I'm going to call [ __ ] start to finish on this whole discussion.
So, what do we have on the agenda this week? OpenAI reboots management team. OpenAI buys TBPN.
I thought the acquisition was just insane. Owning a media asset invariably takes way more time than you think for way less money than you expect. See Jeff Bezos for details.
There's no way that deal is going to happen today. Like, it's dead because of management change.
Anthropic hits a whopping $30 billion in revenue, surpassing OpenAI.
Their training costs are a quarter of OpenAI. It really feels like the investors in OpenAI got a much worse deal in the last round than the Anthropic ones did.
And then SpaceX finally confidentially files for IPO targeting a $2 trillion valuation.
The big three, SpaceX plus OpenAI plus Anthropic, their value at IPO will exceed every other IPO for the last 20 years combined.
Ready to go, boys. Welcome back. I've been looking forward to this one. I was doing this schedule over the weekend and last night and I was like, 'Wow, this week we really have a lot of meat to get into.' So, I want to start with OpenAI and Anthropic. So, Anthropic now have 30 billion in revenue, obviously surpassing OpenAI. It's all intertwined with the subsequent things that we will discuss with OpenAI, but as Jason put in an email to us all, holy cow, Jason, holy cow indeed. What did you think?
Even in an era where we're getting anesthetized to crazy numbers, this one I did fall out of my chair, right? Getting to 30 billion up from 9 billion at the start of the year. I mean, I think it took — Salesforce is the largest software company, right? At least Cloud One, and it took them 25 years to get there. Anthropic got there in five, but maybe they really got there in three, depending on how you count. But you just, you know, it was incredible to see where they were in February. We couldn't believe it. And then essentially adding 10 million of net ARR. Let's not debate whether it's how many Rs there are and whether it's recurring at this level of growth. It really doesn't matter.
It doesn't matter. So, and that there's still capacity constrained and that Claude still shows us when we're in there that it can't finish chats and that, you know, every engineer in tech has been told to consume more tokens and move faster, right? The crazy thing is what will it be at this rate at the end of next year, right? It's crazy, right? If it grew 3.3x in four months, we need Rory's math help to figure out what Anthropic's run rate will be at the end of '27.
The estimates that we were just looking at two months ago just look incredibly wrong at this stage.
So, yeah. No, these are all amazing numbers, right?
And I think a bunch of other interesting things start to happen here. One is their announcement on OpenClaw and not allowing that to be in the base plan. I think it kind of gets back to they're in a massively interesting situation now. The revenue is exploding. Despite the revenue explosion, they're still compute constrained. In other words, they could sell more if they had more, right? And what do you do when you can sell more if you had more, but you can't make more, right? You can't magically make data centers, though obviously they have that big announcement to do that. What you start doing is allocating capacity based on money, right? And one of the first things they figured out is these folks using these OpenClaw type agents are consuming vast amounts of tokens on fixed price plans and they probably want to stop that, which is what they've done. So you're going to see them do exactly what anyone in economics would say do, which is try and find a way to maximize and extract even more revenue. And, you know, we saw it even with OpenAI last week where you deemphasize things like video which consumes huge amounts of compute for small amounts of revenue. In Anthropic's case, obviously they have much less of that pure slop, but you deemphasize things like OpenClaw access where it consumes a lot of your compute and doesn't make you a ton of money. And I think you're just going to see a continued trend to pricing tokens closer to the value, right? Not a huge trend because you want to get people — I mean, you don't want to overcompensate because you want to get people addicted on the product because the truth is the thing you have in your favor with any digital good is the complete certainty that prices per token go down over time, but you do at least want to start allocating it a little more sensibly while you're constrained. So that's kind of, I think, the trend here.
We could talk a little bit about the OpenClaw stuff. But before we get there, on the growth in Anthropic, the other interesting thing was the Wall Street Journal today had a bunch of leaks on the financials for Anthropic and OpenAI. And the one that jumped out at me when I contrast it with the fact that Anthropic has caught OpenAI, right, in half the time, is that their training costs are a quarter of OpenAI. Their training costs for models are a quarter of OpenAI. Now maybe that's because they're focused. They don't have to do video. They don't have to do images. They don't have to do a lot of consumer stuff. But if you just think about it for a moment, the compounding effects of catching OpenAI in half the time, right, at roughly the same revenue or more, 30 billion in five years, and having training costs that for now are a quarter of it, you know, that's a double code red. It's one thing if you have two classic startups where one has bled money and it's artificial or there's other things, but if you have a dramatic cost benefit and you're out accelerating your competitors, and there's management team turmoil at your competitor, it really feels like the investors in OpenAI got a much worse deal in the last round than the Anthropic ones did. Just crazy having both. You usually don't have both together with your competitor. You're out accelerating your competitor and your training costs are a fraction of your competitor. Good god, that just compounds.
That's actually a good point because you take the Uber-Lyft struggle, right? Uber had the 'oh my god, we're out accelerating. Oh, but by god, we're spending every dollar we have to do it and we show no fear,' right? In this case, you're out accelerating the opposition while being more efficient on a bunch of interesting measures. No, you're right, Jason. That's a scary fact pattern. If you're running the game theory and you're the other guy, it's like, hm, that's not good, right? They're growing faster than us. The gross margin economics are roughly the same, slightly better, and their cost below the line — and to a rounding error, costs are compute and scientists to run the compute for training — are better. And that's a bad fact pattern.
Have we ever seen a bigger seeming chasm between where they're at? I mean, with the greatest of respects, it seems like Anthropic is accelerating faster than ever, and OpenAI is having more challenges than ever all at once. I'll tell you the one I think about — the word I didn't realize when we did this show the last time, because the press is always focused on the headline stuff, right? The OpenAI money was barely real.
Yeah, you said barely real. And Andreessen's money appears to be real. It came in out front, right? The 134 billion, whatever they put in, that's real. 11 billion. You know, all they have to do is get 20% carry and double that and it's a nice side bet in an SPV, but that was real. The SoftBank money comes in tranches. They have to borrow money to pay it. The Amazon money is trunched in part on IPO or AGI, right? And the Nvidia money is almost all not money. It's almost all offsets in compute. So, you know, I thought about it, but then in context of Anthropic's growth, like, you know, that's — I think OpenAI would rather have all the cash. Like, it's not a sign of strength where the majority of the round is not cash up front. Like, that's not — I don't think that's a sign of strength. That's a sign of like classically at least barely getting the round done. Barely getting the round done. Versus getting — because why wouldn't you want all cash up front? Why wouldn't you want 140 billion up front?
A bit harsh on the barely because I thought they tacked on another — I can't believe I said the sentence — they tacked on another 10 billion. Think about that sentence sometime. That I think was cold hard cash. So I think — I agree your comment is correct, Jason. The vast bulk of the dollars weren't cash, but enough money changed hands that it represented a bona fide price at the time. But yeah, you are right.
And again, I mean, look, Anthropic does some of the same stuff in the sense of given that your biggest expenses are, you know, compute and then distribution, you know, from Microsoft on with OpenAI to all the recent Anthropic deals, there's a lot of this round-tripping business. But in both cases — I'd say make two comments perhaps — in both cases there was enough hard dollars changed hands to represent — both of them represent price estimates. But to your point, based on what you know now, given the revenue equivalents, rough revenue equivalents, shouldn't assume until OpenAI releases their numbers, maybe they've exploded, too. But definitely Anthropic at 370 billion feels a little more comfortable, let's just say, than OpenAI at 820 or 840 or whatever the final closing was, right?
Well, OpenAI did say 2 billion last month. I think that's why Anthropic rushed out the 30, right? That they're at a $2 billion run rate. And look, we have the whole gross-net thing, but the bottom line is this. When you look at those two graphs, you definitely don't say to yourself — I mean, I think what you — if this was a public stock, let me put it this way. If both of these companies were public, there would be a bunch of those New York hedge funds shorting OpenAI, longing Anthropic and saying they have the perfect AI bet, right? Would you short OpenAI at 870 and go long on Anthropic at 372? I'm not a risky guy, but even I would contemplate doing that. It feels like a no-brainer bet. You have roughly the same revenue, a better trajectory, and a management team for half the price. And if you short the one and long the other, you're kind of diversifying away the AI overall risk, and you're just making a relative performance bet. That's probably — yeah, that would be an interesting one.
What would you say to an OpenAI employee who is now looking at their incredible stock price appreciation with tens of millions of dollars in equity that they now have at the 820 price? Sell it all at 820 the minute a tender comes. What would you say to them?
I think I wouldn't pile on. In general, look, I have some things in OpenAI I want to pile on this time. And if you recollect in the last couple of weeks, I've tried to avoid the pile on when someone's down. And I think you'd always want to be more tempered. But I always say to everyone in any private company, I say when the liquidity window opens, take it seriously because it might not open again for a while, right? So yeah, when the liquidity window opens at $.8 trillion, the alert reader should say, you know, if you're planning to buy that house in San Francisco, you might need an extra few million just based on what I'm seeing in the market now in terms of house prices. So take advantage of this thing because all your brethren have, right? You know, I wouldn't — yeah, as I said, I think the people — I don't want to pile on the individual employee. I mean, the company's still doing a lot of great stuff. You got a lot of turmoil, we got a lot of drama at the top, we'll talk about that. But, you know, I think you take advantage of liquidity just because you should always take some advantage of liquidity.
Let's knock it on the head. Let's talk about the drama at the top. I mean, talk about a management team turnover. You have Brad, the COO, who's been moved to special projects.
My dream assignment, being moved to special projects.
I'm going to be the SVP of special projects for 20VC in my next phase of life.
Jason, I would love you to be the SVP of special projects.
Yes, special projects. We have the CMO stepping down due to health reasons. We have the CRO out. We have Viji, who's head of apps, taking a short leave of absence with health problems. How do we read this very significant multitude of changes at the management layer?
If we step back a minute, it ties to Anthropic passing them. You don't just sit there and make no changes on the team when your competitor over the last six months has radically changed the competitive posture. So, look, I don't think any of us like that amount of change in any management team, right? It feels almost a wholesale change at some level. And it's risky, but you got to — you know, the calling code red four, three months ago didn't magically change the trajectory here. So it ties — you got to try to mix things up in some fashion. Hopefully you can do it with the team you have. But in the context of Anthropic now out accelerating OpenAI, it just makes sense to reboot the team. It just makes sense.
Yeah. There's some rebooting — I mean, to use your phrase, the reboot. I mean, who's been hired? What's the additive reboot?
Well, the dramatic one, which is always risky for like any startup, is you take Denise Dresser, who was CEO of Slack, who came from Salesforce just a couple months ago, and you put her in charge of basically everything go-to-market and related, right? That's a good bet on a seasoned executive, but that's the type of change that we've all seen as investors is like super risky, right? You bring in the person with the perfect LinkedIn, right? And the perfect background that's still getting to know the product. They're still on a get-to-know-you tour. They haven't quite been to the New York office yet. They're getting to know the product and all of a sudden you give them this massive portfolio because they're a proven executive. In my experience — I don't know what you guys think — in my experience, that has about a 30% chance of success, just roughly, that bringing in the big, the perfect LinkedIn, giving them a massive portfolio and attaching them to something in tumult. If it's executing to perfection, it always seems to work, bringing in Mr. LinkedIn. But when you're in tumult, there's not a lot of time to learn everything, right? There's not a lot of time for the get-to-know-you tour. So it's just risky, but it's a play.
I get where you're going there, Rory, which is like for the replacements to be additive, there needs to be great talent added and there seems to be a lack of people coming on the field when they're coming off. Agreed. And, you know, I'm all — as I say, I have a couple of comments. One is I'm always slow to comment on the illness-related, because you just don't know what's going on in people's lives and that's tough and people have challenges and, you know, you wish people all the best, especially in these kind of chronic diseases, and hope they can get back to full health, right? Let's just start with that because that sucks, right? You know, at the same time, you know, you have a lot going on here, right? You have a lot going on. And, you know, to me, even all these people change, you know, I'm tempted to make that, you know, the famous Oscar Wilde quote in The Importance of Being Earnest — to lose one parent might be an accident, when he was talking to this woman, was talking to the orphan, but to lose both parents smacks of carelessness, right? Well, you know, you are getting to the stage of carelessness here, right? But I actually don't think that's the real issue. It's fun to say. I think two — I'll tell you, we haven't mentioned the two most surprising things in the last week on OpenAI. One is, I'm just going to say it, I thought the acquisition of TBPN was just insane. Not on its — in the particular it doesn't matter, but you don't launch a code red edict and a focus edict and, you know, no more side projects edict and then within the space of a week do something that's so obviously a side project to me. No matter what you get — I mean, we can discuss whether it's stupid on its face and whether, you know, buying media assets is the way to go. And I acknowledge the unarticulated thesis that, you know, you have to control the media story, though it doesn't seem Anthropic has any need to do that. But stepping back one level, you're running a $25 billion company, the most exciting company on the planet. And you just told your entire internal team that you need to focus and then buying — there's nothing that's more of a vanity project than buying a media company, right? I mean, look, you know...
Just one thing, we could talk about it more or less. The one thing just to add, when you look at the press, this is interesting. That deal, the outreach was in January. That's a lot of time in OpenAI and AI time, right? Viji was new, thought this would be a great thing to elevate OpenAI in January. Now it's April and maybe the deal seems a lot different, but in January it was a different world, right?
At some point, I mean, I remember, yes...
I don't think it — it didn't happen last week is my only point. It happened in January, it took some time to close, right? And I will say one thing, I'm 90% sure it wouldn't happen today. To your point, priorities change, right? It probably wouldn't happen today.
You know, if you only noticed in the last week that you need to focus, then yes, I'll give you that, right? But you didn't just notice in the last week you need to focus, right? And if you did, maybe you need to focus and see fire, comment, right? If you haven't realized you're in code red for the last two or three months, and if you have realized this is the kind of thing you don't do when you're in code red, then you're just not paying attention. So I challenge that. I think it's a vanity project and absurd. And then the other kind of weird...
Can we actually — can we just pause on that?
And I know you want to because you want — like, where's your 200 million, Harry? But yeah, let's pause on your lack of 200.
No, I know. I just want to actually articulate a bull and a bear case rationally for an audience for how this acquisition could be seen from both sides because it is very confusing. So if we were to start with a bull case, Rory, and Jason, please chime in too, because you're the master also of kind of media and venture as well. What is the bull case first?
I'll give you the bull case. There's two. The strategic one's more interesting, but let me hit the tactical one because Rory made a good point. Look, this is not going to make or break the company, right? There are certain acquisitions that can, right? There's certain actors — let's stipulate that. But there are some things you acquire where they run almost on autopilot. They are not massive distractions and if the price is small relative to what you hope to get out of it, that does factor into the equation. If you have to rebuild your whole team, it's a total distraction. You're going to rip out your guts. That's a big deal. Once in a while, on one, it's pretty rare, you can acquire something that isn't massively distracting to some management team level. So even if it's not the perfect acquisition, I don't think it's a huge — it's not going to require a huge amount of senior executive time. So it's just important in general to the calculation. The one point I'll make, and I wrote a post that every profitable public company should do a deal like this, of which OpenAI is neither, right? It is clearly not profitable. It is clearly not public. But other than that, let me tell you why, Rory, and you might end up agreeing with me on this. Because — and this is why the Barstool deal almost worked but failed, right? If you are a profitable B2B company, especially, you are under insane pressure to get more profitable. Like, I actually can't overstate how intense the pressure is. Like, they're looking at every headcount, every sales efficiency, everything. Now it is brutal, right? And your cash is trapped on your balance sheet and so it is very difficult to increase marketing spend. It is very difficult to spend another hundred million this year on marketing. But at least in the short term, if you can buy a marketing asset that is at scale, you can turn your balance sheet into marketing, which is hard to do. It's hard to do. And I think maybe TBPN is not the most successful way to get OpenAI's brand out there. We could debate that, but it is a way to turn a balance sheet into a marketing asset.
I'm going to call [ __ ] on start to finish on this whole discussion. OpenAI is the most known company on the planet, perhaps other than Apple, right? Within the last two years, the CEO of OpenAI has been able to meet every world leader he wants, right? He's gone on world tours. He's met Macron, he's met the president, he's met every single prime minister of India, whatever, right? They get constant attention, constant. The AI story has been, you know, the entire zeitgeist for the last three years and they're the leader of the AI story, right? So in terms of media minutes, there's nothing left to get. Right now, if what you're saying is, 'I don't like what they're saying about me. Oh, they were mean to me,' then yeah, maybe you can pay these guys to say nicer things about you than on average. But you don't need more. It's not like you're making [ __ ] widgets in the Heartland here, right? You are the most exciting tech story on the planet. You don't need a little bit of help to just get out and get covered. I mean, literally everything Sam does gets covered, right? So I hear you, Jason, most of the time, but not for these guys. If you were to pick the one company who doesn't need media attention and does need to focus, it would be OpenAI and this is non-focused and getting media attention. So I'm like, just from a signaling perspective, we're 100% aligned. The only thing I would come back to you with saying is they have consistently shown an inability with how to respond on social to negative moments. Whether it's lemonade stand, whether it's Anthropic adverts, they've consistently messed up crisis PR and crisis communications and made themselves not look great. The only way I could justify this is by saying they are vibe maintenance for those [ __ ] times to make us better, cooler, better responders to bad things because they have no editorial control. Like, this is the most important thing. Andreessen is right, the importance of owning media, but they have no ability to own the content, to influence it, to impact it in any way. It is editorially completely impartial. So they have zero benefits. This is the only reason this does not make any sense. If they had the ability to own the media properly, it would make sense, but they have zero impact on it.
History is riddled with people who, you know, buy media assets to try and change outcomes. And, you know, it generally results — generally my observation is owning a media asset invariably takes way more time than you think for way less money than you expect, right? See Jeff Bezos for details, right? And, you know, you end up getting abuse. Yeah, it just is a sinkhole, right? And Harry, if you can't control the story, then hire a better storyteller, you know, hire a better comms person, hire a better marketing person, think before you speak and before you hit on your [ __ ] about lemonade stands. But, and look, in terms — it's in the noise. And Jason, you are right, they're not going to spend a lot of time managing in this case, at least in the short term. My comment is more, it's just really silly when you say, 'We've really got to focus, nothing else matters but these two or three big things. Oh, but by the way, here's one last plaything project.' The one thing I will at a meta level, just to founders especially who have listened to this, honestly, this is why you should default yes to a good deal. Let me be clear. I'm pretty sure this deal — I just read the press. Things at OpenAI, there was stress in January, but it's not like today. Okay? It was not like today. Viji comes in, she has an idea. This is not the biggest bet the company's going to make, but they have a team meeting. She's like, 'I love TBPN. What if we brought them in for a little bit of good promotion?' And everyone around the corner is like, 'Whatever. Yeah, let's go talk about buying some OpenClaws or something.' But they say fine and things are good and they kind of shake hands on a deal. It takes a little while to happen and it closes last week. There's no way that deal is going to happen today. Like, it's dead because of management change. And I can't tell you how many times I've seen this for portfolio companies and even it's happened to me twice where time — it's not just time is the enemy of deals. It's management turnover, right? Priority turnover. So the meta lesson is I just don't think this deal would have happened today. It has nothing to do with the team at TBPN. Just so when you say no to an attractive deal, just be sure you're okay if it's no forever, because the odds that VP that wants to do the deal is there in 12 months and that their priorities have not changed approaches single digits.
Yeah, it's back to the liquidity window comment. You're exactly right, Jess.
Yeah, but my god, I think it's worse for M&A because so many times in M&A that guy just isn't there next year. But I'll tell you, one of the things about being the big boss is that even when you're a long way down, if you don't think it suits what you're doing now, you should stop it. I remember, fun story, 25 years ago, we were selling a company to GE. I'm not going to name the company, right? And it was a mediocre company and we were darn lucky to get the bid, right? And it was going all the way through and it went every level at GE, right? And then it came to the CEO and, you know, he's not perfect, Jack Welch, but he's willing to take a tough decision. We were a long way down. Everyone was about to sign and be all happy happy. He looked at the numbers and said, 'No.' And I remember thinking, 'Damn, I thought we'd get away with it, but he's right. I should have, you know, right?' And at some point, I remember thinking, 'Oh, that's impressive. All these people were in. He was a long way down with the process.' And he just said, 'I'm thinking no.' Right? And if you could, this is one where you say, 'I'm thinking no.'
I'm going to give you a hard one before we move to SpaceX. You have the chance to buy Anthropic at 850 or OpenAI at 380. Which would you rather buy?
You may have that opportunity in the secondary market as we speak.
I wouldn't be surprised.
I think I'd — I mean, having said I'd do Anthropic last time at, I mean, six months ago at the 300-something thing, I think I'd go the other way this time because again, if the choices were Anthropic at the last OpenAI price of 850 post or whatever it is, 820-something post, or OpenAI at the last Anthropic price of 370 post or 380 post, I would argue that you would buy OpenAI on one proviso: you could sit down with the board and say, 'What are you going to do about this?' Because it doesn't take a lot to fix this thing, right? To just stop screwing around and focus, right? And, you know...
No, no, no, no. Because you've got to stop then a machine that is Anthropic that is now picking up more and more pace with every day that goes by. And being — first of all, you still have the consumer asset where you are by far the dominant thing. Again, this goes back to what we said last week. You have to do two things. You have to figure out a consumer monetization model and you just have to get a Codex, the Codex competitor to Claude, out there. It's pretty mission clarity, it's pretty simple. You do have one big advantage we didn't talk about though, it's changing a little bit, and give Sam, he was more aggressive on compute purchases and I'll admit I was someone thinking from the peanut gallery, hm, is that a bit aggressive? But now it looks like compute constraint is a real thing in '26 and early '27. You have that asset, maybe you figure out how to deploy that aggressively with Codex. So there are buttons you can press, there are things you can do if you focus and do them.
Jason, you've got that same choice.
I'd say buy both if you can invert the valuations.
That's what all the growth VCs are doing if they can get away with it anyway. So, let's invert.
That's amazing. But you can only buy one.
Yeah, but conflicts aren't important in our firm anymore. They don't matter at pre and they don't matter at growth.
Jason, you only have one check left.
Well, look, I mean, I've said the same thing on the show. I'm just not into the tumult at OpenAI. I'm not into the drama. I'm not into a non-technical, non-technical founder leadership. It's just not my vibe. Like, I wouldn't invest in anything like OpenAI at a high price. It doesn't matter what it is because it's just — I just find it so risky that the turnover and not being led by a deeply technical CEO, that's just — in my life at investing, I ain't doing those risks anymore, right? And maybe I'll miss a lot of opportunities. It's just, you know, I want someone Dario or smarter technically running these companies or I just — it's just too much change. You get too lost on the pen. And the TBPN's — although I don't think Sam had anything to do with TBPN in all fairness. I think he said fine in a meeting and moved on.
No, because — and related to that, just for folks, I don't know how M&A works at OpenAI. It's not that sophisticated. Okay? But I will tell you when I was at Adobe a long time ago for M&A, basically every senior executive got a big chip and a small chip. Okay? The big chip was a big deal. Back then it was maybe a billion-dollar deal. Okay? That would move the needle. If it doesn't work, you get fired. It's that simple, right? And everyone got a small chip, could be like a 50 to 200 million deal. And you had to justify it and you didn't get five. As a forcing function, you got one, but you really weren't challenged that much to do the smaller chip. You picked one a year and you didn't get fired if it didn't work out. There was an idea that maybe 20% of them would work out. And so I bet he spent five — this was a small chip deal and he spent five minutes on it. 'This is the one. Is this the one that you really want to do this year, Viji? Then just do it. Let's move on. We got bigger fish to fry.' That's why I don't think it's that big of a deal. It was a small chip deal, right? And no one loses their job at Adobe over the small chip deal. Otherwise, it would never happen. No one would take any risk in buying an emerging company, right? They just wouldn't do it.
Okay, we've got to move on. Other things did happen. SpaceX finally, finally confidentially files for IPO targeting a $2 trillion valuation. It would be the largest IPO in history, surpassing Saudi Aramco. They could raise up to $75 billion. This obviously includes xAI, otherwise known as Twitter, which obviously incorporated earlier this year. 2025 revenue 15 to 16 billion, 8 billion of EBIT. At 2 trillion it's 125x revenue, so coming in punchy to say the least. Feels like a Series A these days, Rory. How do we feel when we hear this?
Well, I'll just tell you one insight. I think to say that at least venture is different or remade is an understatement. Like the big three, SpaceX plus OpenAI plus Anthropic, assuming they all IPO — I mean certainly SpaceX will in the next 12 months — their value at IPO will exceed every other IPO for the last 20...
years combined. All of them. All of the last 25 years. These the big three, every other little every other little deal. I mean, Rory's had some great IPOs. There's been tons of them out there. Um, but this exceeds all of them combined, right? So, so it almost makes I I I found it almost depressing in a way when I thought about this way because it was like, what's the guy we had earlier in the show from Slow Ventures who kind of bothered me a little bit,
>> Yeah. And he kept saying box doesn't matter. And then he said, "Open AI doesn't even matter. It's not that important." He was very triggering. I tried not to get triggered directly, but he kind of rattled in my head. I was like, "Maybe the guy's right. Maybe nothing we're doing matters because the big three dwarf the last 25 years combined. Like what are we doing guys? What are we what are we doing here?
First of all, I I think that is a real phenomenon and what you're simply saying is, you know, especially in SpaceX's case, the longer the holding period, the more dispersion which sets in, which is more the bigger be the big become bigger and the little ones fade out. And you know, and you're exactly right at the tail end of a power law, it does mess with your head because the combined value of the top three privately held companies are larger than everything else. In much as the same way, it's even more concentrated than the public markets which are more concentrated than they've ever been where the market cap of, you know, the top four or five, Nvidia, Apple, Microsoft, um, Alphabet and what and I think Meta is, you know, approximately 30% of the total S&P, right? Which is everything for the last, you know, xund years, right? And you're right. The psychologically the thing about a power law they don't tell you is you can have the third best outcome in venture history and be only onetenth as large as the largest outcome in venture history. And if you're going to let that in your head, it's going to be it's just going to be very tough business psychologically for you because you can have a life-changing event that's you down in the noise of 10 or 20 billion dollar outcomes, which can be enormously great for you and your family and for your co- investors and for everyone involved. And if you're going to let it in your head that it's not $2 trillion, then you're doomed and you're just going to need therapy. I wrestle with these things all the time. I mean, it is the thing that your mama told you, right? is right. You just have to not let other people define you. I mean, you said it really. It is a psychologically weird thing, right? You're going to have these three deals go public and um they're going to be worth literally everything else that's happened in the last 20 years if they trade anything like their current prices. Will SpaceX rip and hit the two trillion when it does go out?
>> I try and not spend time talking down, you know, an amazing company, right? Not least because I'm going to be a buyer of SpaceX 15 days from the IP. I surprised you because 15 days from the IPO, it's coming in QQQ. I have a big QQQ holding, right? If you're an index fund, you're getting this thing in 15 days, right? And if I don't know when it'll be for the S&P, but it'll be fairly s soon thereafter, right? So, we're all going to be buyers of this thing, right? So, in terms of the valuation, I I you know, you don't know. Look, you do any kind of meaningful analysis some of the parts and you come up with a lot lower number and then as we we've discussed this before and then the gap between what you think the assets are worth on any kind of normal basis and $2 trillion is huge and it's all Elon premium and what you're really asking therefore is how big is the elon premium sometime in June and I don't know I think that you're definitely seeing the Elon premium come off on Tesla which has been worth pointing out and you know it's it it's it's it's down significantly year to days and there's definite and you know I was interesting to see JP Morgan put an actual sell on Tesla with a prediction of a 60% price decline. So really what you're asking me Harry is what is the Elon premium in June and I hell I don't know.
>> Well I'm asking actually do you think it will materialize in public markets and they hit that two trillion. Well, Rory, here's what your your thought. Obviously, I don't think either of us have worked on an IPO quite of this scale, right? But
>> no, by definition, no one has in the [ __ ] universe because the first time it's ever happened,
>> right? So, the process is going to be different. But here's my point. At some level, if the company ha there is a there is a a tough negotiation sometimes between the company and the underwriters on valuation, right? Um, and often times some cos are like whatever the whatever the lord brings and some are extremely aggressive on the number they want, right? And depending on the situation, sometimes the co wins those debates, gets out with the valuation, the underwriters are very uncomfortable with and sometimes it works and sometimes they stumble because of it. I think Elon, what Elon said publicly on X, it ain't going to be two trillion. Now maybe he'll change his mind. He said two trillion was too high. So whatever his number is, I think he's going to get it on IPO day. He's going to will it into existence. the underwriters are not going to be able to argue with him for more than 5 minutes and there'll be enough demand between retail 30% of the IPO. It's a lot, right? There'll be enough whipped up demand, I think, to support it for one day. He will will it into existence. Whether that evaluation is there in 30 days uh or possibly even in one day um I don't know but I do think the sheer force of will the lack of power of underwriters and the 30% retail will will his 1.75 into existence for one day at least one day
>> I think that's quite correct it's worth pointing out I think less than 12 months ago there was a meaningful transaction in SpaceX at 400 billion right then there was this much smaller I don't have even happened in the end secondary at 800 billion Then in conjunction with the merger with um come on X yeah X// Twitter it SpaceX was valued at a billion to value the other asset with its negative 12 billion in cash flow at 250 billion. So they added that in to get to 1.25 and now you know you're at um you're talking about 1718 and it's all been walked up in a very interesting way. It is worth remembering that the last time the useful asset was valued on a standalone basis, it was worth $400 billion. So I think if the deal went public at 1.5 1.6 less than the whisper number, I still think they'd have done a magnificent job of walking the value of the asset up because it's not clear to me that the X AI asset has a positive NPV in anything like the near-term. We just had a long conversation on entropic versus open AI and they're kind of number one and two in this space and Gemini Google is almost certainly number three. So X.AI is number four in the kind of model LLM space at best burning $12 billion a year. So I don't know what that's worth but I but I I would argue that they won't be talking about that in page one two or three of the slide deck at the IPO. they'll be talking about SpaceX which means the entire addition of that probably was net negative. So I go back to my comment is I think you're right Jason they'll will something amazing into existence for a short period of time because you know this has all the leverage and the drive and I think you know only in the long term are markets weighing machines in the short term they're voting machines and we'll see over time how it settles as you know people just look at the dynamics of a you know 20 billion plus or minus business cash flow positive apparently well EBDA positive capex not excluding X.AI and then add an X.AI and it'll settle into a long-term value over time. What happens on the day? I think you're right. It'll be much more a function of the will and it's a small float. So, and people will push.
>> I'm switching it up here. We're going to go to PI we're going to go to private market.
>> And we we we had big news from Seoia this week for context. Always like to contact set. Doug Leone had taken a step back from the firm, back from dayto-day, back from investing and um you know Pat and Alfred had recently taken over the leadership from Rolof and now Doug is back in an investing capacity, not in a leadership capacity. That's still very much with Pat and with Alfred, but Doug's back in the firm investing. Um which is very big news given he is one of the OGs. How do we read Doug back and back in the trenches? Well, look, I don't know. Rory may have more thoughts. I I don't know, but um from from from a distance, it feels like something to calm the LPS. I mean, everyone is raising so much capital, so much change there. Um that uh you know, I I think I mean, you guys have even more experience than I do. LPS are uncomfortable with change. LPS say that they're looking at the new generation and the vanguard, but they are comfortable when the old leadership is still actively involved in the fund. It does make LPS more comfortable. Um whe whether they're writing investing half the fund or a few deals. So it struck me as that simple is you you you bring back someone that makes the LPS comfortable and you get through this crazy amount of fundraising everybody's doing. But I could be wrong. I could be wrong. But I don't think it's just to get somebody on your slack and get a little wisdom. you you don't need to bring them back to just to to get an hour or two of of of insights on on deals that you already have.
>> I think it was a sensible move. I don't think it's an earthshaking move. I mean, they've made the changes they've made already as a firm and it all made sense. I think at the margin, you're right, it helps a bunch of different things. It just provides some continuity.
Absolutely. Which is important, I think, for LPs, for the firm, even for entrepreneurs. Also, let's not lose sight of the fact he's a damn good investor, right? I mean, one of the ch questions we always ask when we're hiring someone and thinking about it, in this case, you are effectively hiring someone, is do you think the next check that they'll write will be better than a check that one of us will write? And I think Doug Leone's proven that he can write pretty good checks. So, I think even at the margin from a check writing perspective kind of makes sense. The transition having made one transition to Rolof and having had to make another transition abruptly means the first transition wasn't that successful. I'm sure there's an element of scratching the itch. Yeah. want to come back and make it work. You know, they've put a lot of his life into this firm. They've done an amazing job and it just felt a little janky late last year when that transition happened. So, if a couple more years can help manage that transition and send a continuity message, why not do it?
>> With the greatest respect, I spend a lot of time with LPS a lot. Um, the insatiable appetite from LPS for Sequoia has never been more prominent still. Um, and so I I don't respectfully I don't think it's LPS. I think it's actually just like in the face of increasing competition from a founders fund who've got an Andreel and a SpaceX at their tailwind wins for founder brand and and which are more attractive than ever for founders. You ask the question, how can we be more competitive? And Doug is the ultimate winner of deals. He is the
>> You telling me the kids at YC have heard of Doug Leone or even know how to spell his last name? I doubt it. I'm telling you, when Doug Leone goes to that meeting with them, whether it's Christian Hacker at Trade Republic in Germany or whether it's the team at Whiz, he [ __ ] closes the deal. Yeah, cuz maybe not the YC founder who's 24, but you're right. Across, look, let's be get real here. Across the venture and tech ecosystem, this is someone who's had wild success and even in a meeting can bring knowledge to bear that would move the needle on a close. I I agree. I mean it's look as I say don't make
>> well let's call it gravitas whether it's the founders or the LPs it is adding gravitas back into sequoia in a time of a lot of change right and
>> it says they needed more gravitas that's just what we need a little more gravitas guys who can we bring in
>> yeah one of the things I admire about sequoia to be I've always said this is like literally even if they're winning on every round but one they'd be like well how do we win on that round as well right and you as you say Harry it's never been more competitive of there are wildly talented similarsized firms. Why not, you know, even even if you have 10 great players, why not get an 11?
