Stripe's $8B OpenRouter Bet | Anthropic's First Profit & The Math Behind Reaching $600B in Revenue?

SpaceX closes the $60B all-stock takeover of Cursor.

Your gross margin problem is my revenue opportunity for my colossus cluster. Pessimist sounds smart, optimist die rich.

OpenRouter. $7B acquisition by the Irish Paulson brothers.

It'll be like the Scale acquisition, it'll be the start of something that gets bigger. I don't even think this product will exist in 5 years.

Anthropic turns its first profit on $11.5B of Q2 revenue.

You can't add expenses below the line fast enough to stop yourself making money. The only thing that matters will be the growth rate and the 27 and 28 projected revenue. Someone who was hired with a $1 million package in '23 ended up making $51 million four years later.

On the consumer application side, Higgsfield raised at a $5.5B price. And then you have Lovable raising at a $13.3B price. Guys, we've talked about these companies a lot. How do we think about them? Ready to go?

Boys, we are back. We have some mega news this week. SpaceX closes the $60B all-stock takeover of Cursor, minting 1,000X returns for the likes of Annie Partovia Neo. OpenAI's startup fund is a mega winner who invested $6 to $8 million very early, which Rory, I thought of you when you said before about Elon Musk giving Sam billions of dollars through gritted teeth.

And many others: Thrive and Andreessen, most importantly, netting huge returns. What do we have to say on this one? It's the closing of an already announced deal. Thoughts?

I just had 3 things of it. One is it's just super, you know, we've been doing this show about 70-something weeks, you know, or so on. So much has changed. In the middle of it, or maybe a third of the way in, it almost seemed like Cursor was dead.

You know, no one's portfolio companies were using it. I don't even remember if Claude Code existed when we started this show or not,right? It might not have. It sounds so crazy. I'm not sure it had launched,right? So Cursor was super easy.

Rockets to half a million in revenue, half a billion in revenue. Claude Code comes out and it seems like everybody's moved. Like Cursor's dead,right? Cursor goes multi-model really early. It changes everything. And rockets to a $60B outcome. I mean, forget about that it started as an email client,right?

That fun little thing from Hacker News. I mean, God, what a— I can't imagine what a roller coaster it was on behind the scenes. This was not actually 100% linear progress to $60B. Pretty, pretty crazy, I think. The rate of— the rate of change.

And the one thing I just kept thinking is, and it's tough, it's how important it is to be beyond agile. Because I think so many teams would have given up on that journey,right? Oh my God, fucking Claude Code came out.

I got to build my own LLM. I got to do the— like, and it just, I mean, I— and it's just, it's so hard to keep up with the rate of change. And there's probably been 3 different Cursors since we started other than the email client.

That was my main thought. The second one is how it ended up not even being that expensive by the time the deal closed.

And you say that because it's going to be at $6B end of year and then you're paying 10X? Or you mean it because you—

Yeah, I'm paying 10X forward revenues. If it, you know, and it went from something earlier in the show, it looked like it would be gross margin negative,right? When we started the show, it'd be like, well, Cursor's a joke because they're selling a dollar's worth of tokens for $0.80 or $0.50 to the world.

Of course it works,right? This was the classic thing that VCs would mock when we started this show. And it was true,right? Turnaround, everything from open weights and everything. It's a pretty darn good business model selling at 10 times forward revenue.

I mean, that's a— Elon got a— Elon was a shrewd buyer.

I'm intrigued why Zuck didn't buy it. He's building the model capabilities with Alex and Co. He's missing the enterprise capabilities. This would have solved that in a similar way that it solved it for Elon.

Interesting tangent. And yes, if the logic is, hey, you've got a whole bunch of compute but not an obvious business on top, the two people for whom that's true are Meta and SpaceX. And you'reright, SpaceX did it and Meta did not,right?

So that's, yeah, at a high level, it's a fair point. But one of the things we pointed out in the agenda is SpaceX could move a little more expertly. They didn't do one of these weird acquihire things. They just bought it like a regular old corporation.

They didn't have any antitrust. I mean, they actually filed for antitrust. They got quick clearance. They didn't have any compelling issues with that. I don't know if the seller would have had the same confidence that the seller would have the same confidence that Meta would have gotten through,right?

Just given their DOJ. Just, they just probably are going to have the DOJ more kind of crawling through what they do. So that would be one argument. It may also be, to be very direct, no one else had the stomach for the bet in the way Elon does.

And I mean, yes, Meta is relevant here in terms of fitting the characteristics of lots of compute, no compute business on top. But Elon has the biggest advantage, which is his stock is trading high. They're doing what, 20?

I mean, it's $8B last quarter in revenues. Call it $30B growing. Round up to $50, what the hell? You know,right? It's still 40 times revenues,right? Picking up a big asset, as Jason says, at, you know, 15 times current revenues, maybe less than 10 times year-end revenues.

Dirt cheap for him,right? In net equity of day one. In a way, that probably wouldn't be as true for Meta. I haven't thought about it all that much because, frankly, until you mentioned it, I hadn't thought of that.

But this was, I mean, one of the things for me is if you zoom out, I'm just reflecting back on Jason's comment on the gross margin negativity,right? That's true. That story was true when it happened and it's still true today.

There are challenging margin issues,right? And what you— when you reflect on the journey, you kind of, the things that, the negatives that you can cite along the way tend to be true. They're correct. Those were real. And it's a question of the positives.

When you look at an investment, the positives in terms of market trajectory just outweigh the negatives. I mean, it's easy to sound very kind of financially smart and say, oh, in the end, everything has to generate free cash flow.

This doesn't have gross margin. So, quote, "in the end, it's worthless." But it's wrong because along the way, when you have a market that's exploding like coding, that's a huge market. Remember, this is the biggest market for AI.

Like 70, 80% of Anthropic's trillion-dollar market cap is predicated on this,right? If you have the— if you have the number two player in that space and you're growing hyper-fast, then even though, yeah, you got gross margin challenges, the buyer, especially in a kind of optimistic, forward-looking market, the buyer's going to look past that and say, there's only one or two ways to play in this space at a meaningful level.

And it was just a perfect fit,right? In a very, frankly, in a very different capital markets, it could have been a very different story. You know, oh my God, there's no capital. Oh my God, the gross margins. Oh, no free cash flow.

Maybe you have to slow down and do a very different trajectory as Cursor. But in this market, they were able to go balls out, for lack of a better word, have those tough gross margin stories, and then find a buyer who not only was willing to look through it, but actually had every incentive, every ability to solve it.

Because he's like, your gross margin problem is my revenue opportunity for my colossus cluster. So it just shows, yeah, the issues, the negative issues didn't go away. They just got swamped by the optimistic take. And that's why, you know, it's the old cliché we talk about.

You know, pessimist sounds smart, optimist die rich,right? Those guys had, Jason said it, there were probably some very tough days, but they had the guts to keep moving forward. And because the market's huge and because, frankly, the environment is risk-on, they've had an amazing result.

Good luck to them, you know.

And on the Meta thing, it's just a detail. I guess it's a parallel universe question. But I mean, Zuck would have had to pay $80B, $70B in like a week to do the deal,right? That'd have to be very core because don't forget, Cursor, what happened was Cursor was about to close around $2B at $50B,right?

From Andreessen and friends. And Elon, Elon did what you have to do in that situation. What does it take? So he bid $10B more,right? You've got a deal at $50. I mean, Zuck did Instagram and WhatsApp like in an hour on the back of a napkin and paid high,right?

But I think Elon did even better. What's it going to take? They were already working together with Cursor,right? They were already working together. We're going to do the round at $50. How about $51? No. How about $60? How about $60?

Okay. And, well, the deal might not happen. Well, what if we pay you $10B and if it doesn't happen? Well, okay. I've removed all the objections from the deal and I'll let you run the company the way you want,right?

I think it was 3 points and they shook hands and did the deal. I mean,

Zuck can do the same thing. He's done it at least twice, but you got to want him bad to do it,right? At $80B. And he would have had to move even faster. I mean, Rory's of courseright. Elon had the ultimate stock and currency to do this deal,right?

And the ultimate match. But to do any of these deals, I think you got to be Elon or Zuck because you got to just strike this deal in a week at $60B. I mean, it's only a handful of people can do this,right?

I don't even know if only a handful.

Agreed. And, you know, I chose reading Yanellas Smith, who's kind of a damn left of center but moderate centrist blogger, who's not an Elon fan, just wrote a great piece about a year ago that says, "Only a fool denies that Elon Musk is wildly effective."

He is, you know, regardless of your opinion on the merits of it, he's one of possibly the most effective person on the planet at getting shit done when it comes to industrialization, physical AI, and AI,right? And, you know, from a standing start a year ago, he built the cluster and then he bought the product to stay on top of it.

And he took SpaceX from literally a year ago being a really amazing rocket and satellite connectivity story to being, as the rest one says, at least in terms of the, quote, "future prospects," 89% an AI story. I mean, you saw his tweet.

You mentioned it a year ago. You know, I've underestimated AI, some version of underestimated AI time to go. He went from a standing start to owning more compute than pretty much anyone else and owning a product, the most important product, to fill that compute in less than a year, just over a year.

That's just wildly effective management. Just, it's a world-class in getting shit done.

The other small factor, just thinking about it, we can move on, but imagine you are Michael at Cursor,right? And things are going pretty well. You've got a term sheet from you're, what, 24? You're a paper decade billionaire. And Andreessen wants to, and Nvidia and Thrive want to put in money at $50,right?

You're not that cash-motivated. You could take out a billion,right? Or $500 million,right? Things are going okay. These are very rare deals, but even though working with Elon in a year might turn out to be terrible,right? I would much rather initially work for Elon than for Zuck, personally.

I would do it. Like, I would be like, Elon is the guy I want. If I had to work for somebody, it'd be Elon. I mean, he is better than me. This guy is fucking rockets. He does everything.

And Zuck's firing everybody and going crazy because he doesn't have an LLM. Not that he isn't one of the greatest entrepreneurs, but I wouldn't want to work for Zuck, but I would want to work for Elon. And that actually matters.

It may be a mistake in M&A as a target as a CEO because we've all, when we've been founders on the other side, we've made mistakes here,right? I tell founders to ignore it. Ignore the brand. Ignore what you think the job is today because you have no idea in 24 months what the hell you're going to be doing.

But it is very, it is incredibly emotionally important to founders to land in something they want to land in,right? And I would not want to land at Meta today. If I was Alex at Scale and I got $24B and I had a tough business, maybe.

But this one, man, I'll take Elon over that one.

Do you think Amazon or Meta go, eh, we'll take Cognition instead? Is there a knock-on effect for the second player in market, which I think arguably now would be Cognition?

There's actually a quality of absolute imperative to do something. You know, who has to? And I think SpaceX had to because they had all this compute and it looked like they had to fill it. Now, subsequently, they've also been able to rent that compute to Anthropic and Google.

I don't think it's nearly as existential for different reasons to the two you named, and I'll name one for whom it is. For Amazon, you know, they're in the AWS business. I mean, they got lots of contracts with Anthropic.

They basically have the compute for Claude Code. So they're basically getting the inference side revenue for that. They don't own the model, but it's important, but not imperative. They've never done a $60B deal. Data starting now. Meta, that to me is more a, again, unlikely.

And the reason they didn't do it earlier is their core business is an ads business. It's freaking amazing. This is literally, I have a wonderful ads business. It kicks off north of $100B. I've chosen to do this new AI thing.

We can pretend it's strategic, but it's really, I just freaking really interested in it. I don't know if you have to do another $60B deal on top of that one. So not as imperative. I think just to put it out there, I'm going to name the one.

The company for whom this market matters is Microsoft. Because you remember, he's now long since gone and owns a basketball team, but Steve Barma would jump around the stage sweating, screaming, "It's developers, developers, developers,"right? And the fact that they've lost that connection with developers, that GitHub is now a trailing-edge product, is to me, over the medium term, a pretty significant loss.

I mean, operationally, the numbers are fine. It's a well-run company. But if you wanted to name people who should want to own a leading, state-of-the-art coding product in this brave new world, clearly the number one person is Microsoft.

Now, the antitrust issues would be a longer discussion, but I don't think, in other words, I don't think owning the developer is existential for AWS. I definitely don't think it's existential for Meta. It's 100% existential over the medium term for Microsoft.

I thought it was fantastic to meet the said Satya Shibayat and then Mate Scott, who is CEO of Microsoft. I thought that would be a rather ridiculous thing to replace himself, but I actually thought Scott would be a rather brilliant CEO of Microsoft.

My experience with big company M&A is that the idea that, Harry, what did you say that you feel like you've got, someone else feels like they have to do a deal? What was the term you used? Sorry. You feel like they've got to, oh, that folks have to jump in to respond to Cursor that everyone else?

Yeah. Yeah.

My experience is that doesn't happen. It doesn't actually get everyone else to say, "Hey, I've got to go buy Cognition." My experience is that usually the other thing happens. I wanted to buy Cursor. I lost Cursor. Or I didn't even know I lost Cursor because Elon swooped in.

Now it pushes it up my existing priority list. That's how number two and number three get bought. Not because there's a panic for land grab, but because I didn't get what I wanted,right? That's when you got to be really thoughtful as number two because that's when you get bought as number two and number three, when just number one just gets taken off the table.

It's not so much a land rush. It's just, I thought a lot of times the acquirers are like, "I thought I had more time." Maybe Satya's like, "I thought I had more time with Cursor." Like, Andreessen would have to do it at $50.

I could do it at $100B next year. I wanted to wait and see. And they thought I had more time, you know, and they didn't. So then they go buy number two. A couple of times I've sat on the other side, I don't know that it creates such a strategic arm race that everyone just gets picked off instantly.

That might be a VC partial myth.

There's another mega acquisition that happened this week. It's not quite the $10B that was reported, but OpenRouter, $7B acquisition by the Irish Polisson brothers, Rory O'Brien.

Yeah.

I mean, what an incredible journey. Alex Suttarle, CEO, who I just had on the show, he founded OpenSea before. It's obviously the leading LLM routing company. It raised a series being, it was at $1.3B valuation just four months ago.

So it's 5X that for capital G. It's a 12X for Manlo and Andreessen. How do we think about this? It's widely reported. Now it's confirmed.

You can see intuitively how Stripe get there from here,right? Is that, you know, when you look at their existing business, it's kind of a, they get paid a small percentage of the money flow to manage complexities in collecting cash via cards and also by ACH now.

And here they're going to get a small amount of the money flow to manage the complexities of picking models and running, you know, as an enterprise, using a single API to run, you know, tens and maybe hundreds of different models.

So kind of, I can see at the conceptual level, it totally makes sense. And a lot of their lift recently has come from, even on their payments business, has come from just their customer base being so AI forward that every time you spend money with OpenAI or Anthropic on a credit card, they get some of that money.

So they're, you know, I can totally see how they get there. And again, it's some version of the same thing as the Cursor comment. You can do the old intellectual, oh, what are the barriers to entry for this business?

Oh, over the medium term, there'll be lots of people. And there's a ton of weenie router companies out there and everyone's building one. But it turns out in an early land grab, when people are moving, you know, remember, the Meta market here was going 10X year on year if you take Anthropic's growth rate.

That's the big picture comment here,right? If you move early and you build a useful part of the infrastructure,right, you will probably find an acquisition at a price that doesn't make any sense on a DCF to you basis, but makes huge sense to the acquirer because open, just like Elon will turn Cursor into money, cash flow, far quicker than Cursor could have turned Cursor into cash flow, I'm willing to bet Stripe will turn OpenRouter into money probably quicker than OpenRouter could do on a standalone basis.

So these kind of, this is what happens in a crazy market is that if things slow down, a lot of these, the acquirer would run the buy versus build and say, there's no hurry, we've got five years. When things are moving as fast as they are now, you're going to see, in my view, until such time as you see the correction and the acquirer currency diminishes, you're going to see a whole bunch of people like Anthropic say, "Screw it, I want to be in world models.

I'm just going to buy the card. I don't have time. Screw it, I want to be in, you know, Stripe. Screw it, I'm huge in payments. I want to be in the AI inference flow. Quickest thing I can do is spend $7B, some of it stock, get these guys and be rolling in a week."

This is what you see. You saw it at early internet stage. You thought back in times, even before that, that would make you cry, Harry, if I even mention it,right? When things are moving really quickly in a build-out, you just see these kind of amazing acquisitions where the value to the acquirer dictates a very healthy price.

And it's one of the reasons why venture works. You goright out there on the risk continuum. But if you time itright, you know, you can get these kind of returns. And, you know, well done, A16, well done, Manlo, well done, capital G.

It's a reminder, you know, one thing, I have a couple of thoughts if you want to get into it, but it's a reminder, you know, how weird revenue is in M&A. Because if you're bought by PE, like revenue and top and bottom line are incredibly important, down to the significant digit, down to sell G38, okay?

If Workday goes private, exactly what its DCF will look like in 2032 is so important. The weirdest thing about M&A with big companies is revenue is so important to argue over multiples and the price. Like, it's so important to price, but it's irrelevant because it's all about what Stripe can make out of OpenRouter,right?

So it's just, it's such a weird thing that your revenue going into big M&A actually doesn't matter at all, even though it's probably the biggest input to price. But then it's, it's irrelevant. Like Stripe, what's OpenRouter doing? $70M, $80M today?

Stripe does not care for that money,right? And so you often see acquirers will abandon even the existing revenue,right, to do the revenue. It's just, it's such a weird paradigm. But I would just, two things. Rory'sright. Stripe actually appears to be very good at acquisitions.

It's how it accelerated into crypto and otherwise. They're good at it. The flip side, you could say is maybe they should be better at building these themselves,right? That's the grouchy version. Why didn't you build it? But if you're good at M&A, and this is 5% of your market cap plus cash,right, and you want it tomorrow, it makes sense.

If you're good, you have to be good at M&A though,right? And then you do it. The counterpoint is, I love OpenRouter. I talked about it on the show like six months ago. I'm a customer. I'm a user. It was brilliant.

It was one of these pieces of software like 11Labs, which is just instantly easier to deploy. It's just elegant. It was just a beautiful piece of software, but it's pretty niche.

In what sense, Jason? Just a genuine curiosity.

Okay. So let's talk, let's break. So OpenRouter, as I understand it, and I think it'sright, is really strong in sort of developer-type tools where you want a simple way to pick a model, okay? Because you can pick any model.

You don't need to get on Fireworks. You don't need to set up anything. And it's really, really, really strong with chatbots where like they don't have to be perfect. When you're talking with my digital Harry or digital Rory, you don't need perfect outputs,right?

Highly, you could route between models based on availability, and those are their two niches. Now, let's talk about workflows with a lot of reasoning for B&B when it has to be accurate. Like, you're going to bounce back to one or two models because you can't have model drift.

You can't be routing from Kimi to Quinn to 46 to Fable. And all of a sudden, you're like B2B workflow that has to be perfect drifts from all of them. It drifts even just going from like one Opus model to another.

You see drift. You have to QA it, requalify it, fix it, test it. So for high reasoning models, people do frontier-esque outputs,right? People don't rotate through 11 models. And I don't think OpenRouter is theright product for that. And that's fine.

They get that too. But I think Stripe is, hey, listen, any transaction on planet Earth, we can take two point something percent of it,right?

I think that's fair.

But it's not going to be true for OpenRouter. It's a niche. It's a wonderful niche product. But in the world of routing, which everybody does, Databricks does, Replit does it, Lovable does it, Vercel does it, it's a niche product with two really good niches.

But this is the risk to Stripe is that they end up owning a niche, a successful niche product, and that's not their, their DNA is not niche,right? It's just not their DNA.

First of all, I do think that's fair because, you know, we internally agonize about this space and that was exactly what we were angsty about. And you'reright. And your framing is exactly correct. Like the positive trend, let's spell out the positive.

The positive trend is as long as you have the frontier models trying to extract $100B in revenue from you this year and you're an enterprise, you're going to want a plan B,right? At least to keep the thing honest.

So you are going to want some kind of routing. But it's what you said that resonated with me a little bit, which is, remember when cloud was starting, people were like, oh, I want to be multi-cloud. It's really hard to be multi-cloud.

Here, maybe I want to be multi-model, but maybe I only want two or three models and therefore I don't need this kind of routing functionality. That is the risk. If your enterprise customer decides, I need to flip between three models, but not 10, then you write your value here goes down,right?

I would imagine the positive spin is your value here goes up to the enterprise if you can build on top of just picking a whole bunch of normalization of all those options and try and commodify the model. So that's the kind of tension point.

The more you can do that and the more you can service the people who don't care all that much, the better your business. But you'reright. If JP Morgan says, I want more than just Anthropic, but I'm not going to qualify 10 models, I'm just going to work with Poolside as my plan B and then offload the rest to something else, then you'reright.

Then you have niche and you don't get that revenue.

Yeah, like for example, like this week, Rippling posted their view as a B2B player of what models they use,right? And they had it all. And they said, in the world across Rippling, we looked at two things that were best for us.

Opus 4.8, it's an N-1 model, but it's well trained with their harness. And then there's like, there's price, performance, and speed. And then I think they picked whatever, GPT 5.5 medium or something. And they said, the rest isn't worth it for Rippling today.

Now that could change in 60, 90 days. So they downspec to two at a time. And then they have to manage the outputs from these. And you may tune one set of workflows here,right, that are long reasoning in another.

And even if you're Rippling scale, managing 12 models is too much. If you're a dev tool and let people pick, so be it,right? That's great for OpenRouter,right? Or if you want to build into your own product a fallback, OpenRouter is a 10 out of 10 for this.

Like let's say something's down,right? OpenRouter automatically falls back. But I think it's a niche product, but it could be a massive niche.

Yeah, I'm remembering the conversations now because you areright. The great thing about the core Stripe product is all payments are equal and Visa is the wheels for everything. That might be the case. Duly noted. Keep going, Harry.

Yeah, yeah. Rippling said GLM 5.2 and Opus 4.6.

I don't want to reach out that false. I mean, one of the big questions will be how much pricing pressure enterprises can put on the closed foundation model companies and how do they put that pressure on? Because I think it impacts a lot.

Sorry, Harry, go on.

In five years' time, will this be considered a successful acquisition or not? Bets on prediction.

I think it'll be like the scale acquisition. It will be the start of something that gets bigger. Whether this brand exists or whether even this product exists five years, I don't even think this product will exist in five years.

But I think it will be, I think there's a high chance, more than 51% chance it builds into a 20 or 30% revenue stream for Stripe and that's enough. But does OpenRouter as part of Stripe exist in five years?

I'll bet you dollars to donuts. Five years is so much time and it's such a niche product. This product itself, if it does exist, it'll be deep in a dropdown menu on the top of Stripe, like 11 layers down, because it'll be subsumed into their whole sort of token management platform,right?

Their TMP.

I don't know. I think Jason's answer resonates with me is if it works, it'll be seen as a time expansion play. What's fun about Striperight now is they're doing that acquisition, which is very much a, hey, we don't play in this space, let's put a stake in the new ground.

And at the same time, they're talking about a PayPal acquisition, which is very much, we own this space already, let's buy these guys, fold them into what we already have and just make a shit ton of money consolidating,right?

And actually, I think that's a clever strategy. I mean, I think they're actually playing a very clever hand. They're doing some things that, you know, there's probably a one in three chance that they have a massive AI routing business in five years, but if they do, that's a big second leg.

While at the same time, if they get the PayPal deal done, that's the kind of deal you have a height to Jason's point about if you're good at M&A and good at consolidation, you probably have a high degree of visibility that you keep those revenues, that you remove the entire GNA, you get more of a two-sided network because you have consumer wallets, which Stripe doesn't have.

And, you know, you've done core consolidation acquisitions. Doing them both together, provided you can pull them off, is, you know, super interesting in terms of building enterprise value. And they're doing it all private. Again, back to the comment, doing what looked like public company size M&A and pulling it off while private.

I know they got the investors to take Stripe stock in the OpenRouter deal. I think some portion of it was stock. And, you know, the PayPal deal is more complex and probably requires more thought. But again, being able to do a, what is, I think, a $40, $50B deal and a $7B deal, issuing paper while private is pretty impressive.

Stripe's corp dev team need a bonus at Christmas time. They are busy this year.

They are busy this year, but isn't everybody.

We mentioned margin pressure on foundation models. Anthropic turns its first profit on $11.5B of Q2 revenue. The business is getting better for Dario. This is also in a week where Gavin Baker said about Dario saying he believes that they will be the final private company.

Did you see this?

We did. And again, let's separate the hyperbole and the future from the facts and the present,right? It's not surprising they're making money,right? If you just go back to last year,right, they did $4.5B last year. And I think their operating margins, not operating margins, gross margins went from negative the year before to like positive 30 or something like that,right?

On track, I think end of the year roughly 40,right? When you have decent operating margins like 40% and you go from $4.5B in a year to $10B in a quarter,right? And you have 40%, that means you have $4B of gross margin,right?

You can't add, and that's literally in two quarters. You can't add expenses below the line fast enough to stop yourself making money,right? So it's inevitable. I mean, yeah, they 12X'd growth,right? Which means they probably 14X'd gross margin if it continued to increase even slightly and the trajectory has been increasing.

You're not going to 14X headcount or below the line training costs in six months. So yes, I'm totally not surprised that they are operating in composite. We had run numbers at the start of the year and it kind of came to that conclusion.

I mean, the interesting thing will be as they continue to grow, as they buy that expensive compute from Elon, if you remember, that has a big price increase two months in, I doubt they will forecast for their IPO a base case of continuing profitability.

I could be wrong,right? But this profit didn't surprise me. I mean, it's amazing performance. It's amazing revenue. I mean, revenue with any kind of decent gross margin cures almost all ills.

I think the other question is, as we gear up for an IPO, which could be very imminent,right, is what numbers does Anthropic get away with,right? So for example, you've got off-balance-sheet liabilities,right? You've got massive commits. You've got probably stock-based compensation like we've never seen in the history of mankind,right?

So if you get asterisks and daggers on your numbers, they will be jaw-dropping,right? If they have to fully account for that, and some of that's non-GAAP,right? These off-balance-sheets, if they have to fully account, if they're going to be hammered like a poor Wix or someone for SBC and everyone's going to write up the horrific downside,right?

But I think everyone's going to look through all the nerdy negative things you could see in the numbers. They're just going to ignore it,right? But I do think it's important that it get ignored. I think it's important for Anthropic to get ignored.

I think none of that shit will matter to use a technical term. But the only thing that matters will be the growth rate and the 27 and 28 projected revenue. Because it's a little kind of weird analogy, but it's a little like, I mean, provided the, we'll step back.

Provided the revenue comes, everything else will be fine. Because you play it. If the revenue comes, then you'll need the off-balance-sheet stuff and you'll have the revenue to buy it. In other words, all these off-balance-sheet stuff are basically, I promise to buy a whole shit ton of, a whole load of compute from you in two years' time.

Because if my revenue grows 10X for two more years, I'm going to need all that compute. Well, if the revenue grows, you need the compute. You're happy to have it. In fact, you're insisting you get it,right? If the revenue slows down, then you don't need the compute.

It all gets hard,right? So almost everything is going to boil down to what number do you underwrite for the next two or three years,right? And then, as you say, the stock-based comp, no one's going to care. Because the reason you worry about stock-based comp, it's because in a steady state, like Workday, we can talk about that in a second.

If you're giving someone 500 grand every year to show up and be a middle manager,right? They're probably mentally putting those RSUs into their comp and they think to themselves, I paid 400 in cash and 500 in RSUs. And if you start giving them the RSUs, they're going to want cash.

So it really is a cash number. So in a mature business, I really, you know, it's totally correct to worry about SBC. But the SBC numbers here are going to be huge because all these people got grants and then it turned out to be worth way more than they ever thought,right?

And yeah, the classic example, someone who was hired with a million-dollar package in '23 ended up making 51 million four years later,right? That doesn't mean you'd have to pay the next guy 51 million. It means he would have signed up.

If that person had gotten the million they signed up for, that's all the real economic stock-based comp it takes. The other 50 billion is, 50 million is just dumb luck. You got lucky, it's not a runway. So I actually think it is okay in a hyper-growth company to look past a good slug of the SBC and normalize it out.

And conversely, it's not okay in a mature company. That SBC stock-based comp in Workday or Salesforce, that's real money that people are spending. And it's a little bit unfair because you're kind of giving the hyper-growth company a free pass, but they get a free pass.

You get a free pass. And it's the same thing we said about Cursor. You get a free pass on margin. You get a free pass on off-balance-sheet. You get a free pass on SBC provided revenue go up. Once revenue stops going up, all bets off.

Once revenue goes up, all bets are off.

All stops going up, yeah.

Yeah. What would it take in usage for Anthropic to hit the $200B in ARR plan for 2028 and then $600B in the next year?

The simple version is how many knowledge workers are in the world,right? How many folks can take a subscription? Being generous, is it a billion human beings,right? So, you know, if Anthropic has 100% market share at 200 bucks, that's 200 billion.

If Anthropic has 300% market share, that's 600 billion. I don't know, Rory's thought more. The 600 billion seems complicated, but, you know, our demand for AI has only just begun.

You can see 200 billion, which is a number,right? Once you start getting the 600 billion number gets really hard because no one ever looks at the big number. And I've just been doing some work on this,right? No one ever steps back and looks at the big numbers.

Total, I mean, you said a billion knowledge workers in the world, absolute bollocks,right? There are 80, I mean, hard-nosed comment here. US is typically 50% of the world's software budget because we're 50% of the world's high-end knowledge workers.

You know, we're 25% of the world's GDP. So at a minimum, if spend tracks GDP, it's only 4X the US. But every software company is typically 2X US. Why? Because the rest of the world can't afford the same software we do because they're poorer and they have more people at lower wages and less software.

That's why we have crappy internet when we go to Europe,right? So the truth is the hard-nosed comment is this. You probably take the US knowledge worker spend and double it. There are 83 million knowledge workers in the US,right?

And then roughly 86 physical labor workers. So that's what you start with. And you start cutting it down. And I literally was doing the math this weekend thinking about it. You start cutting it down real quickly,right? The truth is, you know, knowledge workers includes everyone in healthcare.

I don't think we're going to, you know, we're not going to replace the nurses. It includes the teachers,right? The sweet spot, the sweet spot of the whole damn thing is there are, yeah, there's about 1.8 million people doing coding in the US, including then QA and all the other people.

There's around 5 million people that do software-related shit, systems admin stuff, all the rest of that. And they get paid in total grossing up about $600B a year,right? $200B means you're replacing a third of them. That's a lot,right?

And remember we said this before, the single most important ratio, and I asked you about what you thought it was, Jason, is what's the ratio of software in a steady state, what's the ratio of salary dollars to AI dollars,right?

Because that's what's, you know, if it's 50% of salary dollars, you can easily get to $200B. $600B is hard in coding, but you can't get there. If it's 10%, then it's hard to get $200B across the whole thing.

So it really boils down to in the steady state, how much revenue, how much of the, how much software, because if software is the tip of the spear in terms of max adoption, what do you think for every $100,000 you spend on an engineer, or $200,000 you spend on an engineer, are you going to be spending $100K on software, $50K, sorry, on AI, $50K on AI or $200K on AI?

That's the number.

Yeah, we're testing it.

We are. No, you'reright. Because the last 60 days, our every single scale-up is capping their AI budget for real. It's not just Ubers of the world. Everyone's capping it because it's grown truly exponentially,right? Everyone's capping it. It's $6 million a year, $8 million a year,right?

I think it'll land at $100 grand per engineer equivalent. I think that's what we'll, I think we'll give each of our best engineers $100,000 of tokens. And in return, we'll cut the size of our dev teams 30, 40% effectively.

It won't exactly work out that way, but close enough is how it's going to work out. So there's $100 grand here for running inference 24/7 with 10 agents in parallel. For what it's worth, I actually agree with that.

That was my mental model too. And that points to a total, and let's assume it's not just dev engines. Let's give the sysadmins, the QA guys, let's just do the same thing for everybody. Same thing for everybody. You get $200 grand to wages, fully loaded, including all the benefits, and $100 grand with AI, but we cut 30% of you.

That turns out to be terrifyingly about a $200B plus or minus market in the US. And no, ever, ever.

Well, yeah, I mean, that's, sorry, that's Anthropic's estimate for next year.

I know. But my point is this, if you count all the heads and apply the Jason math, you get $200B in the US, which probably means you struggle to get $350B worldwide. That's the pound. And then you've got to go beyond software.

And there is obviously revenue beyond software, but it's nowhere near as fertile. And the percentage isn't going to be anywhere near as high. But it's funny, it's exactly the number I come out with. Because you see the ramp data that says, you know, the top 1% of their sample, which in turn obviously is a biased sample of tech forward people are spending $7K, and then the median is spending like $100.

It's amazing the dispersion. And $7K times 12 is only $84K. So the top 1% of the most curated group in, you can imagine in terms of tech spend, is spending, and that's 1% for all employees. So

that's the pointy edge of the most optimistic spend is $0.50 of salary dollar.

I think we're going to get to $100,000 in the investments I've made that are the best ones, the ones growing faster, but that are pre, like, especially the ones that are pre-2022, '23. So they have a frame of reference,right?

They literally are shipping two to three times faster. Only recently, only recently, that was kind of bullshit last year,right? People would say that, but it was all performative like token maxing,right? I had two board meetings in the last week where they finished the roadmap for the year.

They're into 2027. Okay? These are my fastest growing, two fastest growing, but not brand new companies. They finished the roadmap. They're well into the 2027 roadmap. So you're going to spend $100 grand on your team to do that, but it's adding up to so many millions, it's overwhelming.

So I do really think there's some, this $100,000 makes a lot of sense. You could justify more or less, people will ratchet it, but I think it'll be the new normal and you'll cap your team and it'll all be, that's just what the CFOs will do,right?

$100 grand of inference and you get to hire this many engineers. But the idea that they're pulling their 2027 roadmaps in, it's not just performative, it's not just PRs. You want to invest in that up until the maximum where it works,right?

But the absolute numbers are just getting really big. I got to say, man, if you're not that way, you're losing today. If no, if you're not into your 2027 roadmap, deep into it by August of 2026 in the agentic world, your team is not good enough to survive today.

You got to make, this is your last chance to make changes. You should be deep into your 27. I'm not saying, listen, if you're OpenRouter, you didn't even have a 27 roadmap. It didn't even mean it because you're just remaking it day by day.

But if you're running the classic playbooks of these, I can get this much done each quarter, this much done each month, then you're not into 2027, you're going to lose to the competition. You got to be honest. How deep into 27 are you?

Not deep enough.

Yeah, Jason always gives me these terrifying soundbites that I go back and think about. Because you know, we did this survey, you know, we tend to be fact-based people. We did this survey of all our companies and we saw similar to the ramp dispersion, which is some companies all in, some companies adopting, but still, you know, dramatically less spend per head.

I can't remember the average, but it was dramatically less. And you know, what I didn't do, and actually now that I think about it, I should do and I will do, is go back and say, you know, if you can touch a strong correlation, which you believe you should be able to, between output and spend, you know, can you justify the spend?

Then you'reright. Then you should be saying to the laggards, you're just going to fall behind.

If it goes out at 2 to 2.5 trillion, would you be a buyer?

And first of all, I want to be clear, I don't think the software market is definitionally the end of the tab. I think the average knowledge worker won't have 50% of salary and things, but they'll have a meaningful percentage.

So the tab is significantly bigger than just

developers. Because you have lawyers, but I think lawyers won't, look, the K&E guy who's pulling $2 million a year as a partner isn't going to be doing $200K worth of tokens,right? He's definitely not going to be doing $1 million worth of tokens.

A lawyer would die before they gave $1 million of tokens instead of $1 million of take-home pay,right? So the market is bigger than software, but there's nowhere else that's such a sweet spot as software. So I don't want to be limited to 200, but I'm going to answer your question.

I think the really challenging thing, I'm going to jump around it a little, is I definitely want to be first out rather than second out in terms of going public, especially if you have some kind of near profitability story or bouncing around profitability.

I think it's a far more attractive strategic position to be going out as Anthropic in the fall with a, we've been profitable, okay, we're unprofitable again, but we're the winner in the enterprise, than going out next year where maybe the growth rates have started to slow both for Anthropic and the public markets.

And if you open AI trying to access the markets then, I definitely think they're in a strategically more challenging situation.

I think they've just capitulated to it. My guess is, like, of course you want to be first to your point,right? I think OpenAI has had to get their house together, more executive turmoil, apparently a great last 30 days,right?

But first half of the year, slower than its previously junior competitor,right? They've had to do so much to say, listen, we're going to go public second, and then we're going to have a comp out there, and the comp is what it is.

And we may not trade with the hype that SpaceX and Anthropic did, and the world will not end. Like, we will trade at a very precise number. We will know what we're going to go out at, and the world will not end if we trade at $1.3 trillion.

I just think that they've given up on worrying about that because ultimately, Rory'sright, it's much better to be first, but in the long run, it doesn't matter,right? You're just, if you don't need the capital, it just is what it is.

But Jason, that's the sentence. I'm going to push a little. That is the sentence. There are no two companies on the planet that need more capital than these guys. In a world where you do need the capital being second sucks.

Because I agree in general, you are correct,right? It doesn't matter. You know, two companies go public plus or minus a year, and a decade later, no one cares,right? We've definitely seen that over the years. The thing that's challenging in this particular case is both companies still have enormous many $100 billion capital needs.

In that situation, I would much prefer to be first. I do.

I think you'reright.

But I'm going to ask you it's around fear there.

But the thing is, let's say, pick your number. Let's say Anthropic is public at $2 trillion. It really doesn't matter,right? OpenAI is going to be able to sell stock at a discount to its implicit valuation before it goes public.

There's still enough capital. Let's say they're both worth $2 trillion,right, implicitly. And OpenAI is going to be able to sell stock next year at $1.8.

Agreed.

People will do it. And especially if you have no stock, a CEO in your own company, it's okay to sell at a small discount.

Yes, agreed. And look, I'm not catastrophizing here more than anything, but I think the interesting thing is if you're the smaller market cap company and you have the bigger capital need, whichright now OpenAI does because they have a more ambitious capital need target.

Now, would you prefer to be the guy trading at $1.5 trillion who only needs to raise $100 billion or the guy trading at a trillion who needs to raise $300 trillion? At some point, these things become troubling. And yeah, price clears all markets.

This is the best new technology market we've seen in decades, ever, perhaps. And if you are the founder in that market, and even now the number two, you're going to be attracting capital, but you just don't know the terms on which it happens.

And going back to my comment, I think you will regret not being able to access the capital markets this year. Who knows the next fourth quarter?

It's not that I, of course I agree, and I don't want to spend too much. My only point is the media and social media will make a big deal out of this,right? Who goes public first and who does better.

I just think Sam and the OpenAI team have said, this is our fate. Like, we've talked, they could go public tomorrow,right? There is enough people to buy these shares to go public. They've decided that, while this isn't perfect,right, this is the best on the board, and we're going to live with the doubt.

Like, it's not the end of the world. Like, you can't solve every problem tonight. They got to solve bigger problems,right? Then the cards are the way they are,right?

Jason, you said about management team churn, that the churn for those that don't know, most recently was Denise Dresser, who was a CRO, who left, and Dalli Rajic has replaced her. For those that don't know, Dalli, he's one of the most respected CROs.

He was a fricking master at Wiz. And I think the best CRO or sales leader in the business, who's Chad Petes, says he's the best of the best. So I'm feeling a little bit more confident for their Codex and Enterprise division.

Yes.

Yeah, it's just a lot of change. Listen, I don't know anything inside. I just think Greg Brockman took over,right? And brought in the Wiz guy. Just had enough of this Salesforce crap,right or wrong,right? Actually, if you look across all of AI, a ton of Salesforce executives have been recruited,right, to come in and help.

Because, and you can make fun of it, like I used to make fun of how back in the day Salesforce hired Oracle executives because they took shots at Oracle, but you need folks to know what is Scale. There's not only, what is Salesforce at?

$45 billion run rate, $50 billion run rate. I mean, Anthropic's past that now,right? OpenAI has passed that. So you don't want to hire kids. You want to hire someone that has some idea how to play. So Salesforce is about it,right?

That is, but if you step back from it, I'd rather have someone from Wiz that is close to technology,right? That is in a hyper-competitive space, rather than asking how many seats of Slack you want. It's just a very different go-to-market motion,right?

It's very different.

Jason, you said if you have not already hit your end of term or end of year goal in terms of product and you're not well into 2027, you're behind. I'm making assumptions. I don't imagine Workday is quite at the cutting edge, like two of your companies at 2027 already hitting those goals.

And Silver Lake circles a $43 billion take-private bid for Workday, one of the biggest SaaS buyouts ever. We got two of the best SaaS minds in the business here. Guys, what should we take from this? SaaS isn't dead.

One of the biggest firms, one of the biggest buyouts. The stock popped 18% afterwards. Wow.

I think what you can take from this is that

it, because the SaaS isn't dead thing is just too simplistic. I think what you can take that as a very financially oriented, wildly savvy buyer is willing to bet money that they can buy this at a constrained price, lever it, and generate a return because the revenues are sticky enough to allow them to pay down the debt over five years and with reasonable multiple stability, sell it on and make a 20% IRR plus or minus.

I mean, I ran the numbers. That's the bet. In other words, so it's not "dead," but what it is not is wildly exciting. What it says is, this is the mature phase of an industry,right? When it's not about wild growth, it's not even about untempered growth.

It's literally about someone saying, this thing is growing at 13% year on year. We can buy this thing for, what is it, roughly five times revenues, 16 times trailing EBITDA. We'll probably leverage it two or three times in four or five times in EBITDA, but it's going to be a big equity check.

And then you run the LBO model and you say, you keep at a 35% operating margins for five years. You use all that cash. It's roughly 10, I think it's 10 billion a year in revenue. So it's like $3 billion a year of cash.

You pay down the debt and the interest. And provided you buyright, you can make 20% and almost a 2X over four or five years. What you recognize is, I look at that deal and I go, I'm torn. Because first of all, I think Silver Lake are wildly smart.

It's very interesting when you run the sensitivities. If you pay like 20% too much and it dips down into the mid-teens, it's almost the exact opposite of venture. In venture deals, if you're in theright thing, it almost doesn't matter what you paid.

You see Cursor for details, see OpenRouter for details,right? This is the exact opposite. This is fine, precise financial engineering. If you're wrong by 20%, 30% on price, your IRR dips from 20, which is totally acceptable at scale, to low teens, in which case you wish you hadn't done the deal.

Can I ask you a question? Precise financial engineering for a four to six-year hold period. Six years ago, ChatGPT didn't exist. Are you able to do fine, precise financial engineering in a world where we move so fast?

I don't think system of record is, I think it's a mote, but I don't think it's a ticket to growth. This is, I think, super important. And it's something that everyone on X gets wrong. It's great to have a system of record, which Workday has.

It means churn, even with AI and LLMs help, it's very hard to churn, or you just don't want to churn. But it sure as hell doesn't mean I want to spend more money with that vendor. That's their challenge.

But it sure as hell means the five years are far more predictable than 95%, than poor Monday, which we love, or others. We have no idea where Monday or even HubSpot will be in five years at the SMB level.

We know pretty much where Workday is going to be 10 years,right? And so I think this growth versus retention is misunderstood. There is a little bit of upside in this deal, which I don't know if it's part of Silver Lake's calculation.

The CEO came back. The founder, one of the co-founders came back. Anil came back. He came back. He hired his successor when times were easy. Just before AI, he brought in a great knobs and dials co-CEO and, you know, like our friends at Daniel at UiPath and others, and realized it ain't going to work today, came back.

So I don't think Silver Lake is planning on Anil, like radically changing it, but I think if he does, like there's real upside to that. Maybe instead of their 20% IRR, it could be a game changer if he creates the agentic version of Workday.

They at least have the founder back in the saddle doing it, and that would make me feel a lot better if I were Silver Lake that I have upside.

But it wouldn't be in the down base case. Jason, you framed the base case exactly correctly. It's like, it's 5.3 times too. In other words, what this says is financial minds will pay five times revenues for system of record growing at 13%.

Anything that's not a system of record, anything that's not growing as fast, price accordingly,right? Down from here. Because you'reright. There's no way you'd apply the same kind of leverage to, for example, a to-do or a task management or a project management software or a website building software,right?

In other words, what this gives you is, maybe I'm trying to, what this gives you is a sense of what the baseline is for best-in-class LBO takeouts,right? If Airtable, if the Airtable bending spoons give you an idea of what it is if you just, you know, if you don't have that kind of system of record, you get 2.7.

If you do have, if you're not, if you're vaguely profitable, and in a space where, as Jason says, you can't predict five years, you get 2.7. And what Workday says is if you've got 30% operating margins, modest growth, but you're a system of record where you really can believe in the next five years, then if you're lucky, you get 5.3 times revenues.

That's the bid-ask spreadright now. That's the aha. And, you know, contrast, just one last comment. Contrast that with the game for OpenRouter where they're going to get, I think a trailing revenue plus or minus 100. You know, they're going to get 70 times trailing revenues.

Which game would you prefer to play?

Workday has something that makes it a better deal for PE, I think, than anybody else on the target list, which is that it is a somewhat closed system of record. Now, Salesforce is out there working their freaking tails off because they are a muchly open platform.

You can build your own agents on top of Salesforce tomorrow. And a lot of the hot GTM startups are built on top of Salesforce. They're not necessarily only on Salesforce, but it's open. Try building on Workday. It ain't so easy,right?

It is like LinkedIn,right? It is intentionally barely open. So there are negatives to that,right? But it also means you're going to cap, it is, you're going to capture more budget overall in your ecosystem than you would for others.

So it has more of a buffer against agentic damage to your growth than an open ecosystem has,right? Open has negatives today. And so I would want system of record, churn impossible, and closed AF.

Agreed.

I want the most closed system that can't churn because the reason system of records aren't that great is because if they're, you need your system of record, but if you're remotely open and you can produce a better agent yourself or a third party, the value will extract to the agent, even if the system of record is retained,right?

But Workday is so closed, they've got a leg up,right?

Jason, how open is Salesforce?

They are a toll keeper,right? Like a Shopify, but they're pretty open. Shopify and Salesforce are pretty open. You and I, the three of us can ship, we can use OAuth to ship a Salesforce app tomorrow.

Just to prove that, Jason, really quickly, sorry, Harry really quickly, is that, look, there's a bunch of companies, even in the pre-LLM world, like Gong, Outreach, SalesLoft, that are all effectively built on top of the Salesforce platform,right? You can't name the equivalent with any ease in Workday.

There's a few, but it's much harder. Some of the planning tools, but pretty much most, and it makes sense. Within the financial accounting system, everything gets sucked into the gravitational pull that is the GL and the accounting system,right?

So I agree, it's a good point, Jason. Whatever dollars are in that ecosystem, if they're careful and shrewd, Workday will get most of them. If on the other hand, if they get too greedy and they don't invest enough, then the customer starts thinking, oh my God, this is just not advancing.

Over five years, maybe I do need more of this agentic workflow on top. Maybe the smaller customers start evaluating that suite. Start evaluating the next generation, even at the very small end, you know, you've got the Willis, you've got the Campfires, you've got the people like that.

You can't be such a greedy bastard in your ecosystem that you incent people to start trying to move out,right? But Silver Lake are smart, Anil's smart. You could have this be a profitable, self-contained universe. But remember, the most exciting version of that is you pay down all the debt in five years and you double your money.

You're probably putting in plus or minus a $20 to $30 billion equity check. Because you're not going to get infinite debt. You know, maybe $20 billion, you might get $18, $15 billion of debt, which means you need a $25 to $30 billion equity check.

So you're going to turn $30 billion into $60 billion, which on a multiple basis is not amazing, but it means you've generated $30 billion in gains and 20% of that in carry. So someone's about to make $6 billion if they can pay down this debt and just work knuckle down for the next six years.

Go team.

Yeah. And Anil gets to rebuild his company outside of the public company eye, which is slightly overrated because he has to hit the underlying numbers, but it's much better. It's still much better. It's still much better.

Instead of large numbers of stupid comments, he will get one very focused comment from one of the world's smartest investors. It's probably a trade-off, you know,right?

Lemkin buyout.

Just one last thing on this. I don't mean to go in the weeds, Harry, but since you asked, versus Salesforce, it's just interesting. So we run Salesforce entirely headless.

Yeah.

Okay. So we have our own agent, 10K, our own AI VP of revenue. It runs Salesforce under the hood. Pro is it makes Salesforce much more powerful than it ever was. Like I didn't log into Salesforce for seven years.

Now I log in every day because I have an agent. Con, it can connect anything. The agent, it literally can connect to any other agent, including competitors, including other data sources, data lakes, data everything. The agent doesn't care.

So it's really a weird world as a system of record or a core system. Do you want to be extensible and open,right? Salesforce has said you can be headless. Risks and opportunities,right? Because risks and opportunities, you make it much easier to abstract you away or to compete with you, even while you may retain a few seats,right?

The logo retention may be high, but it makes you have to run faster. Workday doesn't have to run that fast. Everyone can't run it headless and integrate any single thing or pull out all your employee data and push it into my own ATS or my own system or own financials.

I think it's a shrewd deal because it's the best mode out there with the system of record.

And I'm going to go back to my comment. If it is a shrewd deal, it also, by definition, means it's the high watermark of what deals are going to look like. Plan accordingly, people. You get 2.7 from the Bentspoon and you get 5.7 from the Silver Lake guys, and you pay us your money, you take your choice.

Lemkin, you have a buyout firm. Which other asset would you buy next?

I'd want to know who gave Jason money for buyout. I would give Jason money for venture, but I don't see him as the spreadsheet guy.

I just think more and more about the fact that systems of record

are going to retain their customers, but I think we just underestimate. That's just not enough to grow. It's grow or die today,right? It's grow or die. This whole show, everything, grow or die. Who cares about the stock-based comp or anything at Anthropic?

My God, it's OpenRouter, 192x revenue. And so just because your customers are prisoners does not mean in today's world they will spend one more dollar with you. In fact, the CIOs want to cut what they spend when they're hostage,right?

They're like, okay, I want to spend 90%, 80% of last year. What can we cut from our bill from the vendors we're stuck with? I got to think, but yeah, Rory'sright. I'm not the best at the spreadsheet.

You know, I'm actually going to cancel my comment and disagree with myself. Actually, I think you'd be great because I'll tell you what you would bring to the table that I think a lot of these PE buyers missed.

It's this idea of mission clarity around growth. If you don't have growth of some sort, you're in a desperate race against the debt, and the best you can get is a mid-teens IRR if you work there and you buy cheap.

And remember, that's when you buy, you know, at 5.7 times revenues. Some of these PE deals were done four or five years ago at 10 or 12 times revenues for not as good a quality asset as Workday today,right?

I think you would, I think the PE firm should hire you as their operating partner where for every new deal they do, you explain the facts of life. It's really clear here, people. The only thing that matters, you can't just stick it to your customers.

If you don't give them value, you're going to get shafted in the end.

Rory, for me, the death spiral here is the exact guy who's got no idea about AI and has a load of logos and has a load of middle management. And I think Jason would be the fricking best.

Totally. I agree. I changed my mind. I agree. Because you're done if you don't.

By the way, you can click the link below to donate to Silver Lake Lemkin Ventures for the buyout firm.

Yeah.

We said green.

I don't want to spend money on the positive side. If you look at it like a more SMB version, I'm not saying how widespread it is, but if you look on social media, a lot of folks are like, okay, I'm lifting off Airtable now.

And they're like, bending spoons is going to raise my prices 3x,right? Let me start doing it now,right? And so it's just an extreme version of what you have to be careful with everywhere. I mean, bending spoons may lose 20% of Airtable's customers who finally spend a week lifting off of Airtable.

But when they triple prices, it's a good deal for bending spoons,right? But it's going to happen a lot faster than Workday.

Agreed.

Growth at all costs on the consumer application side. Two big fundraisers from Higgsfield who raised at a $5.5 billion price from DST, and they hit $700 million in ARR. And then you have Lovable who raised a new round from Menlow.

They're around the $600, $700 million ARR range too, raising at a $13.3 billion price. Big price divergence for very similar revenue numbers, which I find interesting. Guys, we've talked about these companies a lot. How do we think about them?

Well, you know, on the Lovable thing, the thing I was thinking, I mean, it's so crazy since when we started the show,right? And Lovable and Replit were both raising to like $2 billion, and were really terrible products when we started the show.

Now they're great products. They're truly generationally great. I do think today, I know engineers and developers will mock me for saying this, but I do think that they deserve arguably a somewhat similar to be in the cursor conversation in terms of stickiness, strength, capabilities.

They were not when we started the show. So is the Lovable, okay, did Menlow pay up a little bit as an existing investor,right? Who was already in it for maybe, but is that multiple that far off the cursor multiple that we just saw?

It's not radically off, is it?

Yeah. A lot of it for the NCU. It's probably a little pricier, but whatever.

But it's not as out of whack as it might have seemed with cursor as a comp,right? These are becoming, these platforms are becoming, one thing is they're becoming very rich. They're very good now,right? Cursors, they're very good. They can do so much more than they could six months ago.

There's so much more complexity. I mean, Cursor launched Origin,right? Which would bought Graphite or whatever. It's going to become a GitHub entire workflow replacement in a couple of months,right? You know, I'm closer to Replit, but Lovable, but they both just launched automatic deep pen penetration as part of their products,right?

So you can go really deep on security. So these aren't just like little hacks a year ago. And it also makes the startups harder to beat them out,right? As these become, these Cursor and Lovable's and Replit's become true platforms.

They're really great. They're great software today. So I, you know, when the Cursor deal was announced, our jaws dropped. Now it's a comp. It's just a comp. And I don't think this is such a bad comp for Lovable to Cursor.

Maybe that sounds wacky, but that was the one one I thought. You know, Higgsfield's cheap, although when the deal was done, it was at $500. So it's funny. In today's world, by the time the deal announced, it's at $700 million.

So it's still cheap, but like, that's what happens if you don't announce a deal the hour the term sheet is inked,right?

And look, and you guys know what both of them have done really well is parlay that kind of massive bottom-end demand for AI in Lovable's case for website building and coding in Higgsfield's case for video. You know, start with a PLG motion and then, you know, add kind of mid-market and enterprise products on top.

It's a well-trodden path. It was well-trodden in kind of the SaaS days. We did a bunch of that. It all works. You build your top of funnel and then over time you just add the enterprise features. But they've both done it really well.

And you'reright. Lovable have punched their way into being a big picture coding alternative. There's different ways of going at it. You got the Cognition style, you got the Cursor style, and you got the Lovable kind of Replit style.

They're not direct comparables, but in the big picture comment of the thing AI does best is write code. Lovable is a tool that uses that to write a lot of code. So it's got a lot of lift. And yeah, so I think they've built good enterprise business on top of good consumers.

I mean, Higgsfield, and I know you guys are in them, so you know much better than me. I think there is clearly an market for enterprise video. It's a good market. It's not as perhaps deep as the coding market, but, you know, great to see them do it.

I think the one meta-learning for me, we can move on, is I do think, it took me a little while to see this. I do think these products today, not forever, maybe only for six months,right? Or who knows?

I do think they now are defensible and have moats. I think they are so rich. I mean, for example, Higgsfield, I was one of the first 10 customers, I think. What could you do? Make a four-second video using Kimi or Quinn.

Who cares? It was a great way to do it because I didn't even know how to use a Chinese model, okay? But that wasn't particularly defensible. Now you can make a full-length motion picture, okay? And you can do it in another, it's just so hard.

And now that on Replitable, which we, even though I'm a user for a year, you could have made fun of these products when Harry invested when we started the show. Now they really can almost build production-grade, highly secure apps with everything across.

Like it's just so, like I know we're building so quickly and you better be into your 28, 29 roadmap or you're failing. But they are starting to get these layers of moats. And the folks that work at these companies are so smart,right?

Higgsfield is like the smartest mathematicians in Kazakhstan. Lovable and Replit have become talent magnets. I mean, I know the team at Replit better. You walk in, I mean, these are the smartest people that Omjod could recruit for years.

And so these layers are not impenetrable, but they start to get thick and crusty, this crust around them,right?

Staying with that, because I think, yeah, that moat comment, I think you're exact, because there was a whole bunch of, oh, what's the moat? I think the truth is in any new software market, out of the gate, moats are light, but the companies that execute and get traction, you accrete moat over time.

I mean, just to give two historical examples. I mean, you know, the Netscape browser wasn't that early on, it wasn't that hard, but as yet you parlay that into other things that ultimately you only got acquired for $10 billion, which at the time felt like a failure, oddly enough.

But the initial thing was relatively simple, it got complex. I mean, the MS DOS product, and the classic example is Micron. The MS DOS product was, you know, mind-blowingly simple, but over time you just accrete more and more value.

And the same thing's going to happen here. Yeah, I mean, will there be some guys who stumble along the way? Of course there will,right? But you'reright, Jason. If two years ago, it is probable that someone could have built a Lovable competitor with the features that it had relatively quickly.

As they add more and more features, that just gets harder and harder,right?

Yeah, and I don't know that that was obvious six months ago that this would happen. I don't think, I don't even know it was obvious to these companies we're talking about that it was obvious,right?

I think going back to Micron, it just shows just push on, I mean, just push on forward, add more stuff for your customers, revenues grow, good things happen. It's just, you know, don't overthink it.

If you're faster than everybody else.

Yeah, no, absolutely.

You just have to be faster and better. That's all. Just faster and better, then it will accrete,right? I think that's.

Yeah, well, faster and better is a more tangible thing than thinking some kind of, I mean, yeah, there are businesses that are much more moat central,right? You know, massively high IP, you know, some obviously the model companies to some extent, and definitely things like the bioinformatics companies there.

But there are also businesses that will become wonderful businesses where the moat is, as you say, Jason, faster and better. And you just got to know which game you're playing.

Speaking of high IP businesses, literally like three weeks ago, Etched raised it $10 billion. Today they've announced they've raised $700 million at $21 billion from Jane Street, Kleiner, Sequoia, Andreessen.

Okay.

Four weeks after, double the price.

It was a good month, Harry.

Yeah, it was a good month.

It was a good month. You only need one great month to raise today. Whether you're PreSeed or North of 30, you used to need three to four good months to raise. Now you just raise on the one. Listen, I don't know the details of the deal.

I mean, Jane Street wants to be a customer too or something,right? So like those, it's not that they're suspect, it's just you never quite know how it's all tied together,right? So that was the only asterisk I had in the deal, but I don't know the details,right?

Boy, is there a story have I missed that we should discuss?

Well, there's one that I kind of, I don't know if you missed while you were vacating there, Harry, but the Department of Justice is picking on Paul Andreessen because of these overlapping boards,right?

I put it in, it's in my schedule. Thank you for mentioning the vacation.

Yeah, I did.

My fun lounger.

Why is it? What's the story behind the story? There must be a reason.

And I did the story because, yeah, you know, I often think one of the jobs we try and do here is let everyone in, you know, people who listen know what's interesting this year, week,right? And I will admit, this time yesterday, I knew exactly Jack, I was like, huh, what gives?

I looked at this and I'm like, why is, let me say something cynical and then retract it. Why is the Trump administration picking on Andreessen Horowitz? One would have thought that there is, you know, honor among thieves and gratitude.

You know, the definition of an honest politician is when he gets bought, he stays bought. I would have thought.

Yeah, Elon got his deal done in weeks and $60 billion.

But therefore, so, you know, so I went to, so I did the research and it turns out that this initiative, no surprise, was actually kicked off in the prior administration, which frankly was much more willing to, quote unquote, you know, get involved in business and kind of try and tell them what to do,right?

What's happening here is zoom out. There's something called the Clayton Act, which I think is the early 1900s. It's an antitrust act, section eight that basically says individuals can sit on two boards of companies that are competing,right? And there's all sorts of definitions of how you define compete.

There's a de minimis threshold. And that's on the statute books. And it turns out under the Biden administration, the Department of the DOJ, I think it's the FTC within the DOJ, but don't quote me, had actually made some actions on that.

There was a couple of kind of general business folks who were in overlapping boards. And interestingly, Tomer Brava, they had a couple of companies where in one case they, I think they'd spun off a separate company from an existing company.

So they had a lot of overlapping boards. The DOJ kind of got on them and eventually they said, we just take the board members off,right? And it was why fight. So this is a thing,right? This is apparent, and it's like a, it's a low consequence thing because what invariably happens is if the Department just comes around, you just pick the less interesting board and you come off it,right?

And what sounds like what happened here is even though, as I say, you'd have thought the administration change would have killed this, apparently as part, remember when FiveTran and DBT were merging,right? The kind of DOJ had to look at that because there was, you know, antitrust issues and that got true and it was passed.

But as part of that, it kind of, you know, some, the light went on and someone in the Department of Justice head says, hmm, do we have a section eight Clayton Act violation here? Because Andreessen's on the board of Databricks and they're also on the board of, I think it's FiveTran,right?

And now they're competitors. So now this has been percolating and now they're investigating,right? I mean, you know, this is one of those things where I know why the law originally exists. It's all back to JP Morgan and overlapping boards and the antitrust and whatever.

You look at this and you go, really? Is this the biggest fish you have to fry? But my guess is it peters out into some version of

the venture firm just saying, we'll take off the board member on FiveTran, whatever,right? Now there are, it's interesting, there are ways you could contest it. If you gave a shit and wanted to litigate, there's all sorts of things, because it actually said, the legislation says individuals can't be on two boards, but it's not as clear on two separate individuals beyond two separate boards.

There's a whole bunch of reasons why you could decide if you had the stomach for it to litigate and see what the Department of Justice back off. But the truth is no one's going to bother. I shouldn't say no one's going to bother.

It feels to me like if this thing rumbles on and the Department of Justice doesn't back off, or they don't decide the competition issue as de minimis at some point, if it got really serious, is my point, no one's going to get into trouble for this.

If it gets really serious, they'll go, okay, we'll take a board member off. It's kind of a silly.

Yeah, it's probably a non-story in the end, thinking through it more,right?

Yeah, pain in the ass story.

There is a remedy here. You resign,right? It's not damaging.

If you're the compliance officer at Andreessen, you're wasting a lot of your time on this, but you'reright. A non-story is a, yeah.

The only weird niche thing is, but you might ask the founders if they're okay with it of each company,right? Maybe that's not even a permissible out under the Clayton Act.

It's not actually. The funny thing is, to your point, you're exactlyright. And this is, it's a very interesting example to ask because it's an example of you and I both know that that's the acid test because we would be worried about, is Founder A pissed about Founder B because are we shared?

Are they kind of, are we damaging the other company by this information? But the classic antitrust thing is all about consumer damage. And what they're hypothesizing, absurdly, is that the Databricks guy and the FiveTran guy get together and they say, why don't we raise the price of tools, of AI tools, and we'll stick it to all our consumers like JP Morgan and BofA and, you know, whatever,right?

And that's so far from what's happening that you can't, and this is the problem. You pass a law for one reason, like to prevent US Steel from raising prices in 1909. And here we are in 2025, 2026. And do we really think that Databricks and FiveTran, our DBT, are colluding about the price of data tools?

You'reright. The logical test would be, Founder A, are you cool with this for Founder B? And if they're cool, we're cool. But it turns out that's not the way we write laws.

Yeah, I mean, if Martin Cassato had to step off the board of FiveTran after exiting Cursor at $60 billion, it's probably okay, given their position in Databricks. Like, it's allright. That guy just got us a $60 billion exit.

We're sitting on $200 billion at Databricks. FiveTran, good luck. We'll switch to an observer seat.

Yeah, anytime you want.

Not the, I'm going to move to observer status. Like, it's okay.

No, technically, just to be that observer.

That doesn't work either. You got to.

It doesn't work either. They've actually thought of that. They're literally like, Mr. JP Morgan can't bring his big banker nose in 1909 into any of the meetings. Yeah, no, that's what we're trying to solve.

So be it. Just send me, just CC me on the updates.

Yeah, genuine comment here. It's why, and this is a serious comment, it's why when we talk about all these regulatory regimes for other things, you have to remind yourself, these regimes go on forever,right? And if we pass some law about AI regulation now, you've got to be really careful.

The unintended consequences, you know, months, years, and decades later. These, once a regulatory law is passed, it doesn't leave.

It's as Professor O'Driscoll.

Sorry, piss off.

You know what? One last thing in all seriousness. At Andreessen's scale and everyone has to take the series 62 and you're, like, there's probably 40 or 50 legal things going on in the background at any given time,right? It's probably not even four.

It's probably like 40. And this is so, they don't even talk about this one,right? It's mentioned it. Let me know if I got to do anything. I got to go to that pasta lunch with Michael for the closing lunch.

For $12. $12.

$12. Yeah, let me know if there's an issue because there's like 50 other lawsuits. Everyone's coming after Andreessen,right?

Yeah, it's the old no conflict, no interest comment. Exactly. They have lots of interests, so they have lots of conflicts. It'll be fine.