Anthropic’s $10B Raise | a16z’s $15B Fund: Is the Middle Dead in VC? | How OpenAI Could Go to Zero?

Well, luckily you're a nonprofit, so whoever wins is great for the global economy, right? You don't have to worry about it as a nonprofit. It's all for the greater good. We have ascribed the odds of a downturn to less than zero. I think OpenAI has existential risk. It is a bet that the best of times lasts at least a decade. It's pretty interesting that Andreessen not only raised the most capital, but on a 2x2, I think, has the strongest founder brand. You can be promiscuous at the A if you have enough late-stage stuff to cover it up. Ready to go.

Probably yes on the first question, because they've stated they want to, and it feels like they can. And if someone says they want to do something and it feels like that thing is doable, then logically it should get done. So yeah, I think it probably will be the last one before the IPO. And you know, how do you feel about the price? Look, when they raised that 160, I mean, I remember internalizing, we talked about it, and frankly, we talked about it in our partnership. You kind of go, big number. Wow, that's the second or third largest private cap valuation ever. And then you look at the market traction and the revenue traction, and you go on a revenue multiple basis. It's cheaper than some of the stuff we're doing at 200 and 100, because this is a company that's gone from... it's easy to remember the numbers for Anthropic because they very kindly did them in round units of 10. They went from $100 million in '23, at the end of '23 run rate, to a billion at the end of '24 run rate, to allegedly about between 9 and 10 billion at the end of '25. So let's assume those numbers are roughly correct. They 10x'd two years in a row. I don't know next year, do they... let's just say they only quote only 3x, so they go to 30 billion right now. A rule of thumb is, I'm going to go now from ARR and run rate at the end to GAAP revenue for the year. A rule of thumb says take the opening ARR, the closing ARR, and calculate the average. 10 billion, 30 billion, average is 20 billion. That says they do actual GAAP revenue of 20 billion next year. So it's, you know, 17 times NTM revenue. It's a much lower revenue multiple than Palantir. It's kind of comparable with Cloudflare, for God's sake, in the public markets. So you do that math. If the growth is there for one more year, it looks cheap. It's the old rule. It turns out you really, really can pay up for anything that goes 10x year on year. So that's the bet. And the guys who did it at 170 three months ago, I'm feeling pretty smart now. They're a 2x in four months. Calculate that IRR. All right.

Only raising $10 billion, it's actually a sign that the unit economics are probably healthy. It's not that much dilution, right? So I think Anthropic's been clear that they believe their unit economics are strong. They own not just enterprise, but they own code creation, they own application creation, right? They own building everything we have spent our lives working on. And if you're building with these tools, I know it's the trite VC thing to say, but it's hard not to believe we're in the first inning and just getting going. It's literally hard not to believe it. So how that works out on a spreadsheet to how many tokens, how many trillions of revenue is complicated, but subjectively and qualitatively, it feels like first inning.

Everything that I see at the API level, I mean, Claude has won it. And nothing is perfectly stable in AI. We should not feel that anything's perfectly stable, but the reality is so far nothing's dented. And it's birthed Cursor and Lovable and Replit and Harvey and Lovable. I mean, these all... I mean, even Cursor, Cursor is just a derivative of it. I mean, there's other models as well, but it's tough to stop this trend.

Yeah, I agree, and I think you should break the market up into, I would have said two, and as of yesterday I'm going to say three, and I'll tell you what I mean in a second. The enterprise market. There's the enterprise API market, which is basically selling your product to other ISVs who are building on top of it, or enterprise building on top of it, and they've been the premium product there for the enterprise for a long time. Because you're quote-unquote just an API, there's always a risk that as an ISV is building on top of your product, they might try and use cheaper open-source models for some of the more commodified stuff. But to the extent that you need the high-end part of the product, that's been the business that Anthropic/Claude has been able to get. So further, and that's where they started obviously at the API level. Now the second thing that obviously, and you know, one of the biggest customers for that was the coding companies like Cursor and that. So then the second thing they've done, yeah, within the last year, is they've said, I mean, I don't think they said as malevolently as this will sound, but they've like, hey, coding is probably the single largest use case for what we make. Let's build a coding product. So they have Claude Code, and that's allowed them to quote-unquote win at the... I'm taking your win at the enterprise comment. Now they're winning not just by being the API, but being the app for coders. And it's not a 100% win. They're kind of competing with Cursor, they're competing with GitHub, but you know, you're grabbing more money instead of maybe being 50% of the revenue of a coder because you got gross with a gross margin of 50, you're getting 100% of the revenue because you're selling the product. So that's the second category in which they're clearly quote-unquote the winner. I mean, my sense is the enterprise share of coding revenue is plus or minus comparable to Cursor and GitHub, maybe a little lower, but growing nicely. And then the third thing is they announced the product yesterday, and caveat, I haven't had to use, been able to use it yet because I'm actually here at an outside, but it's early in the morning, my coffee hasn't kicked in. It's the product is basically, it's Claude for non-coders. It's the ability, it's kind of an ability, it's Claude Workspaces, I think it's called. Don't quote me, I could be wrong on that, but basically the idea is if you're doing other knowledge work other than coding, can you do it within Claude? And this is the idea that the world, I think it's been going in this direction. We talked a little bit about Manus last week, you know, companies like that. There's a number of others. We have one, obviously, that has kind of launched a product in that space that's just starting now. But you know, Claude Workspaces, obviously the dominant one. The idea is that if you're building PowerPoint, if you're manipulating data, if you're doing all other knowledge work that those of us who aren't coders do, instead of bringing the AI to the Excel spreadsheet, which is what Copilot tried to do at Microsoft, you bring all these tools into the Claude space, into the workspace, and maybe be more efficient. Now, I've read some preliminary reviews. Yes, some like, yes, this is amazing. The people who've used it more said, yeah, it's amazing, but it's a bit janky. But the idea is there, and clearly the reason I mention all this is the idea is the direction of travel is, hey, don't just be, you know, don't just be quote the chatbot for enterprise, the chat interface like ChatGPT for research, be the place where you do knowledge work for the other knowledge workers who aren't coders, right? At a high level, and this is a zoom-out comment, but it's a scary one if you're Microsoft. It's like every single knowledge worker uses the Office suite. You get PowerPoint, you get Excel, you get Word, right? What is the AI version of the Office suite? And because that's a great part. It's a kick-ass product for Microsoft because every knowledge worker buys it. Can you imagine turning up for work and someone saying, "We're not going to give you a spreadsheet, a word processor, or a PowerPoint product." You're like, "What the fuck?" Right? The idea that for every knowledge worker, there can be some product like this, some bundle like this is a huge-ass idea, right? And I don't think this is it yet, but the idea is clearly to the extent that you are doing knowledge work using AI, you probably will need some space to be in. And that's the game they're just joining now. Sorry, long-winded answer, but the idea is so they're going for another slab of revenue.

Depends on the price I got in at. I mean, I wouldn't feel nervous if I got in at, you know, the round of $200 million pre, because it's not going away. I mean, again, there's an element of horse-race drama here. But we like to get caught in the... you call it provocative, I might call it getting lost in the details. There's no doubt that Cursor has got two large competitors, both of whom can bundle with adjacencies: A, Claude Code, where they have a strategic dependency as well, and B, GitHub. So yeah, I would be nervous if I was a $27 billion pre Cursor investor, but they've created something amazing. And what I always say to my CEOs is the best way you know you've graduated from one league is when you start competing with people one league up. It's like, you know, you're in Division One of the English Premier League, and suddenly you graduate to, you know, the top division. It's Champions... what is it now? Premier Division, right? Yeah. I'm so old. I remember when that was Division One. But anyway, you know, you just get to play against different competitors. I mean, Cursor is now up against Microsoft. It's up against their own supplier, Claude. So, yeah, they're playing in the big boys' leagues. But are you a little scared? Yeah, but you're damn glad to be playing there because the other ten coding agents, any of them going to get to play?

For sure. I'd be a little... I would listen, if I were an investor. First of all, I've given up in the age of AI, given up on this nervousness of competition and disruption, because what can you do? I mean, these products didn't... I mean, none of these products even worked a year ago. How nervous can you be holding a large position in a product that didn't work a year ago? You can only be so nervous, or quit the game. But even little things like Anthropic cutting off XAI's access to Anthropic this week, it is easy for me to imagine the business model switches. Right now it's great for Anthropic to get an extra billion or so a year from Cursor. It's a great deal. It's free money. They repackage the product. I don't believe they have to sell it at any discount whatsoever, and they get another distribution channel. Should that change as Anthropic crosses a couple trillion and $10 trillion in revenue? It's easy to imagine one, they could cut off access, like that sounds aggressive, right? Or they just might limit access to the top models. They just might limit access. They just might degrade it. And so there's no reason to believe that... what's the expression, that the scorpion might not sting the... who's the scorpion taking across the river?

Yeah. There's no reason that Anthropic just might sting Cursor just before it gets to the other side of the river. I think it would be naive to assume otherwise. Right. And there's many ways that the scorpion could sting the frog. It could be... the simplest way is to limit access to models. They've already done it on a limited scale with XAI and others. They could simply copy the product. I mean, how hard is it to build an IDE that's just the same as Cursor? It's really not that hard. They can build Replit and Lovable too. These are not the greatest challenges of mankind. So all of them are at risk of the scorpion stinging the frog, but I would still invest.

It is worth pointing out that when the scorpion stings the frog, the scorpion dies too, in the old Aesop's fable and in The Crying Game, if you remember the movie. But yeah, I die too.

Yeah, I love it, Jason, because the first thing you said I think is just really so true. It's very helpful for me because the comment on being scared, if you're going to be uncomfortable being scared, you need to just go home. I'm scared all the time because these things change so much. I mean, I think we said this before, you know, in Fastland, you could compound for seven or eight years. Now, there's existential risk every six months. And if you can't live with that, you probably need to find a different job. So I think you're spot on there. If we've got to be comfortable being scared, to what extent is Google choosing Gemini for Siri over the prior relationship with OpenAI a massive deal versus a temporary moment in time where Gemini is proving to outperform?

The big deal comments are this one. Google and Apple obviously have a longstanding relationship where the money moves from Google to Apple for placement of search, because search monetizes with advertising. So therefore, it's valuable to get real estate, right? So they have a long-standing relationship. So it kind of makes sense that you'd go with your default relationship to make it happen, right? The odd thing is for this relationship, the money may... I'm not clear on the money movement, but it kind of... because there's no advertising model. Maybe the odd thing is Apple might be paying Google for Gemini. I don't know. While at the same time getting paid a lot more by Google for placement on search, which is why the two products are slightly different. That could flip. If OpenAI had a model, for example, that had ads in the thing, then maybe the dynamics of the money move can flip. But yeah, if you're in the distribution business, you want to be on a billion phones. I mean, the proof that it's worth something is Gemini. I mean, Google pays... I used to know the number. I don't... $10 billion a year, some absurd sum of money just to show up on the phones because it's the best distribution on the planet. So yeah, at the margin, you'd be sad. Unless the economics were stupid. It's not like... she even cancelled that comment because it's not like OpenAI blinks at bad economics. I mean, those guys have an economic indifference curve that would make your head hurt. So yeah, I think it's at the margin you'd be bummed not to be on it.

Certainly today, Google feels like a far more stable partner than OpenAI. It's just the reality. It's not that OpenAI is not the only game in town anymore for Apple. The only thing I would add, which you know, sometime when I've spent time with the senior folks at Google Cloud and other parts, I realize we underestimate how mission-critical privacy is in the deep enterprise. We don't talk about privacy enough. We don't talk about... and so the fact that Apple made clear that they felt this was the best solution for user privacy and that they can maintain the most data within their clouds and their systems. We can joke. We don't care about that with most of our startups. Yeah, we care about privacy. Hopefully it doesn't leak. Hopefully the agent doesn't expose your data publicly. But this is like... even like a lot of enterprises think they worry whether Salesforce is secure enough. They want to run their CRM on their own private clouds, on their own data. Google Cloud, it's not as big as AI, but they have a massive business running Salesforce on their own private clouds for customers who somehow worry Salesforce isn't secure enough. So when Apple says privacy is part of it, it's just a reminder to me there's another level here in the big enterprise that a lot of folks can't touch. We actually don't have those levels of security and privacy. We're not going to earn those deals because we're not that secure. We're not more secure than Salesforce. It's a high standard.

Well, luckily you're a nonprofit, so whoever wins is great for the global economy, right? You don't have to worry about it as a nonprofit. It's all for the greater good. You're not a nonprofit anymore. Stop. No, hang on. Stop. First of all, would... No, no, hang on. Hang on. That's... It's confusing when Harry says, 'First of all, just to be precise, you're not a nonprofit anymore. Your largest shareholder is a nonprofit.' So to just make it even harder, if your economic value goes down, the biggest single loser is this wonderful nonprofit called OpenAI Nonprofit, which has actually already made some interesting donations, which is very clever, by the way. Once you got that deal done, start dispensing some money as a charity to show it's a charity, to separate the two. So, you know, if OpenAI's value goes down, the largest loser is a charity. The second largest loser is Microsoft, will survive. And as you pointed out, the third largest loser is MAS. So it is a problem, but the core question is, precarious is a little strong. One, you feel angsty and driven. I mean, that's why they're at Code Red. But A, to Jason's point, anyone who's not feeling nervous doesn't understand the game. So of course they're feeling nervous because you know you got to play the game. But look, I saw some... I actually thought in The New York Times this morning, I could be wrong, Sebastian Mallaby, who I think wrote the book on venture one time, was kind of, oh, I think Google goes as like OpenAI goes to zero, and I think that's absurd. There's huge value here. Like I still, you know, we all default. They have 800 million users. They'll find a model. I mean, I think that there is a model there. They have subscriptions. They have a business. It's not going to zero. The way I keep score is not, oh, does it go to... like the way I keep score is the relative value of Anthropic to OpenAI is kind of the ratio of, let's call it, management success over the last three years. And the truth is it's gone from, you know, 10 or 8 to 10 plus to one to much more convergent. It's now only two to one. So if you were in a race, the objective... Yeah. The objective measure of success over the last three years is something like, you were in the lead 10 to 1 over the other guy. You're still in the lead, but he's now only 50% behind you and coming on fast. So are you nervous? Yeah. Are you bummed? Yeah, you're still in the lead. Don't blow it. And I think, you know, you've got a differentiated business. I still, you know, like for all the Gemini talk, I still enjoy the ChatGPT experience more for the kind of research I do, for example, to go on this pod. So they got something amazing and compelling there. They just need to frankly focus, knuckle down, focus and make it work and make it, you know, realize its potential. A lot of them make it work. That's a stupid statement because it have...

There is a very... I think there is a very simple bear case for OpenAI, though. There is a very simple bear case that it goes almost to zero, which is that the shelf life of an LLM is less than 100 days, half-life is very short, and something happens, there is a macro disruption, and OpenAI can't raise the capital it needs. All of its competitors, we just talked about how Anthropic has much superior margins, Gemini massive cash flow, and XAI crazy, but you know, it'll get a trillion of Trump contracts. OpenAI is vulnerable to, you know, we joke about macro disruption, every portfolio company that didn't hit its Q4 numbers blamed macro disruptions, but it easily could. Like this cap, we've never seen this amount of capital availability ever, and it is not hard to imagine something. We've had systemic shocks in our lifetimes. If this was '07-'08 or whenever, OpenAI could... like it could die in the sense that it could not evolve when its competition could.

One caveat, I understand your comment, which is why the old Bill Gates rule and you was always have two years of cash on the balance sheet, like opex cash, right? Because you're right, because I don't... if that's the case, then you can't... the way you could only get into a really tough situation is if the world went to shit just when you needed to raise more money. So they're smart people. If I was... yeah, if you're running the CFO of that company, your mental rule of thumb should be raise like crazy, you've got the world's best fundraiser, and never have less than two years' cash. Because when two years' cash, even if the world, you know, worlds change, you can tweak the thing enough to converge more quickly. You just dial your ambition and dial up your cash flow focus, and in two years.

But how do you do that if Gemini and Anthropic can keep going? How do you do that? If your competitors can keep going through that, that's the thing. This isn't Workday spending a little bit less on making sure that the Windows 98 integration works properly. You die if you don't have the capital.

But I suppose you're right, J. I rejected your first comment, which I don't believe this is the kind of user base that churns at, you know, 100 days' notice. I think that there is a large degree, an increasingly large degree of consumer behavior and stickiness. So yeah, can you paint a scenario?

Oh no, hold on just one second. Just imagine. Okay, OpenAI needs $100 billion in the next two to three years. That is more than it has spent to date. Okay, its spend is accelerating. Would you... let's imagine it can't raise that and it's frozen in time. ChatGPT is essentially frozen in time today. Would you use ChatGPT from a year ago? Would you use Claude from a year ago? NFW you would use these products from a year ago. There's no way you would use them in Cursor or for coding. There's no way. There's not a one-in-a-million chance any developer would use a year-old model today. They were so terrible. This company would deteriorate. So it would be like Detroit. Like it would still exist, right? Or be like AOL and dial-up. You'd still hear the shrieking because some people don't... Grandma doesn't know. Grandma's fine with ChatGPT from a year ago because it helps her with recipes in the kitchen, but the rest of the world's moved on to broadband. Two comments. One is yes, it is. By the way, it is astonishing that someone just traded AOL and it still has cash flow. That was the funnest fact of the year. Like literally last year, someone thought, 'Wow, that thing's worth a billion bucks still 20 years on.'

Yeah, but I don't agree with what you're saying. I understand the point, but what you're saying, I'm going to... It's, does imagine a 2x2, which is, you know, macro conditions good, macro conditions bad, and then the other side of the 2x2 is scaling laws still working, so improvement is vital versus scaling laws slow down. You're right. In a world where scaling laws are still massively working, so the next model is infinitely better than the last model, and where macro is shit, so they can't access the capital, then in that corner-case scenario, then you're right, you can play that scenario because you can always paint a bad scenario. That's what you learn. I think it's just the little...

Let me just add one more point, and I don't want to take too much time here. You're the boss. I think we have returned to a moment in time. It feels like late 2020, 2021, or maybe you, Rory, you can pick some other times in our careers where we have ascribed the odds of a downturn to less than zero in venture and everything. We are deploying, we are raising funds, we are deploying capital, we are doing up rounds weeks after the last one. And underlying that bet essentially is a 0% chance of things not... And look, we see it in data center use. We see it in power use and water use and ramp. But we are... and that's fine. We're not paid to mitigate downside in venture startups. But I think OpenAI has existential risk. It is a bet that the best of times lasts at least a decade. And I think you can tell me the history of downturns, they're usually shorter than we think. But we don't... 10-year cycle be a long one historically, right? 10 years with no downturn.

Speak for yourself.

My son dropped it.

Yeah, he pays for Cursor and he uses... and Google's free for him. Google because Google's free. He doesn't want to pay 20 bucks a month for ChatGPT. He pays for Cursor out of his own pocket. Out of his own pocket, he pays for Cursor, but he doesn't pay for ChatGPT anymore.

And remember, invest in whatever your kids do. This is how you get into Snap and all these hot deals. You just... so if my son's off ChatGPT, Rory, we got to short. Let's get on Cali and just short this baby. Come on.

It's to Harry's point. It is that the next generation is fickle. Like this discussion is like, I don't know if you ever read failure analysis of things like air crane crashes or anything like that. What you always discover is any crash is always multifactorial. There's always more than one cause. And I think what you're saying is correct. If macro goes to shit at a point in time when they don't have a ton of capital, and at that time the market for this product is still incredibly fluid at the consumer level, then if all those things happen at the same time, you have trouble. I just argued that, so it's not a stupid comment to say it can happen. It's just you concatenated probabilities that I think are fairly low. I think they're much more likely is that, yeah, you have to moderate your ambitions and just execute on the consumer space and make it happen and build a world-class business on that.

Listen, on the one hand, so what? We've been talking about this since this pod started, right? We've been talking about massive funds, and it's just all you have to do is just look at the Databricks and Anthropic rounds, and it's pretty easy to see why you'd want to do that playbook. I would say what Andreessen... it's pretty interesting that Andreessen not only raised the most capital, but on a 2x2, I think, has the strongest founder brand. That's hard to do both. It's hard to do both, and it has evolved. And Andreessen, I mean, I've been around long enough to remember vaguely when it started, and it was cool from day one. It was cool from... now it wasn't what it was today, right? But I remember I had a subtenant, Marc Andreessen came into our office to meet with them to fund them, and it was a god moment. Oh my god. Is that Marc Andreessen in the office? I mean, it sure looks like Marc Andreessen. And they have invested in that in many levels on the brand. And I don't know how they've done it in some ways, but it has. And it's gone a little bit up and down. I remember I had one founder that was pretty hot who was bummed that, you know, he got a term sheet from Andreessen and not Sequoia, but that don't happen today. That was a brief... that was the '08-'09 version of Andreessen. That was a brief moment. And you have returns. The returns were published. The returns are top-tier. So you have the biggest fund, the top-tier returns, or Cortile, whatever, top tier, which used to be a knock. And founders love this brand. You know, whoever was talking about fund versus firm or platform, that's... it's hard to do all of those at scale. Founders love it. They love it. It's defensible. So you might as well hoover up 51% of the capital and then just shut down your competitors.

Agreed. I have a... I've thought about this a lot in terms of the question you asked, and I have a lot to cover on this. Just heads up, right? And I think I'll give you the summary. They've won, and they've won really well, and the only thing that might impact them at this point is misexecution internally. But now let's unpick this, because the first question in your little notes you said is, you know, can they make a 3x or a 5x on $15 billion, right? And so that's the question you asked, right? And everyone always starts with that question: oh, there's just not enough exits to justify that, is what they say. And it's the wrong way to think about it, because I think you have to break it apart and say, first of all, can the industry... is the industry at a stage now whereby that amount of capital can earn a return in total? In other words, the total capital going in, because remember, if the total capital going in can overall earn a decent return, then it doesn't matter from the industry's perspective if that $100 billion of invested capital goes all to one firm and they invest it all, or it all goes to 100 different firms and each invest a billion dollars. Right? As the first, the macro question is, is the overall market in equilibrium such that you can get a decent return here? Right? And then the second question is, given that, you know, like again going back, if it is an equilibrium, can these guys... how much of that total money can they take and profitably deploy? In other words, are there diseconomies or economies of scale, and can they execute it well? And you know, kind of fast forward to my two comments on this is, A, I think the industry is roughly in equilibrium, so they can do it, and in fact the numbers are moving in their favor. And then second comment is, so for the argument on employing it at scale, I think it can make... Right. So let's do the first. Yeah, they raised the question. They raised $15 billion, but they do 20% of the total. So it means the industry as a whole raised $75 billion, right? And everyone goes, 'Oh, there's not enough exits for that, right?' Well, rough and tough, 3x the value of exits this year, which wasn't an amazing year for exits.

Including healthcare, by the way, was around 300 billion. So not perfect. That's not all owned by venture, but you're kind of roughly there. And the other interesting, and you know, presumably next year, you know, with the caliber of, I mean, if it's 300 billion this year and Anthropic alone goes public next year, it's 500 billion of exits. So the industry raised under 100 billion this year. I mean, if they really raise 15 and they really are 20% of the total, that implies 75 billion of venture raised, right? It seems to me that's a kind of number that can be digested and yield a 3x return overall. So it's not, it's not like it's stupid, the amount of money, and it's actually getting better because in the last couple of years venture has deployed a couple hundred billion a year and only raised about 60, 70 to 80 billion a year. Now some of that is because some of that capital being deployed is non-traditional venture, but it's getting harder for newer funds to raise money. So if you think about, if you move on to the second question, can they grab, can they deploy 20% of venture successfully?

The macro trends are moving in their favor because they're raising more money at a point in time when other people are raising less. So they're getting in a relative, they're in a nice position provided they can deploy it. So I think overall the industry is getting into equipment. Then the second question is, how can I put it out? And there is 20% of the money last year, right? But you got to think it over two years. That's roughly, if there is every second year, though, Anthropic may raise in '24 and then '25, let's just say every two years, that implies it's 10% of the money on a sustaining basis. Agreed, it's like you're putting out 10% of the capital. So basically they've got to get 10% of the exits. They got to get 10% of the Series A's, etc., etc. Now interestingly, that work that we talked about way back last year that the partner from DST did showed like over the last decade, they did roughly 10% of all Series A's that became $5 billion outcomes. So it's kind of their market share, right? They got to get 10% of everything. They got to get 10% of the great Series A's. They got to get 10% of the great Series B's, and provided they could execute that all the way up the stack, they make it happen, right?

Yeah. And what I realized when I did that, Jay, it was like I just literally did it this one because I'm getting ready for site. So I'm looking at kind of exit data. It's, I mean, there are two risks and we'll talk about them in a second. But you look at it and you go, it's not crazy. And then as you say, it's in part because, I mean, you said it, is that they've done it, makeup, and I read the Py McCormack article and all that. I think we all, a lot of us come into this business as investors, you know, and I think they came into it as engineers and as company builders, and they did a great job of solving the system, right? And you know, there's a lot of leakage along the way. I mean, one of the things that was interesting in that article, you make some mistakes, you deal with a lot of negative knocks along the way, but it doesn't matter provided the model works overall. And again, I repeat, they got to get 10% of everything, right? Now maybe two or three things that go wrong, right? Maybe three. The first is, you know, you just, when you get bigger, if you have to do 10% of all Series A, it just becomes a lot of deals, which means a lot of people, which means is the marginal investor any good? Can you stay good when you have 20 people writing checks versus 10? It's just hard, right? You know, I think you have to, that's a management problem. They're good managers. The second thing is, the funny thing is, you say you got to get 10% of all exits, right? And the total exits, the total value of all private companies right now is about 3.6 trillion, which pleasingly, by the way, if you say 3x on invested capital, that's 1.2 trillion over 10 years. That kind of says it's got 100 billion a year creating 300 billion a year of value. If you chop off just the top three deals, you're down well north of a trillion bucks. You go down to 2.6 trillion. So the bigger the firm, the more capital you raise, the math all works, but it's very top dependent. And it's again, I thought the article, Pack, was very good. If you miss even, like, I can make my math work and not get any top 10 exits. You simply can't make this kind of math work without getting those top exits. And maybe, and you don't have to get in at the A, but you know, you don't have to do the A of SpaceX, but you better show up on the cap table before they hit total because that's a trillion dollars of value that you got to get. So that's the mission for them. And you know, they're doing it, and that's why.

That part to me seems the easiest part. Did Rory, I did the, you simplified in a great way, which is they need to do 10% of Series A's that matter each year. Okay, that's doable if you have a top two brand, I think, and you have the right, you just meet with every, the job to meet. I don't think you can do, I don't think you can do 10% of every pre-seed deal. I think even YC can't, like, that's a different question, right? It's doable. And then if you have an, at one of the top three brands and you have a large enough team, their job is, I mean, even at Insight, I learned this from Teddy back in the day. Like, you get fired if we don't see every deal. It's a different question of whether we win it. We get fired if we don't see every deal. If Insight can do that and Vista can do that, why can't Andre see every single, like, because they should, they have relationships with every seed manager that matters. They're out everywhere. They're close to Garry Tan and the rest of the world. Why shouldn't you see every, I mean, there'll be some from left field, right? That of course, but why shouldn't you see, if your brand's strong enough, you should still see them. And then the interesting question is why can't this, this was the question years, a couple years ago that I remember Andrew Bialecki from Klaviyo said, he's like, well, why not 90% market share? Why can't Andre have 40, 50%? Why not? I mean, there's conflicts, of course. Let's put conflicts aside though. Why can't your math scale to 50%? If conflicts weren't an issue, why can't it scale to 50%?

It's actually an interesting question because, you know, if you think about where I started, you're right. You start, look, Sequoia. I mean, one of the things I always, when one other venture firm has a billion dollars, you're like, why are we letting them have that, right? We'd really just prefer to be all us, right? And if every year the technology industry, entrepreneurs gives the money, the venture guys, the chance to turn a hundred billion into 300 billion, the entrepreneurs at some macro level don't care if that's done by one firm doing all of it or half of it versus a hundred different firms doing it all, right? There's no obvious economic reason. So I think the...

Especially if there's no downside to reason, if there's, if all I get is upside, I don't get any drama if I sell my company. I don't get, I don't get thrown under the bus. They do my pratas. The worst case is I'm treated well and I get to go to these cool events. That's the worst case. Why would I not take their money?

So, so you're right. And exactly right. So because it's an interesting question. If they can do 10%, why can't they do 20? Right. And as yet, so why can't, yeah. Exactly. So I think there's really three things that could go wrong and it's an interesting spec on is that I think you should assume that when you have that, you see all the good deals at the Series A, but remember you also see all the bad deals. So the more pickers you have to have to do more of the deal, the harder it gets to have all those pickers be good. You just, your mistake rate goes up, but you can cover for that if you do enough of the A, right? The real thing. So that's the first thing. Then the second thing is as you get later, you just have to concentrate in the winners, right? You can be diversified as [__] at the A. But going back to the comment is if it's 3.6 trillion of total private value and the top four companies now, if SpaceX really was worth a trillion, you could argue the top three companies are now 1.8, right? You just got to make sure you concentrate down on those and if you slip on missing, you know, it just gets harder to execute. Like you can, so that's, that's the second big risk. You don't concentrate.

Find every two years or every year you can, they don't have like you, I think your job is to get good at concentrate like you own. I think Andre should target Ben and Mark actually did not WhatsApp me on this, but I think your math, Rory, is so powerful to me. 10% of Series A's. Combine that with Andrew Bialecki own 80% of your market or you're a failure as a founder from CEO of Klaviyo own 51% of venture. I believe conflicts are a super solvable problem for founders. Like law firms figure it out. Like you just isolate it. We have, we have three teams and Andre becomes known as the gold center. There are no conflicts. Like you can have direct competitors, Andre, and they have solved this. Like there is no leakage. They have solved this problem. And so I, this is a traditional VC, even Sequoia has the issue. We, we don't do conflicts, right? I remember in the early days when we met, we referred some stuff and you guys were like, no, HubSpot's our winner. We can't have any conflicts. But I think it's a solvable issue. Then you get 51% market share, then you own, and then Sequoia and those General Catalyst guys get the scraps. If you want to build a firm and not a fund, this is what I challenge my friends to do, 51%, because your math just, I think you can solve, I think you can solve all the other issues. I genuinely think you can solve them. And, and, and hasn't had a fund below 4x gross or gross. Hasn't had a fund below 3x.

Yeah. What I like about doing this for you, Jason, is how incredibly I can go in expecting to have to make one set of comments and end up on the total opposite side because I was expecting to have the, oh, they can't make the math work at 10%. And clearly I convince you they can. So now you're like, [__] it. If you can do 10, why not do 50? So what causes?

Well, I think that the human...

Not to try it. If you can access the capital.

Well, that's actually an interesting caveat. So I think that, look, I think there's two or three risks, right? One is if you're doing Series A's, the more you do, the more people you have to have. And at some point, it becomes because the more capital you're deploying, you only have one or two moves. You either do more small deals or fewer big deals. If you're doing, I mean, instead of 20 Series A's a year, you're doing 60 Series A, you need X number of GPs. I think quality goes down at scale. Let me give you proof on that. Andre's market share is higher than Benchmark's in terms of that, that worked, and I wish Rottman, the guy from DST, did. It's higher in terms of the great Series A's, right, as a market share, but the hit rate is much lower. So as you get bigger, you, you, you get more done, but the quality rate goes down. And at some point, you know, you not only your hit rate go down, you probably therefore you have a lot more fails, right? So it's hard to scale. So if you scale from 5% market share to 10%, your hit rate goes down by a couple of points. If you go from 10 to 20, now you have the next 10% being written by less good investors. You, the pressure to do deals goes up. My guess is your hit rate goes down over time. So that's the way it happens at, at, at the Series A side. So I don't, I think there was a natural limit to this because I mean, if you look at public investing, index investing is a scale business. Stock picking is not. Right now we can talk about is in the public markets is indexing the right answer, which is why all the big money manager, the public markets are indexes, but stock picking in general, it gets hard to be smart in a room with more than five or seven people in it. So I think there are inherent limits.

If you are indexing, Sequoia Index reduced the fund size that they went out and raised a billion and a half circa. Sequoia actually have quite constrained fund sizes. I think the, you know, seed fund is around 200 million and they don't have billions and billions per vehicle. Do they have to embrace scale and say, [__] it, Andre has set a precedent. This is a money wall game. There's no doubt that you can pursue a really great seed and Series A strategy with plus or minus 500 million, plus or minus five, you know, maybe 500 to a bill. There's no doubt about it, right? Index can do it. So you can do, can do it. The math is clear. You can have five partners doing deals. So maybe another way you ask to ask the question another way is to be successful in the Series A, do you also have to add this adjunct product called a [__] ton of money for your growth stage? Right? Where you use that money to do two things. One is to help you win Series A deals because you can say to people, not only will I do your Series A, but I have a wall of money for later. Right? That's the implied thing. And the other advantage it gives you is just you seem bigger, so you get more of everything. Right? That's the question. Your Benchmark have proven you don't, right? And, and have proven that it can be great. And I think the real truth is, you know, there's multiple ways to play that Series A game. And one of the ways that wasn't true at all 15, 20 years ago, but now is clearly true is co-attaching a big late-stage fund to your Series A firm fund, provided you execute on both of them well, is a way to increase your profile. It's increased your value to founders. It increases your personal net worth enormously. And provided you don't shank the latest stage part of the business, it's one way to play it, but it's not the only way.

I don't believe, no matter what VCs tell founders and their spiel and pitches, I don't believe founders highly value the fact that VCs can fund you through every stage. Every, every big fund tells you that. Every Index, every Redpoint, everyone comes in and says, the good news is if we deem you worth it, we can shovel cash into you if we believe you're one of our best companies. I don't think founders go skipping down the street from South Park or Sand Hill when they hear that, that they just, that's not my problem, right? Getting help now and giving me the capital on the mount on terms. So I just don't think that is as defensible as winning all the A's. That is just an output of a combination of pratas and, and, and winning, winning, winning, winning the right to do beyond your prata.

Put me down for a no on that because I think there's two ways it helps, Jason, right? I hear, I don't think it's dispositive for the founder, but I think it helps at the margin because it, for a couple of reasons. One, it helps you tell the founder a story. Oh, look at the last two years. Like to me, do a really good job of that. Look at, was it the van or, oh, look how much we owned at the exit because we were there the whole way through. And at least tell that good story with database. Oh, look, we're there to hold. And I think at the margin that helps, right? More money is better than less.

I don't think an average Series A founder is picking you because you diluted the founders of Non to 5%. I don't think that's the most compelling story I've heard at a founder pitch.

Oh, that's harsh.

They're picking me because I believe Mark, Mark and Ben and team are going to help me build a hundred trillion dollar company.