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We're definitely not investing at the right speed. We are either investing way too fast or way too slow.

There are like 10 companies that can do $10 billion acquisitions and want to.

So happy to be here. Yay. This is—I've been looking—longtime listener.

This is going to be one of the nice things about these companies going public is that I actually think the public market investors will be a little bit more long-term oriented than the private investors. I think like we are all hand-wringing month-to-month about what these companies are doing. And in a weird way, I think the public market investors will think a little bit more long-term, a little bit more structurally. You think about both, you know, Anthropic and OpenAI, and it's like each month it's like the narrative is just all over the place and it's so easy to flip like that. I think at least in my conversations with public market investors, they're going to be thinking a little bit more at least quarters, maybe even years. And so, you know, I agree with all of that, but I think people are going to mostly be oriented towards like what is the market structure of these things and hopefully it will be a little bit calmer.

I almost think the people who are going to be big buyers of the stock are not an overlapping circle with the people who are, you know, dealing with all the kind of fallout from the noise and the negativity.

Where I do think you're right, Jason, is it's not so much that directly the dislike of AI kind of impacts the stock directly, but the indirect comment is I do think there was a non-trivial political backlash brewing. I think it was super interesting to see the guy in Florida file basically, you know, basically sue to stop this thing, stop OpenAI and Anthropic from building models. There's going to be a whole load of 'you told me in a legal document that this thing was not safe, therefore I'm entitled to believe you, and if it's not safe you should stop.' Right? So I do think indirectly you're right, is that because they have to spew out all these negatives just to cover their ass, right? Though I'm not sure who's going to sue you if the end of the world actually happens, you're probably pretty good on the litigation side. But because they have to spew out all this negativity, people are going to be reading that and saying, 'Huh, this is the first S-1 I've ever seen that poses existential risk and where the product lies to me. Maybe I should, as the attorney general for the great state of fill-in-the-blank, sue these guys and say, Stop.' And I think we're starting to see that. So it will be way more of a public participatory moment. Everyone's going to have a goddamn opinion on this, perhaps in a way that everyone doesn't have an opinion on. You know, when a semiconductor stock goes public, 95% of the people can barely describe what it does. Everyone's going to have an opinion here.

Yeah, we did. My partners Peter and Ev led it. And we were all extremely excited about it. And I mean, first of all, goes without saying on the point of Meta and them waking up, like they've done a—they've done a phenomenal job and it's a great product. They've sort of reinvigorated the organization. I've got a lot of friends there. Like that—that is an awesome company and they've done—they've done a great job. But I think in a lot of ways, to me at least, when I see that, it kind of reminds me of what happened with coding and with Cursor and Cognition in the face of the labs. And our view was kind of this is such an important new paradigm where you've got, you know, these consumer agents that are—I think Ben Thompson described it as like the aggregator of aggregators—but you know, basically it's like these agents that can interact with the entire third-party internet. That's like a pretty important new paradigm shift and the implications are big. It means that you can have it do things for you. It's not just talking to it anymore. I think like a lot of the younger generation was already using AI in this kind of way and I think this kind of brought it to the masses where it's like this is something that primarily does things for you. And so I think that it's a big new paradigm. What we've seen in general, whether it was with, you know, coding or a bunch of the application areas, was just when something's that important, a lot of things can win. And so my view is basically something like there can be an amazing kind of, you know, independent player like Instinct. You're also going to see, you know, the labs have some sorts of offerings around this. But if this is the main way that, you know, broad, you know, consumer bases use the product, I think it—I think it's going to be really important. So, you know, we'll see how it plays out, but, you know, our view is that this is like a really big new paradigm, kind of on the level of, you know, chat and coding and these other things. And I think a lot of players will win.

I think you described it exactly right, which is it is super early in its cycle. If you think about like when chat first launched, like how much did we use it then versus how much do we all use it now? You know, Lora and Harvey, you know, which are, you know, when they started, if you did the reference calls on their customers when they were at a million of ARR, the customers were like, 'The thing barely works, we don't use it that much.' And now you talk to them and they're like, 'I run my whole life out of it.' And these businesses are at hundreds of millions of ARR, growing really fast, and all of that. I think same with coding. Like at first it could do a little bit, now it kind of does everything. In the future, it's going to be like, you know, times 100. So it's an open question on this stuff. And I think you're exactly right. The question will be, does it make it from where we are right now to you can autonomously trust these things to run your life? And if it can, it's big. And if it can't, it's not.

I think it does to some extent. I mean, I think there—like on some level we're each only awake for so many hours a day and like we are all on our screens so much at this point that like there are not more—you can't really get us out of the like parks where we're playing soccer too much anymore. Like it is all coming from other time that we were spending on the internet. So yes, it does to some extent. The form factor cannibalizes. It doesn't mean that these products cannibalize the other companies, but it does mean that the form factor takes some amount of the space whether the labs do it themselves or not.

I actually don't have the sort of full inside scoop here. But OpenAI's DevDay is, you know, today. And so we'll see, you know, what, you know, their sort of reaction to all these things are. But, you know, also back to Jason's point, it's like there's generations of these things and they keep moving and everybody learns from each other and it happens in like 2 seconds. You know, when Cursor came out, it was—they had like a long window before the labs caught up. Now, you know, you look at the Instinct team's window, it's short. These cycles are only getting shorter.

Yeah. And what's funny about it? So, yeah. And we, you know, we invested, you know, first at 2.5 and 10. And what's funny is in our minds it was actually kind of an early-stage investment. And I know that sounds psychotic, but yeah, but that's kind of how we saw it.

That's right.

Yeah.

And both are kind of true. And if you think of it as a growth investment, you say, okay, how do I underwrite this, you know, relative to, you know, public companies that have 2.5 billion of ARR and they're worth 10 billion. And so, you know, you kind of logic that out. If you're thinking of it as an early-stage investment, you say, gosh, this paradigm, we just have no idea. And so I think in our heads it was closer to that, where you say, you know, we are so early innings here. Where there was OpenClaw, there's this—like, you know, between now and Christmas, there's going to be like three more evolutions of the whole thing. It's like you don't even try to guess all of that.

I think there's—you still, to the extent that you can—I'm a believer that, and I think, you know, this is sort of like something I've kind of picked up from the crew, that you still need enough investments, no matter how accurately you think you can pick at the early stage—let's define this, forget the price—but, you know, early on in a company's life, you just need enough shots on goal to get something that's going to really matter. And so on some level I would say the sizing is constrained by wanting the fund to have enough chances to get something great. And so that's the constraint. And then like the upper bound is, you know, these rounds are big, you need to matter in the context of the round, and if the valuation's already high, you know, you got to put more dollars in to sort of get some ownership. And so those are kind of the boundaries.

Yeah. And I think like sophisticated public markets investors probably spend as much time thinking about their sizing as their actual positions.

I think, you know, we obviously don't, but, you know, we try to at least give ourselves some boundaries knowing that we're going to, you know, size incorrectly almost every time. And it's probably actually the hardest one to size because you're right, you have high upside which leans in, super high variance which leans out, but still a requirement for meaningful dollars. You're right. The sizing discussion must have been almost everything.

I think the other thing that I was going to say, you know, that's sort of like in support of kind of Harry's view on this, is we're in a moment in time where a lot of investments are shaped like this, where like relative to other times I think it is much more dispersion on these investments and things are both really expensive and then the upsides like apparently look very high. And so one of the things that we, you know, think about and I scratch my head about a lot is we're in a moment in time where everything—valuations are like extraordinarily high and then traction and, you know, outcomes and all these other things are extraordinarily high. And so, you know, people are like, do you think we're—are we investing, you know, at the right speed? And I'm like, we're definitely not investing at the right speed. We are either investing way too fast or way too slow. But when both supply, you know, when both sides of the equation are this out of whack, the odds of having it right are zero.

I also think like this is not the round that worries me. If you would look at the Instinct cohorts, which I haven't seen, but I imagine the usage is incredible. I imagine the depth of usage is like we've never seen before. What worries me is when you have three rounds in three weeks with no material movement in between and no data suggests there's been anything different. That's what worries me. Like the people who say, 'Oh, 10 billion, 14 people.' Like, it's just like people who said, you know, a billion for Instagram was stupid. Just like, 'Yep, you don't look that smart today.'

And I think it's the first of a few. We've talked about this a couple of times. You look at these investments and candidly, I don't think the World Labs companies—not World Labs in particular, but the kind of those World Labs type companies—would on a standalone basis have anything like the trajectory of Anthropic and OpenAI, where there was a very quick path from here's an amazing AI technology to here's chat and that can monetize, and then oh my god, here's coding and that can monetize like a mother, right? I don't think the path would have been as clear, which is why I've been a bit nervous about those deals over the last couple of years. But in retrospect, the thing I think that's now become obvious is I think all the big foundational model companies are probably in the market to acquire some kind of robotic foundational model story. I think that, as you say, AMD just wants to be relevant to Nvidia. So I think there wouldn't surprise me if there was a ton of acquisition interest. I mean, there's still 100 Neolabs. So you got to be in the 10 that win. But I think there will be a bunch of these big-ass acquisitions over the next 6, 12 months if the market continues to hold.

It was very easy when all the sort of Neolabs got started and the trend took off to just say this is total insanity. And, you know, to your point, Harry, we don't yet know what the like net balance sheet of the whole thing will be, but we are definitely starting to see data points like, you know, World Labs and many others where like there is real interest. And I think part of what's so different now than certainly any time I've ever seen—maybe there have been other points in history like this—but there are just a lot of acquirers. Like there are like 10 companies that can do $10 billion acquisitions and want to. And that's just so different. And it's much easier than going public and it's quicker and you don't have all of these long cycles and the hand-wringing. And that has really changed things. And obviously, you know, like, you know, extremely impressive run by Martin and it's just shown that like, you know, in these infrastructure lab type companies there's a lot of room to run. So I don't know how it will—obviously any better than anybody else—but I'm definitely hesitant to be too skeptical at this point given what's happening.

Yes, I would say that just—talent costs are so much higher than they've ever been because of a lot of the alternative options for the talent that you can't do a two-to-three-million round anymore, like 10 to 15.

The characterization that Harry opened up with, I mostly agree with, which is basically that the initial rounds have gotten so extreme. And there's two reasons. One is that there's like, you know, you all are saying, there's these labs where, you know, you can't do anything for less than 200 million and so that's the first round. The other reason is there is a set of founders that are very like in the Silicon Valley network that don't necessarily need to raise, you know, a $50 million seed, but they can. And so they skip the first round. They skip the six at 40 or whatever that round used to be, and they just don't raise it. Or maybe they raise $300,000 just to like get a month in, and then they raise the money. And so in many lanes, I think that round has kind of evaporated. And so I think there is a cohort of the market where traditional seed investing, where you're going to write 3 to $6 million checks by, you know, 8 to 15%, where I just think that is fully broken slash just isn't there anymore. All of that said, there is another part of the market which, you know, Jason, I remember reading your blogs like way back when I was starting Lattice, you know, 12 years ago, 10 years ago, whatever. And, you know, a lot of it was just like, you know, trying to get my head around what the venture math was. And it's, you know, you have a small fund, you buy 10% of a company, you hope it's worth a billion or two, you get 100 to 200 million, you do that a couple times, you know, out of a basket. I actually think that that might still exist, but the way that it exists is not in the things that we're reading about on Twitter and in headlines. It is these rounds where at the moment they, for one reason or another, can't go do that round. They're either not in the right markets or the shape of the company isn't quite right, and then, you know, they somehow pivot or they get more traction than you thought and it just kind of gets bigger. But it happens the slow way, like we have now gotten accustomed to all of these stories playing out in a year or 3 years. Like, you know, it's like, you know, we're talking about Instinct, it's like, you know, these stories play out so quickly, they get big. But even if you take a company, you know, like Lora, which, you know, obviously I know Harry knows well, and, you know, these stories still play out in a short number of years. And we've all gotten used to that. But it, you know, there is another part of venture that takes place over 10 to 20 years where a software company just kind of compounds slowly. And so do I think that there's a three-at-30 round happening today where in 2041 that company is just going to have quietly compounded in the market of police or fire departments or libraries? Like, yeah, I probably do. So it's just a different part of the market and it has really had a big dispersion.

A lot agreed. It's—yeah, the giant sucking sound basically. Money is a signal, price is a signal, and price is sending a signal: everybody go right here. And everyone will go right here because that's the job of price. Mr. Hayek would be happy.

Put another way, yeah. If you're making a compounding play, the quid pro quo should be low risk. And if the world is such that the tech environment is changing so much that you get the compounding, not the hypergrowth, but you get the same level of risk, that by definition is a sub-optimal game. I think the—sort of to me one of the most dominant reasons why I do agree with Harry here is it's just like it's a talent war in the most insane way right now and it's just—these opportunities are just too enticing for great people.