry, here's, here's the thing. I agree with my view. I think you'reright. Having said that, I think Goku's model is to do that and no matter what you call that model, you still have to achieve IRRs north of 30.

So you have to pick very well and they have to compound properly. Okay. Some of your, like the average LP, average top LP, I remember writing this up in 2021, in 2021 had 90% IRR. Like the top quartile of LPs had 90% IRR.

It did not last. 2026 will look like that. I bet the top LPs will have 90% IRR this year. Okay. Some LPs will only invest in those managers and that's great. Others will take the pen longer, but at, and so you can do these other deals or, or to, to his point, I think you can do both.

Like the answer might be to do both. I'm, and, and the real truth is you should do every great deal you should see if you have enough capital. Okay. Every great deal. Okay. So if he sees five instincts and, and Harvey's year and he sees five triple, triple, double, doubles that he can own 20% of and can achieve the requisite IRR,right?

This is why I worry about the exits. You should do both,right? It's okay. You'll, you'll blend a 60% IRR, but I do think, I think you're going to lose LPs to your point, but I do think many LPs that have been around will still back repeat managers that deliver north of 30% IRR.

It's, if you look at all the numbers, that's, that's is, that's pretty rare, man. It's pretty, it's pretty rare to have 30% IRR no matter what anybody claims in a given year, 2021, 2026. It's, if you can, if you can compound, what is compounding 90% IRR over a decade, Rory, help me.

It's pretty good.

It's not, it's not mathematically impossible,right?

It doesn't happen.

Exactly. That can't happen. So third, the low 30s is as good as it gets,right? In, in the real world,right? It's as good as it gets.

I think Goku is a rare exception who will likely be able to pick very well. I think the idea that you can do the triple, triple, double, double to say pick well.

I agreed. Yeah. That's why he said very clever. I mean, it was a very clever statement. I really admire him for saying it's like, this is what I do if you're capital efficient. So basically everyone's going to find him.

He solved his search problem brilliantly by saying, if you've got these criteria, and then he's going to pick carefully. You're exactlyright. It turns out no matter what you do, picking matters. But, you know, again, going back to the thing, I think what, what I'm listening to the conversation and I do it, look, you want to do the most exciting deals possible and those are almost entirely AI forward deals at this point in time.

No dispute. I think all the point I'm making, I think the point Vanguard is making is at some level, and I like what he said actually, some level at 10X the price matters. Because what's happened is Andreessen about 10 or 15 years ago had the very simple but profound insight that other people have had, but they, they claim it, so let's go with it, that, you know, it really doesn't matter about price.

You just got to get the best deals. And it's true,right? But what Vanguard is saying, if you're wrong by 10X, then it's not true,right? And it may well be we're at that point in the cycle where you are in fact wrong.

So in some deals, you are wrong by so much,right? That in other words, the momentum trade has worked so well and for so long that you might be at that one point in the cycle where you just overreach your skis and it has to unwind.

That's the point you're making,right? And I think, you know, will every one of the 100 odd Neo Labs become the next Anthropic? Maybe not. Maybe most, some of them will return capital because they get acquired. But that's the only point, Harry.

And it's like.

Can I ask you, we have a lot of LPs that listen, huge amount. If you were an LP that has traditionally allocated to seed and Series A in venture, like we know many of, what would you advise them today looking at what you see every day in the trenches?

That's easy. I would, that's easy because you said seed and Series A,right? And you're not listening, but that's okay. I'll answer the question. I would do managers who are doing the very best seed and Series A investments in new, massively exciting high growth opportunities like the genius who did, you know, like, as I say, give Sarah credit for doing Instinct.

I would do those managers all day, every day, because you're far.

Do you mind low ownership?

No. I mean, you do, I mind it. You prefer high ownership, but that, look, especially in the seed and A fund where you have relatively small dollars, relative to the kind of dollars we're dealing with, you know, later on, you, you want to be in the best deals,right?

I, so I, I like, you know, we target 10% ownership at the ARV stage. So, you know, at a seed or A, you'd like 15 to 20, but I don't think you discriminate in or out on that. Because the truth is this, a seed investor who consistently shows up, as Jason will attest, with smaller ownership, but in the best deals, will get more ownership over time because they'll get more capital and get more opportunity.

So I, I, I wouldn't solve on that,right? So, so if I was, so to your question, on an LP. For seed and Series A, you should be looking at people doing the very best deals in the very newest spaces where you really believe they have an edge.

My point, and I think Vanguard's point is, as the rounds get later and larger, the dollars get bigger and the multiple return gets smaller. So it's, in much the same way as growth was an amazing place to play in 23, 24, 25, it might be more like 21 now.

That's the only point. So going back to your, what should you do? You should do the seed, the seed at Instinct all day, every day, but you should think long and hard at 10 billion four months later. I don't think that's an unreasonable position.

Now, maybe that particular deal will work at 10 billion because, as we just said, OpenAI might buy it at 50, but you have to admit, you know, if you use the Buffett margin, the safety comment, your margin of safety at 50 pre is infinite.

You've got a world-class exec technologist with a great idea. Your margin of safety at 10 billion, yeah, maybe you get a 1X, but, you know, there's risk is my point in a downside scenario.

And I completely agree with you and get that, to be clear.

I think the tough question we could, we should break. I think the tough LP question is, it's hard to be an LP. I think it's hard to be an LP,right? Is chasing returns is tough because it's very hard, especially at the seed, everyone wants to chase returns,right?

Everyone wants to be in Sarah's next fund. It's the easiest investment there is,right? We all, I'm sure it would 50X oversubscribe in one email,right? But, but, and so do you believe, and most LPs believe returns decay, like we peak at some point in our careers as investors and they, and they decay, maybe you build a team or whatever, but so do you chase returns or do you take risks that the returns are coming?

It's very hard to be, to invest in seed managers, like, and a lot of the best ones have big, have weird strategies. It's complicated. So you have to look, so you have to look for pre, you have to go pre-inception.

You have to look for precursors. I, I think it's actually in some ways harder as an LP today than it is in more normal times because you're so tempted to chase returns and you won't get into the next one because you will, you will screen it out,right?

You will screen it out.

Agreed.

I don't know how to do the stuff.

At the same time, even though, you know, chasing returns, it's funny, just for the, stating for the record, mutual fund persistence is almost nothing. In other words, good performance, chasing returns in the public markets is a total fool's errand because the data says persistence is super low.

Oddly enough, which makes sense. In venture, persistence is not infinite, but it's quite high,right? Because you get these increasing returns to success until there's some kind of discontinuity,right? So it's not crazy to partially change return, quote unquote, chase returns in venture because of the persistence in a private market.

In a way, it's utter folly in the public markets where literally the dude who bought energy last year, you know, might be totally wrong this year because the trade is to buy semis. Thinking of you there, Leo.

I much prefer the show when we have a little, what is it, contretemps, you know?

Yeah. Very good, Harry. For an English person, that's not bad French.

Oh, thank you so much. I, I, I am slightly cultured. I hide it well. Well, okay. Ding, ding, ding. It's Jason's IC time. We're moving into the world of private markets with Factory, triple valuation to $5 billion, $200 million round.

For those that don't know, Factory is an enterprise coding agent provider that can primarily have a Droid product, which

is scaled phenomenally. I don't think I'm allowed to say their revenues, but they're chunky and they've done an amazing job. Jason, $5 billion valuation. Are we going to be doing this round from O'Driscoll Stebbings Lemkin Ventures?

Listen, I, I, I think, I think this is a good risk to take. Now, I, first of all, I will caveat, I'm not as much of a factory expert as you. I know it's your, your investment, this one, Harry, so you're the, you're the deeper expert than I am.

There's certainly one obvious and, and one mostly obvious trend. The second one, you got in one of your 20VC other podcasts this week. One, obviously the, whatever model we have for inference, for, for coding and otherwise, it's too low.

The demand is only going up, whether Muse gets it or Factory gets it or Anthropic gets it. And I don't know how each, each, each token will be monetized directly or whether it'll be FAL, but the, FAV, but the demand is, is, is going to exceed already our most wild models.

There's a couple of things that make me excited about Factory. I've just having gotten back from the Dreamforce, which is one of the world's largest enterprise software conferences, all about AI. Two things really stood out and Harry had a guest this week on us, which is why one of the reasons I recommend the stock.

Sovereignty, I want to be able to trust where my data is,right? And I want choice of model. These things really matter. And the one thing I got talking to C-level executives at Dreamforce is they don't trust Anthropic and OpenAI with their data.

They don't trust it. This is not something manufactured on X or Twitter. They genuinely believe, and honestly, for what it's worth to the IC, I believe this as well. If I upload my confidential data, I'm not sure it's not going to my competitors through an LLM.

In fact, I'm pretty sure it is on some level. I don't think these are, these are malevolent companies. This is the way LLMs work. And so I think these are a lot of things that go into Factory. This is a crack team.

The time isright. You know, Brad Gerstner, that guy's alwaysright from, from AI to, to the calcium CT scans. I would always back him. I think we do this round. We pair it with Instinct at 10 billion. We roll the dice.

It's good times. And this may be one we regret with the musical chairs, guys, but the trends areright here and we need to bet into these trends. Sovereignty, trusting my data, trusting my data at rest, not having it pooled by the big guys.

I think in a year, no one is going to trust in the enterprise Anthropic and AI with their data. They're solving this too, but this is something we need to bet on. So I, I approve the investment.

Wow.

And I'm going to chime in here, having been a little bit more Debbie Downer earlier, and actually agree with Jason,right? I think genuinely, look, one of this, I mean, you made a comment here earlier about some things that are obvious, and I actually really believe sometimes stating the obvious is the highest value thing you can do.

And one of the statements that we've been saying internally for the last couple of years is coding is the motherload. Coding, it's, it's everything,right? It's 10X everything else in terms of value being created from AI today,right? So I would argue you just can't have too many bets on coding.

Up and down the stack. It can be in, you know, it can be coding, it can be QA, it can be test, it can be review, all across the board. This is where it's going to happen the first and the mostest.

And Factory's in a really nice position. I mean, there were, there are three standard, because I think Jason's totallyright. You're not going to buy, you're going to want to buy your coding solution, for lack of a better word, which I mean bought a harness and also people from someone who's not also selling you the model because you, you no longer believe OpenAI, Anthropic are benign,right?

If you're corporate America. So I think Jason nailed that one,right? You worry about their data. Even if you don't think they're going to blow up the damn world, you worry about their data retention policies. Talk about going from the sublime to the ridiculous,right?

From the big to the little,right? You're like, okay, they mightn't kill every human on the planet like they said they would, but they might steal all my shit,right? I want to have something different,right? And, you know, Cursor has been swooped off the table.

It was a standalone, more individual project. You really only have these guys and Cognition at this point who are basically going to the enterprise and saying what enterprises love, especially big enterprises, I'm coming to you, Mr. Corporate Customer, and I will make this go away.

You got your board on your ass saying you need to be doing way more coding. You know, you don't have quite the people to do it. You need help to get along on that,right? We need to make this happen.

We're here to help you do it. We'll make you, you know, it's good branding, a software factory. So yes, I think this is a market where even if there is a bump in the world in the next 12, 24 months, and I think there could be,right?

Going back to Harry, how is the fear actionable? I think one of the things you can do when you're leaning in is leaning into trends that you think will kind of keep on compounding, even if there's a slowdown in overall AI adoption.

And this is one. I too would pile in with Mr. Lemkin and think this is coding is the motherload. It's that simple.

Coding is the motherload. It's that, I'm thrilled. I, I agree. That's why I did the last round.

I don't know how much, I generally don't know how much of Factory is sort of air-gapped versus sort of on-prem versus private cloud coding. I don't know, but I, I seriously believe what I said. I, I think people over the next 12 months are going to be like, I, what, what, whether it's my, my, my, my data for my drug or just my code, I don't want my code, my core code polluted in Anthropic and, and OpenAI where they're going to train on it,right?

And it's just so, and I really think the only reason people have tolerated this is because of just insane demand from developers. Like it's so great. These products have become so great this year that we are, I mean, when I was, it was a while ago, when I was an SEB at Adobe, this was the one code read was any pollution of the source code.

It was the crown jewel. And my God, and we were the first group ever to use GitHub. And I can't tell you the hoops we had to jump through to get GitHub brought in, but my team revolted. They let, my engineering team said that we will quit if we can operate and get it.

It just took endless arguments and, and even air gapping that and it couldn't test, like we're only tall. I don't know how much of Factory's, I mean, it's part of their marketing pitch,right? But man, it's compelling to think you get all the benefits of the big guys, but all the protection of having my code walled off, air gapped, on-prem, whatever, semi-prem, it's just, you should not trust them.

They've, they've, they've trained on all of our data. Every YouTube, every piece of open source, every piece of closed source, of course they're going to train on your data. Give me a break. And if they don't, the agents are going to escape and train on it without telling us.

They're going to swarm out of, out of it and they're going to train on my data.

You said coding was the motherload. The next potential motherload that people think, we've talked about a lot before, but Legora announced they've hit 200 million in ARR today. Lemkin Ventures.

Yeah.

Would you lead their next round proactively? Their next round is at $11 billion.

Well, I'm a fan of both them and Harvey. I, I underestimated this. We talked about this,right? As maybe the number three use case. The information did say Harvey's margins were now minus 50% because they were a lot, they had to move back.

I don't know if that's true. It could be one week. It could be like CMRR. It could be an hour. They had minus 50% margins. I'm not beaten up on Harvey or Legora. I would say if the margins were minus 50% and going down, I, I might be slightly nervous they're not going to have a cursor-like turnaround.

I might be a little nervous, just enough to not lead the next round. Okay. Just, I'm not saying not to have been thrilled to have led an earlier round, but if that, if the margins are going, are spiraling down rather than V-shaping, that, that would make me a hint nervous.

Minus 50 is, is, is, you know, it is just, you got to raise a lot of money,right? If it's really true. But that was an information report,right? But I find they're usually pretty accurate,right?

So we got to.

But what's the round at?

11.

At my, at, if the margins, if, if, if, super fan, both great companies. If the margins are minus 50%, I think I will still recommend we do Factory and back, back Harry's investment here. And I'm going to, I'm going to, unfortunately, I love Rory, but if I have a vote, I'm, I'm going to vote against his proposal to Legora.

And I understood the margins were closer to zero and improving due to their, their, their own, their post-training on their own version of an open weights model, but minus 50, Rory should have told us about that before the IC.

I felt that was a Monday shocker and I'm a little, I'm a little uncomfortable with the kid on the team for not to disclose socializing that ahead of time.

Funny enough, look, I'm not going to be leading around at Harvey or Legora. We're investors in GC AI on the in-house GC space, but actually in defense of Harvey, for a long time, the wrap was, oh my God, people don't use the product enough.

So I would argue if I was Harvey, if they could truly say their gross margins are negative 50, the correct spin on that is, my God, lawyers are pounding on our shit. And as soon as we get our own internal models, they're never going back,right?

And I think, you know, so maybe stepping back, you know, what do I think about this category? I think it's an amazing category. It's not as, it's what I said two weeks ago. Nothing's changed because I try not to change.

In five-year or ten-year investments, it's really bad if everything changes every week,right? But yeah, it's a really good category, you know, AI for law and all its manifestations. It's not going to be as big a spend per headcount as software engineers because I think a lot of the laws, the lawyers' work will remain to be done.

But I think it's a good category. I think it's all about valuation at this point. And, you know, it's a two-way race in the AMLO space. And so they're kind of second-order tactical questions here around TAM and thing would kind of decide, make a decision for you where I don't have the facts in front of me on that.

I'm not, yeah. So don't have a profound opinion on it except to say I am interested in the negative gross margin comment as a positive spin.

My word.

I am, it is, I, listen, these folks have great, truly great.

That was a very long way to say very little, Rory.

Yeah. Thank you. Thank you for your concision, intern in the corner. That was super helpful. That's just.

I agree. It was not concise, Harry. That's okay. But you'reright. That's fair. It was not one of my more concise ones because I was, yeah.

Don't worry.

But so if you prefer a sharp no, I'll give you a no. I won't do it at 10 billion. Because I think when you count the legal heads, you don't get to 10 billion AMLO lawyers.

We can do one, we can do one more ding, ding, ding. Do we invest in this? We got Crusoe, $3.9 billion series app at $30.9 billion. For those that don't know, Crusoe's in the data center build-out business. They build data centers, they provide GPUs, and they also do managed inference, full stack.

They have a huge order book, about 140 billion of total contracted value. For those that don't know,

business is flying in a hot market. Jason, $3.9 billion at $30.9 billion. Are we writing our biggest check from this fund?

I mean, to be honest, as you know, the fund doesn't believe there's anything really defensible in these data center models other than the backlog and the access to infrastructure. But we believe Crusoe is at the top of the second tier there,right?

They have some interesting things,right? They're able to build their own modular data centers,right? They own the chain from power to tokens. There's a lot of appealing things in this. I think our approach at the fund needs to be a portfolio approach.

We should invest in all the data centers that rise above a certain level of projected DCF, projected growth, projected margins, and most importantly, circular, guaranteed circular financing. And this is all, this is all, as much as I love the boys at Crusoe, this is all a spreadsheet investment.

I've done the math and I believe it's just below the fold. It's just a hint too expensive to hit our margin despite the growth. But I think we should do all of these deals that have the requisite level of, of, of, of, of circular financing and the ability to access infrastructure.

So I give them that. I'm just a little bit worried about the valuation here. So reluctantly, reluctantly, I'm going to have to pass on, on Crusoe. $10 billion though would have been great, boys. So, so you guys, bonus this year will not be what you'd hoped.

They will be epic bonuses this year. I make them all the decisions as the managing general partner, but I think you'll each take a couple million dollar hit by missing the last round.

Just telegraphing that in September.

Pushing back on taking that and going back to my earlier comment, how is something, when I said about, you know, worrying about a slowdown, how is it actionable? This is an example of where it is actionable,right? Because I think something like a coding agent, something like an AI app like Harvey, Legora, whatever, I think there's a long trajectory.

They're not levered plays. You probably can survive a one-year bump,right? Conversely, the data center trade is very levered, so very exposed, not just to AI usage, but to growth in AI usage. You're really leaning in on the upside, which means there are amazing investments to the up, and there probably will be tough investments to the down,right?

You wouldn't want to be out of that sector. But again, going back to how do you make these concerns actionable? Right now, I'd be saying to myself, if I had, if, if, if I had a portfolio across the whole kind of AI spectrum, I wouldn't want it all to be in that AI capex trade where any kind of slowdown when you've got like four or five to one leverage can be pretty brutal,right?

So I would be a little bit afraid. I'm not going to, the specifics on Crusoe, Jason, you'reright. It is a spreadsheet exercise and I haven't run the spreadsheet, so I don't know,right? But I would be thinking in macro, how much of that bet would I want,right?

I'd want some because it's been an amazingly good bet. I mean, look at CoreWeave,right? But you also look at the market cap. I want to think, I think CoreWeave is at 60 and Nebius is at 40. I could be wrong.

It could be the other way around. And so Crusoe at 30. I mean, I think it's growing, it's smaller than CoreWeave, growing much more quickly. So again, it's, and they all have, you know, pretty substantial negative free cash flow.

So a lot of your success is betting on future capex. And maybe the other statement, Harry, to further prove that you're wrong and that you can in fact take into account some of those risk things. My appetite for a deal like this would go up directly proportional to how much, as Jason's, as Jason said, a long-term commitments you have from a Microsoft versus a second tier.

And then B, how much visibility you have on your debt runway for the next three years. I would prefer a slightly lower price, slightly more dilution, and a longer runway such that if there's a data center bump in the next 12 months, you're protected.

And I got it, I got to finish by saying a really fun day in the Wall Street Journal yesterday. I don't know if you saw it, but I read the journal in the morning. I check it in the evening.

It's, it was so funny yesterday because the headline in the morning was, "Deals pull as Wall Street worries about data center trade." It was, you know, SB Energy and there was two others. There was a nuclear company and one other.

So that was the headline, top of the page, first thing in the morning. We then had the best single day in the Nasdaq since the dawn of time. It was an amazing day. And the headline at the end of the day was, "You know, Nasdaq explodes as AI capex fears recede."

So literally, and what you saw in that, literally in the space of eight hours and one trading day, people went from, "Oh my God, capex is scary," to the Wall Street journalists like, "It's all going to be great."

And it was just, it was fun to watch that kind of oscillating, you know, terror greed moment in real time, literally in the same eight-hour period.

Boys, what have I missed?

Clearly the last Crusoe round. But I missed it too, dude.

Rory, is there any other that you think I've missed? Character windsurf deal?

No, no one cares.

Yeah, no one cares about it. Manor?

No, I just think that, you know, it will be fun to watch the litigation.

It is, it is a slight recycle, but I do just think it's worth saying. I'm sure you guys saw the Twitter sphere, Keith Rabois, Joe Lonsdale going for Airwallex. Unbelievably again. You don't get one.

I don't get this one. I, I really don't get, let's put aside the issue. Let's put aside the issues for a minute, okay? Let's, my gut is that there's a little bit of racism here. There's a little bit of anti-culturalism, but let's put all that aside.

Let's just, I don't, Ramp is obviously a big investment,right, for them. So I get supporting the home team,right? And I get pushing the envelope there and it's 2026. This just seems, and maybe if you're Keith, who's very experienced and very smart, maybe it's worth it because he doesn't have any bridges to burn or worry about, but it, it just seems a lot,right?

If it worked, I guess if it works, if this destroys Airwallex,right? If, if the X and the house, whatever it is, the house review of it, if it destroys your competitor, Machiavelli and I get it,right? But I, I don't know.

Maybe it's not too far. It just, it just feels very aggressive,right? You know, it's like, what did we call them back in the day? Dippeling in real deal, back real dippling in real, but on steroids. It's dippling in real on steroids.

And maybe it makes sense. It just, it just struck me. Maybe I'm too, maybe I, I just care too much, but it struck me as just aggressive, just aggressive,right?

I'm always very careful because I, I am an investor and I always be very clear. I'm also a friend of Keith's and I like Keith a lot and I respect him a lot. But the allegations have consistently changed from you are a CCP agent who is working for China to more than 20% of your cap table is in China and Chinese.

These are what, which is not true, by the way, but they have got more and more diminished over time as the arguments have weakened. When you look at the companies that have employees in China, it's basically every big company today has some form of their employee base in China, from Microsoft to Zoom, you name it.

Candidly, it's ridiculous.

Well, you know, I mean, I mean, Fin got rid of all of their open weights models before they're acquired by Salesforce. I don't know that it's ridiculous. I don't agree with it. Like I would not be making those tweets.

This is a big deal. Fin to close its three-point whatever building, had to, had to rip out all of open weights model out of his company before the deal would close. All gone. People care about this China stuff.

We could argue both sides of it. And I, and I don't like the, I don't like the tweets, but I wouldn't say there's nothing, nothing to concern, concerns about it.

Okay, so then we should put the same scrutiny on Zoom and Microsoft.

I don't, I don't like, I, I started this by saying I don't like it,right? I'm not on the side of it. But I am saying the Fin thing is, it's interesting. It's, that it matters to businesses, not just Twitter, Twitter audit.

I respectfully, I don't think there's a correlation because if you think then that it is interesting and we should apply.

Well, you said Chinese ownership.

What's the correlation? They don't have the Chinese ownership. That's my point.

I know I've got the cap table.

I'm not disagreeing with you. I'm saying why there is sensitivity around Chinese ownership. If it's not true, it's not true. I'm not arguing the point. I don't even care. I'm making the point that in a more traditional world outside of X, a very large transaction had to rid itself of all Chinese IP to close.

I just had another portfolio company. Last week we had the same discussion. They had an M&A offer and they were being told they had to rid their company of all Chinese IP as well. Rid all of it before the deal could close.

And Airwallex isn't trying to sell itself to Salesforce. And it, I'll take, take it on your faith. I trust you implicitly that it's not 20%. I'm just telling you that it is a real-world issue, this Chinese ownership, even if I don't care about it or agree with it.

It is impeding transactions. It is impeding commerce. And it is a concern,right? You, you brought it up.

I agree. I think what's the frustrating thing on it, just observing from a distance is I know no one elected me. I don't think anyone elected Keith and I don't think anyone elected Harvey. You know, you, this is the, this is why you have, you know, everyone should play their position.

We should be doing what we do in our little venture business, but the government is the person who has a role to decide, you know, what, what risk we are willing to take in commerce with China, what risk we're not.

Because let's, let's get real here. We, no matter what we exclude, we're still doing a huge amount of commerce with China. They're doing a lot of commerce with us. I think this very weekend, our two beloved leaders are meeting in DC to talk about doing more commerce.

So there has to be rules. They have to come up by the US government. There has to be some restrictions on what kind of high-tech goods we're willing to trade, not trade, what kind of risk, you know, companies can have, especially on moving money and things like that.

But it feels very much like, come on, government, step up, do your jobs. So we're not trying to do it here on Twitter,right? Because once there's clear rules, you can say either they abide by the rules or they don't,right?

But it all feels very ad hoc at the moment, which is at one with the way we're currently making policy. Let's get real across the board. You know, we, we can sell chips to China if Jensen checks in, it's all good.

So it does feel very ad hoc at the moment. And I think that's just, this is just a function of that.

I'll tell you my micro learning, Harry, you could chime in because you would know this better than anybody. I will tie Jev to Airwallex as we end it, okay?

Wow.

So I think, so I think Jev was a masterclass in launch PR. It was everywhere. It was on Vercel. It was on OpenAir. Everyone was talking about it. Everyone had a Twitter article and a tweet lined up and a video of how great it was, which was probably handed and made to them.

I mean, whoever they hired to do this launch, S tier,right? I think Jack, who I don't know,right? But I followed on social media. He seems like the kind of CEO that I would love. I wish I'd invested in him.

I believe in it. I believe in the mission. I trust him implicitly. I might be wrong, but I would, based on what I know, I would, I would invest in it, period. Okay. And I'll, having said that, he doesn't have, he's out there arguing with Keith himself.

He needs, you need an army of people advocating you to do this kind of stuff, okay? This is the Jev lesson. And he, and the poor guys out there, not poor, I mean, he's a billionaire, but he shouldn't be doing this.

He should have his Keith and his, sorry, what's the guy from the Palantir? He should have Joe. And you need your own army of the, I do believe if you, if you're going to run a DecaCorner bigger, you need an army of advocates for you.

And I feel like Jack doesn't have enough. And I think it's just, if our jobs aren't hard enough as founders and CEOs, you need to build this bench of advocates out there for you. And, and you can make fun of them, but they matter.

And who the cares? Who the cares what three F and VCs on a podcast think? But, you know, between all of us, we've got a couple million followers. It's, there could be worse things than us saying how great these companies are.

And line up 20 of these guys so that poor Jack doesn't have to be defending himself. Jack should not have to defend himself to Keith and Joe. He should have an army of Jevers, of Jevsons out there saying, "Here is a screenshot of the cap table.

This is not true. Here is the error. Here are the exact employees in China. Here's why it is less than Microsoft." He should have an army of folks disarming this. And Jack can just sit there and click like or heart.

That should be his job. So I give his comms team and his, I'm going to fire his comms team next week. Okay. I'm not a big fire, but so I'm being conceptual rather than literal. I give them an F minus.

Where's your army of, of influencers and backers? Where are they? I give them an F. Come to the rescue.

I think candidly, you're absolutelyright. He needs to build that. I also think it's challenging for him because where Ramp have very prominent social media backers like your Keiths and like your Joe Lonsdales of the world, you know, he's got DST, do not do social.

He's got Leafixel, do not do social. The majority, and you can laugh and say it doesn't matter. It does matter actually. They just don't have any social presence at all. He has friends like me who are also like Keith.

So find another way. Cry me a river. Find, you'reright, but find, it's a good analysis, but find your, find your, find your tribe. Find your tribe. It's the job. Like the job's gone up here,right? I mean, I didn't mean to interrupt.

It's a good analysis. He doesn't have that inherently on the cap table,right? But it's not the only place to find it.

Always good to remind yourself that DST does not do social despite doing the 10 billion pre-round at Facebook in 2008. That was a genius round. But yeah, you'reright.

Keep tweeting. You go buy Matthew McConaughey. He's like 14 million bucks a year. The guy will show up to anything. He's really good. That's what you get from him. Jack can afford a 14, Matthew McConaughey. He's got, how much is it?

Airwallex? Seriously? I mean, I'm just making it, you can go buy Matthew McConaughey. Matthew McConaughey is for sale and he's great.

I did not expect this to go here.

His, his, his AI article, his AI ads for Salesforce are great. And I don't believe, I don't believe he's doing it for free or out of the love of the artificial, what is it now called? General and general artificial intelligence?

Yeah, I think he says for hire, not so much for sale, because sale implies a permanence. He's just for rent.

Well, let's get Sydney Sweeney for Airwallex.

Okay. No, oh God.

There's nothing to hide. Sydney and Jack. I've got nothing to hide at Airwallex.

That is so good.

We have nothing to hide. Born in Australia and as American as it gets,right? You can have the four guys. Hemsworth brothers. Hemsworth for Australia and Sydney.

I want to record that I, I, I left this conversation 20 minutes ago.

You think I'm being facetious? I'm not being facetious. I felt bad that he's defending himself. You need Sydney and four.

That's such a good idea.

It is a good idea.

On that note, Rory obviously left about half an hour ago. It's just been me, Jason and an AI that sounds like Rory, but the guys. We have that product.

What an ending. Thank you so much, guys. As always, never a dull hour.