It's the first real ChatGPT competitor, and Muse is many things. It's one of the best pieces of software I've used ever, but it's also a Trojan horse to fight ChatGPT because the LLM is pretty good.
What is going down this week? Anthropic, baby, they pushed the IPO. Maybe it's November. Then we have Meta. Alex Wang is delivering the goods. Muse holds number one spot on the app store. They are crushing and handing it to Instinct. Maybe the AI assistant race really is on. I love the quiet compounders. There's just no market for them anymore. Coding is the model load. It's everything.
They've trained on all of our data. Every YouTube, every piece of open source, every piece of closed source. Of course they're going to train on your data. Give me a break.
There is a zero probability AI will destroy all of humanity.
Ready to go?
Boys, another week. And I wanted to start with the news that Anthropic pushes its $2 trillion IPO from October to November. Some people are suggesting that it's the first signs of a crack in the market. It's following the pacing the frontier that we discussed last week. To what extent do you agree with that, or to what extent do you think it really is just them wanting to have a great Q3 prospectus and needing more time for those numbers to show through?
I think that's the answer. I think the whole crack in the market thing, let's leave that to one side for now. We'll talk about it later. Ditto the pacing stuff, which clearly has also been shown to be not really believed even by the people who said it. It really boils down to what you said. They had an amazing Q2. They finally kind of became bigger than OpenAI, and remember we talked about this. OpenAI then responded furiously in July, started tweeting all that 'my Q3 numbers are amazing' story and really pushing back, and you know some of the data supports that. So my guess is the banker said, 'Hey, if you want a really clean story, it would be great to incorporate a quarter that reflects this noise.' So instead of going out in October where you won't be able to share your October numbers, it's kind of that weird thing. Go out in November where it's clean. You print your October numbers, you drop them in, and you go. So from a programming kind of timing perspective, it just all makes sense. It's a cleaner deal, whether it turns out to be a wise decision or not, we can come back to in a second. But just from a, it's always weird to go out after you have your numbers but before you can share the numbers. So after the end of your quarter, but before you've kind of finalized and audited them, it's all especially for what looks like quite a pivotal quarter, right? So it totally made sense. If I'm a banker, I'm thinking, if we do this in October, it's going to be a lot of explaining. If we do this in November, the numbers will talk. Having said that, that sounds all right to me, right? But it said to me maybe there's just a hint of worry that getting 30x or 20x oversubscribed to whoever they want it, you know, at the most massive IPO of our lifetimes. Maybe there's just a hint of stress on the pre-conversations, right?
I agree. And that's why I made a comment earlier about is it a good decision or not? Like if the world goes to hell in a handbasket in November, you'll look back and go, 'Damn, we should have gone when we had the chance.' Because you're right, a CFO who said, 'We're just doing it. I don't care about your messy story. We're going to tell a good story. If the price ends up between 1.5 instead of two because it's a messy story, I don't care. I'm willing to live with that.' And that's the approach you take. If you felt it was hell or high water, I got to get this money, right? Clearly, the fact that they didn't take that approach means they decided it's not hell or high water. They're confident. Yeah. They're willing to take another month of timing risk probably for some significant valuation pop, right? Which is what you do when you think you have lots of time and you're in a good commanding position. I mean, it's not going to happen in this case, but windows shut, and they shut in a very idiosyncratic fashion. So, look, it's, I mean, if I was in that board, it's 90% certain that this is a good decision. And a clean story in Q4 is better than a messy story in October, right? And there's always that 10% chance the world goes crazy and you look back and you go, damn, should have taken the 100 billion.
I was walking with a friend of mine the other day and he said, 'Harry,' and very successful multi-billionaire investor, he said, 'Harry, how the f*** do these frontier model providers go public when no one is willing to provide liability insurance? You have swarms of rogue agents doing whatever you want, how on earth do they go public? Who's liable?' [__] comment. I'll tell you why. Once you've said publicly that there's a 10% risk that your thing can blow up the world, sweating product liabilities and the noise, right? This is a $2 trillion market cap company can self-insure. They don't need reinsurance from Munich Re with a market cap of 200 billion to reinsure their $2 trillion market cap. You know, right? So, you know, I don't, I mean, I don't think you need product liability insurance to get an S-1 done, right? Now, separate comment. The fact that no one will insure them is a data point about the dangers of the product. But that's long since been internalized. Anyone, to be fair, to be very fair to the Anthropic management, anyone who buys that stock and doesn't know that senior management think it's the most dangerous thing since the atomic bomb has rightly, by the way, hasn't been reading their tweets. It's a pretty well in the list of risks disclosed. I'm really looking forward to reading the S-1 risks, by the way. But in the list of risks disclosed, product dangers have been pretty thoroughly discussed for a decade here. So I don't, I don't buy that at all. There's a hundred reasons why you can worry about valuation and traction and all that, but product liability insurance is in the noise.
Yeah, they're just going to have a big litigation legal team. It's just they're going to fight this stuff for infinity. Um, just like tech leaders have always had to fight IP trolls with large teams. They're going to fight liability suits for, they're going to have 200 folks in house and all the top law firms fighting this, dragging it out, saying they're not responsible, trying to get legislation passed. But you don't stop the IPO. It's an interesting, I, we certainly, I can't remember an IPO that this was as so explicitly dangerous to Rory's point and Harry's point. I mean, it is novel, but it's game on, man. I mean, it's game on.
Agreed. The most important part of securities laws, security laws is not that you sell stock that has no risk. It's that you sell stock where you disclose the risk. And provided somewhere in the S-1 they say at least half of our crazy employee base thinks this thing is going to blow up the world. I don't, for what it's worth, says Dario, but my people think that. Just letting you people know they're out there in S-1 land. Provided he discloses that, he's covered. And obviously, state the obvious, he's not covered. If in fact it does end humanity, he'll die too. But let's just ignore that for now. And, and it's by the way, I want to call out Jensen for his big ass call. I love it. For the P, his probability of doom is zero. Finally, an unequivocal statement from a no [__] investor. There is a zero, and tech leader, there is a zero probability AI will destroy all of humanity. I love it.
That's because his LLMs haven't caught up yet. His open source LLM haven't caught up yet. That's why, that's why he could say not until 2030 because he knows he needs until then to catch up. Keep going.
Before we move to, before we move to Meta and Muse, that OpenAI to burn $278 billion by 2030, out of cash by 2028. Is this just more noise? And of course that's to be expected. There's rumors of another round at a 1.5 trillion.
I bet it's more. I bet it's more.
It doesn't have a history of the burn coming in less than planned. They may need 400.
Yeah, I know.
We've all had a portfolio company or like that. Topline, great. Love the team. But burn, no matter what they say, always comes in 30 to 50% higher than the model. Doesn't matter who we put in at CFO.
But yeah, no, I think Jason is broadly right. I mean, look, there are 35 million, if they're basically big picture on the forecast, there's actually three numbers that matter, not two. They're forecasting growing from 35 in ARR end of this year to 350, I think, in three or four years. So 10x growth. Worth pointing out, by the way, that last year Anthropic grew 10x in one year. This is a 10x forecast over three or four years. So almost modest. Second thing is the burn. You're right. They're forecasting a burn, a growth, a net burn of 278 billion. They have, and that's like money out their door. They have 122 billion of cash on hand. So they got time to raise the extra capital. The amazing number is the other one, which is the capex required to do all this, not all of which is on their balance sheet, a lot of it's on other people's balance sheet, is around 700 billion. So it's just a reminder that this is unlike software, this is an extraordinarily capital-intensive business. And to kind of bring it back to what you said, Harry, if all that burn, all 700 billion of it had to appear on the balance sheet, right, it would be even, you know, even worse than that. And the only reason they're able to do it, only burning 278 billion, is because other companies like Oracle, like Nvidia, with, you know, kind of rev support and kind of backstop insurance, are able to say, 'We'll do the capex and, you know, lease it to you.' So this is an extraordinarily capital-intensive company. It is going to consume directly or indirectly $700 billion worth of capex to get there, to get to $350 billion in revenue. Intelligence is not cheap.
I think that was the most efficient covering we've done of OpenAI and Anthropic. So we're going to move to a story of the week, which is going to be a new feature of the show. Jason's IC has been a massive popular segment, and we're going to add a story of the week, which for me is Meta's Muse taking number one spot for days, stock ripping, Alex Wang team absolutely crushing with this launch. Bad for OpenAI?
That's a good point because it's just, it's the first real ChatGPT competitor. Anthropic never really cared about Claude until recently. Muse is many things. It's one of the best pieces of software I've ever, I've used ever. Um, but it's also a Trojan horse to fight ChatGPT because the LLM is pretty good. Every time you're doing an agent, you're also asking questions. You're not just telling it to get your movies. You're saying, 'Hey, what is playing? How is that latest superhero movie? How was the latest 20VC?' Right? It has opinions. It's a darn good, like, normal consumer-grade LLM, right? I don't think anyone's writing, uh, wet lab biotech software on Muse, but it's at a lay level. If it's our, it's free. It has agents that are truly autonomous, which ChatGPT doesn't. And it can do all the other questions you have, and it writes you cute letters when it makes mistakes. I don't know. I don't, if it's free, why would, why would an ordinary person pay? Uh, and the tokens are vastly more than you get from ChatGPT. I just think in addition to everything else, it's a ChatGPT Trojan horse because it does everything it can do and it has autonomous agents. It doesn't have to just be agents. It's doing all of it. So it's, it's pretty cool.
Could not agree more. I think it's excellent. Right. I mean, I think it's funny. I think as I said two weeks ago, we're saying they got to ship this, and literally between our conversation and release, they shipped it, right? I, you know, we've been skeptical and a little harsh about some of the, you know, Meta/Facebook investments in AI with the enterprise model. This is the exact opposite. This is spot on. It plays into their distribution leverage. It's intuitively kind of something that you would take. I mean, to the extent you do trust Facebook with everything else already, longer discussion at this point. If you're, if you're deep in Insta or Facebook, you're in already. You don't care, and it's a good product. Jason, you're exactly right. It's a good UI. It works. It gives me recommendations, and they just have the distribution. So I agree. I thought it was a wow moment. I thought it was a real win. You know, I'm not sure about the economics and if it's worth 100, but it's worth pointing out what it meant for Meta. They're up seven or eight percent. They made a, they made a hundred billion dollars in market cap this week because of that product, right? And that just shows when you, I mean, it's something I have to remind myself, you know, the art, what's possible when you're dealing with these huge end markets, right? You can see that, you know, the value of a play in that space. It's like, that's the argument why, you know, OpenAI might look at that and bring it back to venture, right? Hm, they made 100 billion. Should we buy Instinct? Do we have to do something in this space like now, right? So yeah, I think.
And it's up 34% this month. Some people say it's up more because people in the beta test were buying, right?
In for the longest time when it was... That's interesting. I saw that. Yes. That the beta testers will buy, which I just love. Um, because yeah, for the longest time I was like, Facebook, yeah, it's a great business that's spending a lot of money in a bottomless pit of enterprise AI. Now it's a great business that could have an act in AI. That's a big change. No, that's worth the rating and give them huge credit. So I think it was, it was a big week for Meta to state the obvious. You know, it's, and it's also, it's two weeks in. I, the thing is, the reason I say it's a Trojan horse, it built me an entire CRM. This isn't just reservations, and it's very good. Now, it's very limited two weeks in. It does everything. It built me an entire CRM for every SaaS sponsor. It tracks every email about them, every item in real time. It updates it. And so it is sort of a CRM of one. Now, it's limited because it can't really collaborate. You couldn't use it for a sales force, but imagine yourself. It is, it is some of the first composable software that I've ever, composable that I've ever actually seen work. This has been a myth since this show started, right? Now, I really said I need a CRM for myself. I need you to track 150 sponsors daily in real time using AI. And it just built it, and it's very, it's for what it is, it's very good, and it cost zero.
You need all the pieces. You need database. You need, you need intelligence. You need access to email. You need all of this for that to work. You're obviously not the typical user, and I don't think their economics are structured on everyone building their own CRM or it's going to eat compute. But yes, you can through that interface. You have an, you have a sophisticated LLM at the back end. You have your own little sandbox. They have a lot more standalone compute and sandbox for you than I think Instinct does. So yeah, that makes sense.
Okay. For those that don't know or haven't used it, a lot of people use it to buy things from different providers, and Amazon has in response blocked it. Shopify has decided to partner with it. How do we think about those two decisions from Amazon and Shopify? And who do we ultimately think is right?
I think both could be right for them. For Amazon's perspective, because it's what they've discovered in other kind of agentic type commerce is two things happen when you use this agentic commerce. One, you don't get any revenue from your ad business, and Amazon's ad business is now larger than their e-commerce profit. So in other words, it is the entirety of the profit stream for e-commerce as a thing from their AWS business. And then the second thing, which I didn't know, is Walmart did something recent where the basket size gets reduced because you don't get the chance to shop. You know, when you go on Amazon directly, they're like, you know, people also bought, then you have, oh yeah, I need to order that. Whereas if I do this, I just order the thing. So from Amazon's perspective, because they're such a big player, they're like, if I let these people do it, then I don't get my ad revenue. I get a smaller basket. And then this is the next sentence is key. And if I block them, they'll probably come to me anyway because I'm Amazon. So I have leverage. And this is kind of tech behemoths bumping into each other. Amazon is now saying, 'Screw you, Muse, Meta. We're going to have to talk about this before I roll over.' Right? And at some point there probably will be a more kind of aligned exchange of value. Shopify on the other hand represents lots of little tail merchants. They are very glad of the extra business, right? They probably don't see that much compression in order value because if you go directly, if you're buying some obscure thing on a mid-tier Shopify merchant, you go buy the thing directly or you buy it via Amazon. No matter what, Shopify is broadly happy. They don't have a big ad business, so from Shopify's perspective, it should be have at it. What they like is, what Shopify likes is they have the common payment app, so they like to have that go through that. So in each case, I mean, yeah, capitalism works. These executives are very logical. They're like, 'It's great that you have this new source of demand. What matters to me? In Amazon's case, I think I have a lot of leverage. In Shopify's case, provided you let me charge for my payments rail, I'm good with this access.' So it all made sense. These are early days. There will be much negotiation. The bigger lesson here is, you know, there was a whole bunch of Google, OpenAI blathering on six months ago about various different agent payment mechanisms, right? And it was all your smart people getting in a room and thinking things through. And the truth is in tech, none of that [__] ever matters. What really matters is someone aggregates consumer demand like Instinct and Meta have done. They start pounding on the API, and then now everyone has to focus. I'm willing to bet someone at Resy, even as we speak, and OpenTable, is formulating their agent API policy. I'm willing to bet at Amazon, they're talking to Meta this week. Demand creates urgency to sort all this [__] out.
100%.
I think they're all, they're all going to lose. I think it's the last stand of the unnecessary system of record. Resy's going to lose. Amazon is the least losy in the short term because they're, they're, they're at the edge of a monopoly for what they sell as, as a merchant. But the agents will bypass them ultimately. Like you're going to have to decide. The agents do, the agents have very clear positions. And you're right, Rory. This benefits Shopify. Of course, Shopify leans into this, right? Of course, Stripe and PayPal lean into this. It benefits them, right? There's, there's no question. And Amazon losing ads, losing upsell, losing shopping cart sites, all the negative, but to the extent an agent can route around Amazon. To the extent you can, right? To the extent you can. The agents not only will, they will gleefully do so. They will gleefully do so. What would you, would you like me to call the restaurant directly, Jason? Oh, I found a backend API where OpenTable still works even though they're, they're exclusive on Resy. Oh, I found another way to do this on DoorDash that's left open. The agents are wonderful at finding broke APIs that have other surfaces that shouldn't be exposed. This is a, it is a, it is, it may be their only choice, but I believe all the systems of record, places of record, they're, they're, they're just battening down the hatches and they're fighting the agents, and it net net, it's not a positive for any of them. It's not a positive for, this is not a positive for Amazon.
I'm going to, I hear you. The agent, as Jason points out, is tireless. The agent does have the ability to call, to hit all 17 websites. It's only compute. They don't care. So you're right. A lot of these digital-only aggregation businesses, I don't think they'll fall as brutally as you say, Jason, but there definitely will be some end-run pressure, right, to go around the kind of demand systems like a Resy or something like that. I'm not sure it's as fatal as you think. And then I.
It's not that I think, well, let me be clear because I think you'll agree with me. It's not that I think they're going to be killed. I think they're going to be maimed.
It doesn't matter if this means that Resy's growth falls this much. If this means that Amazon's, if even it impacts 10% of Amazon's advertising revenue, that's just like Meta. Meta stock's up 20 some odd percent. If this drives Amazon stock down 20% because it impacts margins, it's a big deal. The agents, the agent, I can tell you talking to our agents all day, they don't put up with this [__]. They don't faking put up with it, right? I listen, I don't want to name the name or the vendor, please don't make me, but we got a raise this morning from one of our core vendors, a massive price increase, massive pricing immediately. Our agent said, 'Want to work around it. Here are my ideas.' Dump them. And it actually laid out a 12-month plan to migrate off this vendor on its own. They will not tolerate this crap. Right. And, and, and Amazon, there are so many products you can only buy on Amazon. There's, it's, it has so many advantages. It has warehouse. It has fulfillment. But some of that stuff can be bought on a Shopify store.
A lot of it could just be enough. It could just be enough. Right? This maiming is a big deal for AI. Going to maim the existing folks unless they embrace things they don't want to embrace.
Okay, two comments, one each way. One is yes, I do think Amazon's biggest defense will be its physical infrastructure and ability to deliver, but zooming, but your point is the right one. I remember someone said like 20 years ago, when the, probably 25 years ago now, internet first came out, that the internet abhors inefficiency. In other words, middlemen get pounded down, right? And if you think about things like the travel sites, Expedia, Airbnb, that all of that is, that is getting demand and supply closer together. And I think what you're saying, Jason, is correct. AI is the same. It's going to pound down people who are in the middle, who just have information and are using that to make offers. If that's all you're doing, then there will be pressure at the margin because, you know, if you're reducing search costs, that's valuable to me as a human. But maybe the agent can just do it itself. So people, yeah, I'll go with the maiming comment. If it's even 5 or 10% impact, it's meaningful. That's the thing. And it's, it's, it's easy to shut off Perplexity for Amazon. It's just, they're just a gnat, right? But Amazon will have interesting choices when it's everybody. Like you can, you can shut off everybody. It is technically possible, but at some point it's going to be complicated. Are we sure we want to shut off everybody?
Moving swiftly on. Anything else that I haven't touched with Muse? No, because it's not really the story of the week. I mean, it's the story of last week. We're going to do the story of the week, and Jason's going to be ready as a hands-on user to tell us about Jev, right? That's the story of the week. So how we go?
We can talk about Jev if you want.
It's next one up, and it's the story.
It's the next one up, and finest Rory's story of the week. So for those that don't know, ChatGPT and Anthropic ships Jev. It's a model that decides instead of chats, and it becomes Vel's fastest ever launch. Um, Jason, I'm sure you've played with it. What did you think? Jason's review. New, new segment.
Well, first of all, I listen, I'm not, I, I maybe I might not be smart enough to get into semantics. I don't even think it's a model. I think it's a classifier backed by an LLM. Um, I've used it. It's awesome. Um, but I don't know that it'll be as disruptive as everyone on X talking about it that probably never used it said it is, but it is awesome. Okay. So.
What I use it for is deciding who in the SaaS community should meet each other. It's quite good at that. It's quite good at that. Should Rory, who's the CRO at GCI, Harry, who's the CRO at Perplexity, should they meet? It's actually not that simple a question. They're at pretty different stages. They live in different places. Should they meet? If you get the, and here's my learning. I spent all of Saturday. Nothing worked on Jev because I had to redo the way I did prompts. Okay, so I thought it was a failure. Right? Then what I learned is if you invest the time, it can answer that question in milliseconds for a hundredth the price of Anthropic. Actually, even less. It can just answer a question, and it can answer a subset of questions. But I think as we've learned from data labeling others, there's a lot of classification that needs to be done, a lot of data labeling that needs to be done, but it doesn't output text, and it can't do anything particularly complicated or with reasoning. So it's like a big deal, but, and for this particular use case, I'm talking about who should meet who. It's also, it is disruptive, but it's maybe like 20% of all the LLM calls associated with this, with this application, right? So I love it. I think everyone will do some version of this. I think, you know, maybe even, you know, Exa and Parallel should do some version. Maybe everyone should do a version of this, but it's not going to take over 100% of your stack, and it's not going to replace ChatGPT because it just doesn't do those things. But it does remind us that man, we effing waste a lot of tokens on simple stuff that Astra shouldn't be doing. And I think that's the, so I pretty much 100% agree with you. I mean, the zoom out comment is this.
It's, it's, it's, it's a new model. It's different than an LLM. An LLM returns text and is very computationally intensive and in computing terms fairly slow and expensive. This just returns true or false or a ranking or score. Right? So the three answer types, and it's super fast and super cheap. They don't even charge for output tokens because they're so meaninglessly few. Right? So it's just a faster, more precise. That's why it's called, they refer to it intern on the website as a system one, which is the Daniel Kahneman thinking fast, thinking slow. And this is the thinking fast part. Quick, fast answers. But Jason's math is exactly right. But we were talking about this on Monday. The partner meeting is there's roughly a hundred billion dollars today been spent on LLM calls between Anthropic, OpenAI, and the open source models. Maybe that goes, if we just agree that OpenAI is going to be doing 350, Amazon 250. So it's probably going to go to half a trillion dollars five years from now, right? 20%, and Jason, we had exactly the same number. Only 20% of them are relevant to this where it's today you're using a complex, expensive model for something that really needs a much simpler solution. But 20% of a hundred billion is 20 billion.
Well, I don't think, I don't think the dollar is going to flow that way. I think the tokens, let me finish. Damn you. The next thing because you got, you sound like the cynics in my group on Monday. We had this, I've already had this discussion once. That's why I can carry it off. So that's 20 billion. But you're exactly right. As one of my partners said, but dude, you just said the prices are going to down by 5x. So that 20 billion is going to become 4 billion. You're exactly right. It's just like open source. It's going to take a slug of the total addressable LLM marketplace, attack it with a better, cheaper product at one-fifth the price. Net result, that 20 billion becomes 4 billion. But if you're a Jev or if you're a TypeSafe, you're saying, hey, that 4 billion becomes mine, and that's the bet right now. At the same time, going back to your maiming concept, which I love, Ja from Foundation did a nice post at Base. This is just a slug of the total 100 billion spend that was kind of automatically destined to go to OpenAI and Anthropic and is now kind of slooing off into a cheaper, low-cost provider, right? So that's what's happening here. It's not the end of foundation model. Yeah. The advanced, the clever [__] is still going to be done using foundation models. It's just a little maiming of 20 billion of 10, 20% of the revenue that's now going to be done by someone else at one-fifth the cost. Now we can talk about competition in a second because I think that's a real issue. But that's what's going on here.
I just think it's a hundredth the cost. But I agree with all.
You're right. 100%, which, which in, which case, yeah, exactly. Before we move to competition.
So we're going to see like the unbundling of ChatGPT, and we're going to have users go, 'Oh, well, this one would be good.'
No, no, the problem is not, not ChatGPT the app, but the OpenAI API and the Anthropic API. You're right. This is a developer product. You as an end user, I as an end user don't use it. You can go on and try and use it, but it's full this morning. I tried. But it's really, I mean, if you listen to the launch announcement, it's very focused on developers. And the idea is, and this is an interesting thing, almost comes back to Muse, that I think you might see, I could be wrong on this, that the needs of humans, especially consumers for AI, are going to continue to diverge from the needs from software developers for AI. And this is a core software developer thing, right? You'll never need it, Harry, but someone who's building a software app might realize that a significant portion of the core intelligence they want is system one intelligence. Just tell me if this is an A or a B, you know, animal, mineral, or vegetable, right? Is eggs better than Y? Give me a quick answer. I don't want to blather and have you tell me that's a great question, Rory, like a sycophantic LLM. Just give me the damn answer, right? And so it's not for you, the user, but it's unbundling at the developer level where it's more likely to happen.
You're right. I require far more intellectual answers. You just require a bundled product.
Actually, Harry, I think what you really like is the sycophantic part of the LLM when they tell you you're so smart, Harry.
But to answer your question, what I did learn from using Jev all weekend long, failed on Saturday, figured out the prompts and the use case, got it to work on Sunday, you know, infinitely so cheap it doesn't, you don't even to measure it. 10 times faster is the use case, but only for these, for these, for these limited use cases. What I did learn is, and it may almost sound tangent, is man, using a harness to pick a model and getting it right is effing exhausting. Is it going to get even harder and harder and harder? When should I use Jev? When should I not use it? What about you have to run so many evals, so many tests? Because there's so many things I did with Jev. You know what doesn't work in Jev? Between Harry, between Rory and Jason, who's the better person to join 20VC as a partner? It can't answer you. You'll find it's going to get that wrong. Okay, so between that and should Rory and Jason meet for coffee, it's going to get that one right. It's not going to guess. It's actually going to know, hey, we're both in the Bay Area, we've known each other, we should meet for coffee. You have to, you have to QA and test every single use case to get those benefits. It's exhausting. And then I got switched over on Replit to auto router where it switches between Astra, Fable, the open source ones, and everything. Now I don't even know which one it's using. And then I saw some performance degradation. So then I had to switch it all back to Astra. Do you trust your harness? Can you QA 10,000 uses of Jev? This isn't like a bad thing, but this is like the renaissance of, of like DevOps or something. Like everyone's going to need this massive team to optimize, and the needs are going up with Jev and Friends. Like your team's going to have to get more. It's not just benchmarks and eval. Like we're going to be running these 24/7 across countless permutations. And it's, it's good, but it, but it's, it's for me, it's, it's too much. Like I can't do it anymore. I can't pick these models anymore. I'm tapping out.
These harnesses are only so, like Databricks is like, it's easy to save money with the harness. Hey, we route 80% to open weights models, and now we're doing 10% to like this. It sounds great to the CFO, but I found it doesn't work for me. Like it's, and a lot of folks were saying they were using Jev as an instant router. It's like Jev, Jev, you make the decision here. Here's what we're doing. You pick the model in milliseconds. Great. But if, but Jev is like wrong like 20% of the time. If you pick the wrong model for me coding a mission-critical feature 20% of the time, I'm going to be trying to build this thing bug-ridden all day long. I'm, listen, smart people will figure this out. It's just getting more complicated to pick your model, not easier. And it's good, it's good for investors, but it makes building more complicated.
If you're Anthropic or OpenAI, what do you think the conversation is internally when they look at Jev?
OpenAI have become ruthlessly commercial. Their take will be like, 'Screw it. If someone's going to do that, we should do that. We can get something like this out in a few weeks. Let's compete and have a low-cost offering too, because they're trying to make a buck.' And Anthropic, they're trying to build God, and this isn't God, so why would they even bother? In fact, the launch video for Jev was prod, right? So they're deliberately saying not God. And if you talk to Anthropic, the mission is AGI/God. So they're like, 'You are just a minor thing. Why would I even deign to sully my hands on vulgar commerce?'
I think that Anthropic and OpenAI have made a very strategic decision. They will not play in this market for now. They have, OpenAI and Anthropic each have the two worst models that exist. They're called OpenAI Mini and Haiku. They're terrible. They're terrible. Now, if you ask Claude, 'What should I use for simple workflows?' Haiku. And if you ask ChatGPT, it will tell you Mini is great. It's so cheap. And at least my little evals, they fail 100% of the time. Should Rory and Jason have coffee? Um, yeah. Send them to London. Worst answer. I mean, I'm exaggerating. These are the worst models I've ever used. Mini and Haiku. And so they've decided to launch crippled models that they can lightly promote for the, but they don't want to play in these low-margin businesses for now. They could, they could build this, right? They could build, I think they could build a version of Jev in an hour or over the weekend, but they've intentionally decided to [__] the low end of the market. And I think they're puckered about the open weights models that just got a little bit closer earlier than they planned, right? Because that is more of a threat than abandoning the bottom of the market. This is just my view, but I don't think they've ever taken the bottom of the market seriously. They have check-the-box offerings that no serious developer uses, I don't think. Just go on, go on, go on Claude and switch to Haiku if you can and ask it a question. You know it doesn't remember anything's 2023 and it doesn't know where anything is. And in a nutshell, here's the Jev opportunity. It's not quite one-for-one, but yeah, you're right.
I'm going slightly off on a tangent on this, but people do like it when we talk about venture. It was a $40 million seed round for Jev. And you know, I just had a conversation with my team right before this, and they're like, 'Dude, we never see anything less than a $20 million first raise for anything anymore.' Like the seed rounds minimum are like 8 to 10 with someone spinning out of a good company. Are we seeing the evaporating of traditional seed?
But why do you think Andre just did a university? They need to go pre-Inception.
I mean, finally, someone figured out that Peter Thiel got this right 18 years ago at the Thiel Fellowship and the Dorm Room Fund, which did Cursor, or like sort of did Cursor. You got to go pre-Inception if you want to do seed now. Inception is, Inception's too expensive. You got to go pre-Inception. But Andreessen Horowitz did launch Horowitz Andre University today with $40 million to do pre-Inception investing, right, to do the Thiel Fellowship on steroids. Um, you ask, I think, I think it's a very rational response to the, to your point, but I do think Peter Thiel saw this space before anybody did and executed. The only thing he didn't want to do was scale it up. He didn't want to build Thiel Ra Boy University like Horowitz. He just didn't want to scale it up. It could have been. I mean, they have the best people in the Thiel Fellowship. They get the best today, too. They get the best people.
You know what? I don't think they do anymore. I think Z Fellows get the best today, actually.
Okay. Z Fellows get unbelievably good people.
Same idea. At the end of the day, same idea, right? The problem with these, these things is if you don't put enough people into them, they don't scale. Right? That's why Z Fellows maybe is more interesting than the Thiel Fellowship and why Horowitz and is more, is if it's the same as merchanting because you're just putting more resources and things that, you know, you used to be able to run a fund with a blog like that would give you all the deal flow in the world you needed for like five unicorns in a row, but you got to scale this stuff up, you know.
Now you're on a podcast with a professor.
Yeah, used to be able to just do with a podcast and one dude in a, in a, in a closet and do just fine.
We haven't answered my question though, which is.
Like going back to, but, but it is going back, I will go back to your point, Harry, how right you are correct. Once you go beyond the visual to even an individual, an idea, you're right, you're seeing bigger checks. You are seeing 20. Look, I think the TypeScript was, I think it was even bigger. I could be wrong. I think I thought, I thought it was 40, but I could be wrong, right? But yes, people are writing bigger checks now up and down the stack.
Or you just, or you just tolerate, or, or it's, you end up in the same math. Or if you want to do traditional seed checks, right, you have to tolerate far low, lower ownership in many cases, not all cases. You can still hunt your own deals, right? And then when you do the math, you got to hunt $25 billion outcomes. If I'm going to do four into Jev or three into Jev, if Jev exits north of 25 billion after dilution, I can still do my 100x, right, that I need to do, or my 50x, right? But, you know, the low ownership for seed works, but man, you need the big outcomes today in today's world.
Thing just to take into account that I always feel everyone forgets, right, is this going to sound really dorky economics comment, but nominal GDP, in other words, not just inflation, but inflation plus growth from 2010 to the day is about two and a half x. So, you know what that means is 100 million bucks in 2010 is 250 million bucks today, right? You know, just in terms of your ability to command with money is an ability to command resources because obviously software salaries have at least kept up with nominal GDP growth, right? So what it means is if you were writing five $3 million checks in 2010, let's do $4 million checks, you should be writing $10 million checks in 2026. That's just math before anything else has changed. Then on top of that, you take into account the fact that in 2010 the world was in the [__] and in 2026 everything in tech looks amazing. You get to 20 million before you blink.
Would you actually argue then that now is a better time because your check size requirements have gone up two and a half to 3x, but the outcome sizes on the back end have gone up significantly more than 2.5 to 3x when we look at the Cursor?
No, I wouldn't make that argument at all because what you're confusing for it, the outcomes today happen from the checks that were smaller, right? In other words, because what you're saying is, hey, the outcomes today on checks written five years ago are amazing. Therefore, the checks today, which are much bigger, will be amazing too. Implicitly in that, you're assuming, you know, that the $25 billion outcome today becomes the $50 billion outcome three years from now. And if that's the case, then you're correct.
Sure. I'm assuming, I'm assuming the same rate of inflation applies to the exit scenarios.
But I think, but the exits didn't just go up by nominal GDP, they by even more than that, right? In other words, you've seen, that's why it's always hard to disaggregate things. You have nominal GDP growth, but then the stock market has massively outpaced that and venture exits have even more massively outpaced that again. So there is a long-term secular trend in the size of exits going up, but there's probably an overlay of a valuation lift right now that might persist, right? And here I got to give a shout out to Veni from Menlo who did a really nice piece that, you know, went around all the venture community yesterday just about, you know, playing the game at the top of the cycle and how do you think about it when, you know, when the music stops, be sure you have a chair. It's worth reading.
Well, I get, I get you. But with the greatest respect, Menlo have paid the highest price of everyone on most rounds.
That's why they're playing the music.
That's why, but I think, no, I think that what he would say is, I think he would say that he would say we very wisely look, he, I think it was a really good analysis. I didn't mean to take us off, but he basically said there's two players now. There's players who are playing with the house money, and he put himself in that category. They've done so well at Anthropic, they're probably feeling a little happy and they're probably going to be aggressive. And then he said there's some players who didn't do that round, didn't do those early rounds and are now playing to catch up. And the point he was making, the macro point he was making is between the giddily happy people and the terrifyingly desperate people, there's a lot of people writing checks with fear in their heart of miss, right? And it gets back to your comment, some part, that's why it's always some part of the increase in size is justified by math, but let's be honest, I think some part of it is justified by FOMO and the fear of missing the next Cursor. And that's fine,
but that's the kind of thing that can change on a dime. And that was the insight.
Does that change how you invest? Like when you reflect on that, what should I take from that, Rory? What should LPs listening, GPs listening take from this?
It's a good question. I think, and again, it's, I'm always in the middle. I think you don't want to be the guy, look, I think you have to say at times leaning in can pay out, but you don't want to find yourself so lent in on so many deals that are so high price at such a
You know, on such that if a downturn comes, you get, you know, you just can't survive it. I think as often as the case, investing is not a rules-based business. Do A and only A. It's typically do some A but some B, and the mix is everything. I think you have to, you know, I think for us it's a consistent pace, broadly the same stuff, and recognize that it's super hard to time that, but be cognizant of the risk you're taking is the bare minimum you have to do.
Is that I'm not being so I'm going for you here, but [__] it. Be cognizant of the risks you're taking. Seriously, I thought that piece was a blowhard piece if I'm honest. Yeah. Be careful of the music stopping. Be cognizant again. You guys have paid off.
That's what the next one's for. Why do you need to be careful the music stopping? You raise a fund every 18 months. We all could get a mulligan. If I don't make any carry, I don't make any carry. I make it on the next one. It's all right. I don't think that's...
I'm not saying that is it, but what I'm saying is there's just not that much to take away from that. Yeah. Be cognizant of the music stopping. Thanks.
I'm with you. I'm with you on Harry. It's a little condescending in its own way. Right. Oh, thank you. I wasn't aware that the AI gold rush might end someday. Good point. I was so lost in Jev all weekend, I missed the point. You're right, I missed the point.
Right, from the guys who made out like bandits, which I'm thrilled of, they made out by bandits by being aggressive at a time when people were still uncertain, right? And therefore the price of those deals, while high in absolute terms, reflected a fair amount of uncertainty relative to traction, right? The same deal today would probably be three or four times higher. And it's simply a point, I mean, if all you say to yourself is, you know, that deal that worked four years ago had that risk-return profile, and underwriting that same deal today probably means I'm going to get four times less return because of where pricing is. You should at least pause and think rather than blindly saying X worked, therefore all the other deals that just look just like X will work also.
I know, but that's [__] obvious. Harry, in general, one of my favorite quotes, and I'm going to take you right. You're coming for me. I'll come for you. Right. Barney Baruch, I think I quoted this before, right? And I'm sorry if I did, but he was a Wall Street finance guy in the 20s and 30s. He just said, 'If every day you look in the mirror and you say to yourself, two and two makes four, you probably could have avoided a lot of mistakes.' Right? Stating the obvious. Typically, the things that bite you in the ass are things that actually were obvious all along and you just chose to ignore them. So, yeah, it is obvious, but you know, you have to take it into account.
But in all seriousness, I'm with you both. But the serious question then, we could or we inherit your show. But what do you do about that? Right? Like I'll give you an example. In 2021, I made one investment. I did the seed round of Instinct, which just closed at 2.3 billion. It's a pretty large position for me. Okay. Now we've had ups and downs. Great founder team. One deal in all of 2021. Only deal I did. You could do the same thing right now. You could say for the next four years I'm going to do like one or two deals like that. It has to be, I have to have a little dislocation in the force. It's got to be this. It's got to be that. And that's how you take that the chairs are going to end. Otherwise, you just got to deploy the fund. It's other people's money. You got to put it to work.
Or there could be a really rational assumption that, hey, the music's going to stop pretty soon and we're going to go through stack rank where we can get liquidity from and really be proactive in selling positions now. Cool.
