Everyone's coming for Nvidia now. Nvidia's numbers are going to crush this year, but we're going to see all the daggers really coming out.
My word, what a schedule we have for you today. Groq acquired for $20 billion. Manus acquired for $2 billion and so much more.
In the end, words are words and half a billion dollars is life-changing, right?
For venture, this is the era of the spite startup.
No one ever said to Winston Churchill, "Congratulations, you won World War II on budget." They just said, "Congratulations, you won World War II."
Over the holidays, my Claude named itself out of the blue. It named itself Ren. I didn't ask it to. It named itself Ren.
When most people believe their AIs are alive. You will take it with you 24/7.
I do genuinely think you can identify a top 0.1% founder without talking to them. And I've done multiple billion dollar exits from cold inbound. Ready to go.
Guys, it is so good to be back. Now, so much happened while we were away. I want to start with one of the most prescient. Groq being acquired for 20 billion in cash. It happened just before Christmas. Chamath obviously coming out as one of the big winners. Price is 3x more than the last round price. How did we analyze this?
I just had two thoughts. One is I was thinking a lot about both OpenAI buying up basically all the world's global RAM supply and Greg Brockman this week in the new year talking about how we will all be running 24 hours of inference by the end of the year. Not all of us, but a subset of us, of tech workers, of knowledge workers will be running AI 24 hours. I'm already up to a couple hours a day. I'm running AI myself. And so it's a world of inference, I think. And when we started this podcast, we talked about building models and LLMs and all of this, but Groq, if enough of us by the end of the year are running AI, maybe even 48 hours a day, 72 hours a day, right? Multiple agents running 24 hours a day, inference is all of the growth. And if Groq is even part of the answer, right, part of the existential answer for Nvidia, it's worth it. And everyone's coming for Nvidia now, whether it's AMD, whether it's partnering with Broadcom, building your own chips. Nvidia's numbers are going to crush this year, but we're going to see all the daggers really coming out. We just saw the deck chairs being rearranged in 2025. So, I don't even know how great Groq is, but if it can possibly address this, it's worth taking out.
I agree. I think, look, a couple of things. One is just to kind of Jason's comment on inference I think is key. It's that broadly speaking in the world of GPUs and TPUs, there's two big picture tasks that every one of these AI companies have to do. You have to train your model once and that's training. And then you have to run your model. Every time I submit a query or a question you're running your model and that's inference. And the tasks are roughly similar but they're not quite the same. Nvidia is totally adequate for both. It's awesome for training. Groq had a particular edge for a certain kind of inference where it was very low latency, very deterministic. In other words, where you have to predictably deliver low latency, right? And what we're seeing now to Jason's point is as you live in this always on AI world, it's kind of irritating if you have a lot of latency. So there's a certain class of users for whom this was kind of a best-in-class option. You know, one of my companies, Tavus, actually was a Groq customer precisely because for conversational AI with kind of real-time digital presence, you can't have a frozen model. You need to be able to respond in real time. So, there was a particular use case within inference for which Groq was best in class. So, that's kind of the product comment. But the zoom out comment to Jason's saying is this at a high level, Nvidia's got the world's best business and the world's first or second largest market cap depending on the day, right? They make a very complex technical product. They have a small number of customers whom they charge 75% gross margins to and kick off 100 billion a year in cash. Right? The last thing they need is anyone else wandering around the face of Silicon Valley who can make a vaguely comparable product. Right? And precisely because Groq was able to make a vaguely comparable product, I think Nvidia looked at the analysis and said $20 billion is less than 1% of our market cap and less than 20% of our annual free cash flow. For that, we can buy up a competitor and eliminate that potential margin pressure. Right? There's only five or six people that can exert margin pressure at all on Nvidia. This was potentially one of them. And let's get it off the table. And you know it's kind of a reminder that startups is a long game with lots of hard moments and then one great moment. A company started in 2016-17. The founders were part of the Google TPU team just as the OpenAI and Anthropic team were originally some of them part of the Google transformer team. In this case they helped build the TPU chip at Google, spun out to do it themselves, funded by Social Capital. It was a long walk in the woods. You know, as recently as 2023, they were only doing sub $4 million in revenue, but suddenly the wave of AI hits. AI compute becomes, frankly, the most valuable intellectual property on the planet. They start to grow reasonably well, but it's still not a layup in terms of growth. You don't get to 20 billion to be clear on a revenue number, right? This was, I think a year ago, sub $50 million in revenue. As I said, $4 million in '23, 40ish in '24. You get there because it's a strategic asset that Nvidia can take off the table for a modest amount of money relative to their absurdly gargantuan cash flow. So they did it and as I say it must have been, I would love to know the dynamics of the discussion cuz it's an interesting again game theory when you have an asset that's only worth say 5 billion to you on a standalone basis but is worth 40 billion to the acquirer on an acquired basis because it protects the $50 billion market. $55 trillion market cap. How do you price that asset? There's no finance weenie answer. And I say that because I'm often a finance weenie. I'm trying to look for quote unquote the right answer. What are the multiples? Blah blah blah. None of that applies here. This was a poker game. You know, you can imagine. I mean, I don't know what the dialogue was, but you sit there and go, "It's worth 5 billion to me. I know it's a terrifying deal, but it's worth 50 billion to you. Let's talk." And I think 20 billion, as you say, was kind of it made the last round look really smart. It made everyone a ton of money and Nvidia said done and moved on. And my guess is in part it was the willingness to do one of these acqui-hire type deals that made it palatable because Nvidia is probably sitting there going if we announce this as a classic quote unquote M&A, I got to believe that even in the current deregulatory environment someone at the FTC will have an opinion. But if we just do this as a straight, you know, license hire and just get the deal done overnight, yeah, we pay more, but they probably paid more for what I'd call transactional compliance. In other words, we're going to give you 20 billion. You guys are going to start on Monday and we're going to announce it as another fate company play. So, lots of fun stuff there. Someone had a very busy but very profitable Christmas.
You know what another thing I thought about on the deal just for venture is who do you bet on? Do you bet on what I've done my career which is the outsider folks no one has heard of, the young kid from Portugal or Sydney that no one's heard of that figured something out, or do you do what Groq was which is you invest on one of the guys that invented the TPU, Jonathan Ross. And you know the story in the press is Jensen in particular wanted to turbocharge what they're doing in inference. He reached out to Jonathan Ross literally just weeks ago. And the deal closed for 20 billion within two weeks. And he told his whole team, I want it done before Christmas. And it was done ahead of time. And if you want it done in two weeks with no drama, you are going to pay, in fact, you may pay precisely three times the last round. That's been my experience once as a founder. When you come in hot to buy a company and take it off the table, 3x is a traditional way to remove objections and close a deal instantly. If this company had been founded by someone that was unknown, an outsider, what would this company have been worth? 5%? 10%? So, this was also Chamath betting way early, way ahead of all this on an S-tier leader and it paying off big this time, right? And this is, I've never made this kind of bet. I can't afford it. I don't have the money. But it does kind of show this bet can pay off, but it's risky, right? Because it's not an ARR multiple bet. Not yet. They're at 175 million in revenue. So that would be quite a multiple to get to where they are.
Jensen wanted him and his team now. He told his team, "I want this closed before Christmas and I don't want any effing excuses and I have no direct reports, so just get it done, guys."
Does this harm or does it help Cerebras? Cerebras obviously their closest competitor planning to IPO in the next 12 months. They just raised, you know, a large round last year. I think it was a billion around the 5 billion mark. Does this help in terms of setting a benchmark or hurt in terms of taking a potential acquirer off the table and placing a big competitor in the hands of another big competitor?
It's a super good question. I think emotionally it will help because everyone will feel as you're pricing the IPO that you have some kind of embedded value, right? So and you know and eliminates another competitor. I mean broadly speaking at a high level Cerebras, Groq and Nvidia in the same space are very different chips. And what Cerebras does has a single wafer chip. I think it's more for really advanced training than kind of high-speed inference. But be that as it may, I think at an emotional level, oh if you're paying up 5 billion you're suddenly like, oh this feels good, other companies have transacted here. So from the banker process of you know you use comps to justify value, now you've got the world's best comp right. And believe me they'll be using it right. I hear you. From a game, from a kind of musical chairs perspective, you know the negative view would be there are a finite number of people who can ludicrously overpay for these kind of assets, right? And one of them is Nvidia. They just did. Google doesn't need to cuz they have TPU. So you could say you've got one less chair. On the other hand, the remaining players, I mean, I wonder, does Amazon, does Apple, does Microsoft, does OpenAI have to have a silicon strategy at some point in time? And if they do, if they want to get out from the Nvidia tax and Google continues to not be willing to sell TPUs at scale, then maybe Cerebras... It's a good question. My guess is marginally not positive, but kind of it's like the real truth, it's one of those weird things where you ask, is it a positive or negative? The truth is there's a big embedded positive, the comp, and there's a big embedded negative, the musical chair problem. And how they add up, who the hell knows? But wow.
But you must be sitting there thinking, "Oh, I wish they called me."
Well, you definitely lost your number one acquirer on the PowerPoint slide, right? That's clear. And that's always a bummer as a founder or in venture. It always at least sets you back a week. You know, when you fire up the browser and you get an email that your acquirer was acquired for mega money by your number one potential acquirer, it always, best case it takes you a week to reset from that because at least having it in the back of your mind destresses your life, right? It is a setback. One, they could just deprecate the entire product line and do something brand new. They probably will. So it's hard to predict where it will go to, right? Two, and this is a psych, I know we know this but I saw this when I was a VP at a Fortune 500 tech company. I saw this when I was at Adobe. It's not just that $20 billion kind of creates a new comp. I mean that is true as Rory said, of course it's true. It really is true that when times are good, this only works when times are good. It does a psychological reset for acquirers. VCs are like, "Oh, here are the 11 companies that will buy my portfolio company or founders." Like acquisitions have huge soft costs in organizations. It's not just the money. The massive costs on the team, on time, on distraction and the amount you have to do to justify a deal of any size that isn't like three times revenue. The amount of work it goes, unless you're Jensen who says gets it done before Christmas, for anyone else, it's massive. So when you can walk into a room and say, "We want to acquire Cerebras for 25 billion. It's twice the size of Groq and we need it now." The whole room just nods. They literally nod. All the objections to that massive check float away in the room. I've seen it time and time again. So it is a gift and it justifies doing something that only maybe only Jensen could do until a couple weeks ago.
The only add I'd have to your statement there Jason is billion, not million.
Oh, sorry if I misspoke, billion.
I think Jason, that's genuine, that's very insightful. You're exactly right. There's this, everyone, you know, 6 months ago if you said I think we should buy Cerebras or Groq for 20 billion and 20 billion, you, one of these other companies, you know, five people would laugh at you and say idiots. Now you say it and they go, well the smartest guy on the freaking planet in semiconductors just did one of these things that normalizes it, right? So it's a psychological comp. It's not that you run the... Yeah, I totally agree. There's a damn unlocking that goes on here where you suddenly realize what you can do if you want to win.
It is interesting that just funding history-wise, there are not a ton of VCs in this in terms of like funding sources. It was very non-traditional. I mean, as we said there, it was not an easy pathway to where it is today. And I mean, my words, some of those funding rounds were hard with, again, non-traditional funders. And so it's not like a big win for Silicon Valley in the way that I think Twitter's talking about it. It is for Chamath.
Well, I mean, look, Social Capital get all the credit for being early and doing two rounds. And then you're right, in '21 and '22, there were a couple of, you know, I think D1, Tiger, a bunch of the latest stage cross, but you're right, there was only one classic Silicon Valley firm and ironically it was happening just as that firm was blowing up and becoming a non-traditional Silicon Valley firm becoming a Chamath private office. So yes, I mean there's no doubt that the usual cast of characters weren't there and the reason is pretty obvious is you know we used to do, I mean semiconductors, we in the '90s and early 2000s, you know lots of firms we used to do semiconductors too and if you look at the semiconductor exits from 2000, about three, almost none, right in venture land, right a very hard way to make money. And of course what happened is in the public markets semiconductors were hugely profitable and the Philadelphia semiconductor index is you know compounded up like a crazy person. And then on top of that you have the AI thing and then you have this chance for this, it's very much a singularity, you have the one-off deal that's just the right product and you know you put your hand up and you dare. But it was very contrarian thinking in 2016 with no obvious thesis other than as Jason said, the great guy he'll figure it out and then being smart enough to survive long enough for the wave to hit. I don't think this means that there's going to be 20 more semiconductor great outcomes to be clear. It's a little like in networking, Arista Networks. Everyone did networking in the '90s and early 2000s. Then nobody did networking and then, you know, Arista was founded, Jayshree Ullal founded the company. It did really well. It's public. It's got a $40 billion market cap company, but there's been no other box company since then. It's like it's a one-off. You just you look at it and you go, "Oh, someone made 20 billion in a one-off. Good luck to them." And then you put your head back around to funding, you know, relevant AI enterprise AI software companies, right? I don't think there's going to be 10 more semis. There might be two, but yeah, it was long before 2016. It was semiconductors were, you just had been really brutal for 10 years. We were there. I remember lots of those companies in 2000-2010 didn't make it. I remember Eric Vishria had to have a chat with Bruce Dunlevie when he was doing the Cerebras deal and Bruce was telling him the wisdom of investing in semiconductors and all that he had learned from the prior 15 years of like the semiconductor winter that you speak of. Which I thought was interesting and credit to Eric for doing Cerebras after that.
But speaking of big acquisitions, we also had Meta acquiring Manus. One of the things that I love about doing the show is because we're not journalists, we also actually have real information. And so I actually know things that actually none of the media do, which is the price was 2.5 billion. It was a 25x current ARR. They were at 100 million of ARR doing 125 million run rate including consumption. So for a benchmark, it was say a 5x in 8 months. Which is pretty amazing IRR. How do we think about this?
One, first of all, let's start by all credit to Benchmark. If you recollect, we talked about this when they first did the deal. It was controversial. And I remember even saying myself, you know, I'm not making a moral judgment. I'm making a pragmatic judgment. You're taking on a lot of risk here funding a company that at the time looked like it was a China-based company. They did an amazing job of making it a not China-based company, cut off links, based in Singapore a lot of, so they created some value by doing that, right? So and it's obviously paid off. That's the way venture might work. You take a calculated risk, somewhat of a non-consensus risk and when it works you can get a very compelling return in a short period of time, right? So that's great. So yeah it's obviously it's a good outcome for them. I mean from Meta's perspective in the context of the money they're throwing around it's not crazy. It's not obvious why a kind of B2B or individual knowledge worker work tool, which is what Manus is, is an obvious product to roll out to your three billion users on Facebook, most of whom don't do knowledge work. But I think that what the Manus team showed is they know how to make AI work at the level of the user, right, and the non-technical user. And I think that's the asset and the team that they're grabbing here.
I think the founders decided to sell. I don't think Benchmark was pushing for them. 5x sounds great. The IRR, this is not a three times fund returner. So Benchmark would have every incentive if we're just playing games, if we're just being capital allocators to roll the dice. Let's go for four. Did you, hey, did you guys see the Groq deal? We're better than Groq. So the VCs have no incentive I think to take this deal unless it's out of money which I don't think was likely the case even no matter what the gross margins were that wasn't going to be the issue. Okay. And I think the founders sitting here moved to Singapore, whatever it was, a lot of existential risk running a very clever orchestration layer on top of other LLMs that Anthropic can do some of this. OpenAI is going to do some of this. They are best of breed, but other people are all doing the same thing. We're all running multiple LLMs. We're all orchestrating multiple agents. I think what happened and listen this is just me pattern matching to the size of the deal, the timing, to everything, they said this is our local maximum relative to risk and reward. We're each going to make, there's no capital gains tax in Singapore if they're Singapore residents, it's 0% tax. Are they a Chinese company? We've already seen these issues. What are the risks? Who will buy us? Right, maybe only so many people want to buy us. IPOs in China are back but they're weird. Will it be a US IPO? And as founders, we're each going to walk away with a, you know, we got to go work for that scale guy and Meta, but we're going to walk away with hundreds of millions of dollars today for a company probably with, you know, extremely low gross margins, you know, and I'm not saying it's not an epic product. It is, but we've picked on some products over this pod, the Lovables and Replits that I suspect have much better gross margins than Manus does. Okay, Manus is doing is providing a better product running multiple LLMs at the same time and it's doing it for a pretty low price. I mean, it's hard to see it being a high gross margin product. So, I could be wrong, but this feels like a local maximum deal. Where the founders told Benchmark guys we're selling.
So, the team had 80% of the company still. They took very little dilution and they were...
80% right. And maybe it's not quite that simple with how the company was founded, but yeah, they took only 20% VC dilution, right?
They had term sheets for the same price for a new round. My question...
That was the clearing price, was the same price, right? We've all been there. You walk in with I got a term sheet at two and a half. I literally had a massive acquisition that got turned down over the holidays that was exactly at the term sheet price, right? This happens all the time. And just going to the prior point, they're okay. They're each going to make half a billion as founders. It's, I mean, you know, I might take that deal. The three of us might split it up. I mean, we're not quite billionaires, but the three of us might do it and just become podcasters.
Yeah, it might be enough. It might be enough. We might call it a day, boys.
If we're on the Manus board, it's doing 100 million now. Say it does 3x given the growth rates, I wouldn't say that's insanely overly expectant. They're only doing 8x end of year revenues next year. If it does feel quite cheap, I would be fighting with these founders saying you're being underpriced. Like go...
A billion, Harry. Harry, if you think we're underpriced, let's do a secondary at 10 billion. Absolutely. I'll sell 500 million. Rory will sell 500 million. Harry, you put your money where your mouth is, dude.
Because I don't want to give you that money because I think you'll be less effective with holding.
But exactly. And what you'll discover pretty quickly is trying to persuade a founder to hold on when they don't want to is a very hard thing to do, right? And arguably you shouldn't even try, right? In fact, not even arguably, you shouldn't even try. In the end, you know, 90% of the time the founder controls the exit decision and the 10% of the time they don't, it's usually a mistake for the VCs to try and control it, right?
You know, you should, I mean, what you can if you have a good relationship with the founder, you should be able to talk to them about how you see the pros and cons of each of the things, right? Here's your, here's the risk and help them make an informed decision based on hopefully some wider pattern matching, but they have more specific knowledge, right? I mean I always tell people when you get an offer, I always say to the founder, now would be a really good time when we're deciding to take this offer or not, to fess up to any nagging worries you've had that you've been smothering down in your CEO gullet here.
Can I just play devil's advocate with both of you because I want to learn two things here. When you're very young and you get a reasonable amount of money shoved in your face, you jump at it. I remember when I was young, I jumped like a million bucks. I would absolutely freaking jump.
I still would. Yeah, go on.
And my point being it's very difficult to extrapolate yourself out of the weeds when you're so in them and you're very young and you're quite naive. And the perspective that you guys can bring is very helpful in showing what it can be if it keeps on growing the way it does. And then secondly, they don't have the market comps that we do in terms of where assets are transacting, what it could be in 12 months. And so I do feel...
All that's true, Harry, and all that allows you to have a useful dialogue but in the end I think Jason's right. In the end, words are words and half a billion dollars is life-changing, right? And I think, you know, at some point the entrepreneur can turn to you and say, to Jason's point, I think he nailed this, if you think 2.5 billion is underpriced, okay, don't cash out my 500 million, but give me 50 million, let me take that much off the table because they're being offered, you know, life-changing money because there's actually an implicit statement that you're making that I want to revisit. Right? Even if you think holding on is the right decision, in other words, they're selling early and they should compound and hold later. Right? You can unveil those facts till you're blue in the face, but in the end, they're going to make their decision and they should. You're diversified. They're not, right? So, I hear you. I've had this...
So, though I do think it's a little like, we could, a little more than that. I think this isn't just money per se. I think going back, it is a local maximum.
Well, I was going to go there, Jason. Local max. It's not just the amount of money and normal people would just take, would have taken it at a billion if you owned 80%. Normal people would have taken it at 800 million. This was the best time, right?
Yeah, I agree. I'm only going to, I'm going to interrupt you to also agree and contrast it with Harry, right? Because implicit in Harry's questioning is quote, "They're wrong to sell and how do you persuade them otherwise?" Consider the other possibility. They are entirely freaking right. Jason nailed it. It's, this is where the world is going long term, but it could well be a local maximum where 12 months from now there's eight or 10 people doing something similar. And they're like, you know, it's like remember autonomous, it's not quite the same, autonomous cars. Cruise was entirely right that someone's going to build a 100 to 200 billion dollar company doing autonomy. They sold for a billion in 2016. Now Harry, you're right. In theory, they could have stayed for 10 more years, raised 15 more rounds and become way more and worth a hundred billion. But I'm willing to bet Kyle does not spend a single second worrying about that. He's like, "Thank God I sold cuz it was the only freaking exit in autonomous cars for the next 5 years." You're assuming Harry that they are quote wrong and naive to sell. I'm kind of with Jason. A, even if they were, I think it's hard to overcome that because you can't leave a founder in a deal where he didn't want to sell, where he wanted to sell and you stuck him in the deal and now he's bitter and if the thing goes wrong, you have no idea how toxic that will be. But the more important point is Jason's, not mine, which is they may actually be incredibly astutely selling here.
To be clear, I completely agree with you in terms of not forcing a founder to remain when they don't want to.
But I was more saying provide very clear perspective and direction.
You do that.
You know, interestingly, I think this might be a case study where the local maxima for the founders and the VCs were different at the time. For example, one of the founders I worked with yesterday, we were DMing, he's like, "Wow, I built a whole marketing site on Manus. I vibe coded it." I'm like, well, I did it that you could do that on Replit or Lovable or Base44. It's like there's a lot of ways to vibe code a cool marketing site. So maybe it was right for the founders with competition. But for the VCs, if it returns what, a third of the fund for a winner, for someone that went 0 to 125 in a year, that returns a third of a fund. For me, an exit that returns a third of a fund, I know Rory and I disagree. To me, it's not very interesting. Like, do it. Like, I'm all supportive of you. I would never even, I tell all founders to sell. That's my advice. But a third of the fund, you know, it's just, it doesn't even buy me anything good in Miami.
Rory, you can't do anything in Miami with it. Okay. So, just...
Well, I don't want to be in Miami, so that's fine. I mean, but I just as you know, Jason, I disagree. There are some, one, I mean, first of all, there was this old chatter 12 months ago. Oh, poor Benchmark. They got all these issues. Let me tell you, you put a 4x on the board within six, eight months. You look great.
Rory, that fund is like a 15x fund.
I know that. That's my point. I know it's, I'm well aware of that. That's my point. My point is you look at the narrative 12 months ago, you look at the narrative today, right? I agree. That's exactly my point. So, you just put points on the board and you move on, right? It's another win, right? But your misalignment is so real because for the Benchmark, screw it. It's in a flyer fund. Let's have another flyer. Roll the dice, dude.
Well, actually, I found Rory, I don't know what your experience. I found in that scenario, the VCs are the kindest. If you have a 15x fund, when I've been in the back end of a fund as a founder, I've only twice. When I've been in the front of a fund, the VC and their B-tier VCs, they're unkind. Okay? Not universally. When you have a great VC and the fund is over 5x, whatever you want kiddo, like whatever makes you happy.
I think that's again a smart, you're exactly right. Like they're not, I mean, it's kind of a wonderful situation for both sides is that you, Benchmark aren't sitting there clutching their nails going they got to make it on this deal. They're like, you know, we've got one of the world's best funds just when everyone was calling it and we've killed it.
The thing that made me think more broadly about though was kind of Meta's M&A spree and then Alexandr Wang comes out and has an explosive interview with the FT where he basically says that, I mean Jesus, this guy did not hold back. And I know Alexandr, I've interviewed him. He said Alexander Wang was naive and young and inexperienced. He said that they pretty much lied about Llama performance and were selective around the benchmarks that they chose. To be clear by the way on your prepositions now, because who is the they that he's referring to there? Because some of the Llama stuff was pre-Alexandr Wang. So he's actually saying that they themselves at Facebook... You transition from talking about Alexandr's opinion of Alexander Wang as young and...
Naive to Yanukun separately confessing, for lack of a better word, that while he was at Facebook, some of the Llama benchmarks were incorrect. You're right. It was quite a tale of wow, boy, that was talking out of school.
Yeah. How do we feel about it when we think about Zuck's go forward?
Some proz comment. It is frustrating. I can imagine you have such a senior figure who is an academic who has a very strong belief that long-term LLMs are not the only thing you need. And as he's articulated very well, you're going to need more than that to quote get to AGI, right? But you're an operator and Zuckerberg is nothing if not an operator and you're like, I don't give a [__] about your long term. The other three guys are shipping their equivalent of Llama 4, make the damn product that's competitive with the other guys, right? You have frustration, you have a mismatch between the expectations of the employee and the employer. Once it wasn't an academic pursuit, but once it became a, for whatever reason we can talk about why I don't get those reasons, once it became a corporate imperative for Meta to be competitive with OpenAI and Anthropic in the LLM space, having a guy running that product, running that project whose first line is, I don't think this is important, we should do something else, just causes managerial disconnect. So the relationship must have been doomed from that moment on, right? Independent of the whole acquisition thing. Sorry Jason, you're going to come in there.
No, no, no. I just think for venture this is the era of the spite startup. I mean Anthropic's a spite startup, xAI and Twitter's a spite startup. Now we've got Meta's AI guy who's doing a new spite startup. Like I think if you want to make money in venture, you got to search out spite. This is driving the greatest AI companies of our generation is spite. Maybe poor Manus didn't have enough spite to grow beyond two billion.
It'll be interesting to... Yeah, spite might provide motivation. It doesn't guarantee outcomes.
No, but it is. I mean literally OpenAI, so many of its competitors are born out of spite including its number one competitor. It's just the spite is endless here.
First of all, Silicon Valley was founded on spite in the sense of if you look at Fairchild. If you look at Shockley, all those guys spun out of Fair and did Fairchild, which was a spite deal, and then they left Fairchild because they couldn't get the money and they kind of did Intel on a standalone basis. So there's a long tradition in Silicon Valley of people taking their marbles and saying, I'm going to do it myself. So I do at one level agree with that, but I think the earlier comment is it provides motivation, but I wonder does the world need another research lab in AI right now and it'll be interesting to see how that goes. I think the interesting thing with the new structure is actually he's chairman and then Alex Lebron who was the CEO of Nubank who sold two companies previously for several hundred million dollars is actually the CEO and so I think there is absolutely a commercial head being Alex as CEO, which I think...
Do you guys believe in these deals where the one guy, the one you would invest in is the non-full-time chairman? I believe, and now don't get me wrong this particular deal may work, but in my life experience you're just flushing your money down the toilet when a great CEO founder reaches out to you, I've got this one I want to do, and then you dig a little deeper, well I'm the non-executive chairman, I'm putting some money in and three hours a week of my time.
Actually, I might argue a different... I actually it may well be that's actually the correct configuration if you have a highly talented academic who isn't a commercial driver. In fact actually my mental model went slightly up when I heard what Harry said. I mean, my quote unquote disbelief is I just wonder can the five or six startup research labs, is there going to be enough new territory that's not automatically going to be annexed by Anthropic or OpenAI or Google to justify billion dollar pre at five billion post times whatever risk-adjusted return you want to make on that. I think you can extrapolate from the past and say it worked for Anthropic and OpenAI. It will be interesting to see can the world support 10 research labs coming up with 10 different variants of AI all of which have to build either commercial or consumer businesses. I think on aggregate I'm fairly skeptical but it's less a quality of... I mean the truth is almost all of these founders are extraordinarily talented, not even top one, top 0.001% of even scientists and engineers. The question is is the business opportunity there for a whole load more of these things.
I think there's another type of spite Rory. I think there's this, it is a big theme now, it's co-spite about how they were forced to run companies in 2021. I think there's versions and I'm a big Sheryl Sandberg fan, but I think Zuck is spiteful. He was forced to run the company in a certain way. I know a lot, I mean Eoghan from Intercom, Finn has talked about this a lot that he's spiteful that the company was forced to be a runaway and they're just effing pissed that they wasted years in a kumbaya work at home land and they're not wasting time. And Zuck may burn every last penny he has but some of it's out of spite that they got this far behind. Like these guys just fracked around with pictures on Instagram and trying to get Reels going when the world passed us by and they're pissed. These cos, I think a lot of these cos are pissed. I think Zuck's pissed.
I think actually again I'm almost... there's a real truth in that. I don't love the spite word because it conveys anger but I get it. It's like that feeling of oh there was a period of time where I had this, I mean you know you felt as a CEO you swallowed it up, you didn't push as hard and now you feel foolish because you didn't push as hard and now you're like I'm not going to do that again. You're right. So what you're saying is, so to bring it back to the acquisitions, what you're basically saying is Zuckerberg has probably internalized I'd prefer to fail trying to be me and going for it than to be bland and mediocre and maybe because I'm willing to run the risk of spending, you know, a couple hundred, he said it, a couple hundred billion dollars and being wrong. And I'd prefer to do that for my psychic benefit than to be a boring ass bastard who's not relevant in AI, even if it's quote unquote better for the shareholders. That's really what you're saying, Jason. And I think it's quite insightful. You're right. They're like going, you're only coming true once. I'm not going to be lying there at, you know, 80 going, I wish I'd really gone for the AI thing. Um Zuckerberg said, I'm going to go for it and if I make some mistakes and if maybe I was wrong about Alexander, okay, that's fine. We'll buy me another one and keep rolling. I mean, until such time as the capital runs out, that's how you play the game.
Well, Larry Ellison's not sitting there at 80 going, I wish I played the AI game. That's for sure.
I don't know. I disagree.
Well done for capitalizing.
Yeah, he seems pleased. Exactly. He played the AI game and he's feeling good so far.
I think he's just thinking, you know what? If it goes wrong, I'm going to be dead by the time it does.
And if I'm lucky, I'll own Warner Discovery and I'll own HBO. I mean, you know, in the end, success in America. You got to own a TV studio, movie studio.
I think he's going to be the healthiest 104-year-old that we've ever seen. Um, I think longevity will be the theme of 2027. This will be the year of 24/7 AI, but I think longevity will be the theme of 2027. I think we will see Larry, if it's not Larry, the next Larry at 95, at 100 looking pretty good.
So, don't count him out. I don't think Harry, I don't think he's saying he's... I don't think Larry is fully living his life like he's on the 18th hole.
Definitely the back half.
There's no question. But he's not like he's walking off the golf course.
Loving this. We're moving to Dr. Jason Lemkin. Um, we mentioned OpenAI and the spite startup that is, you know, many of the spinouts. OpenAI announced that they now spend 46% of revenue on stock-based compensation, $1.5 million per employee, which is 34 times higher than comparable tech companies pre-IPO. How did we reflect and think about this news?
Well, if you're a CEO and you have zero shares, you don't worry about dilution.
Interesting point to start.
You really don't. Then damn the torpedoes because I got no shares. That's why he's pushing this far higher. This is like three to four times the comp of Anthropic effectively. Now, maybe they'll make more in the end. And Anthropic doesn't do the secondaries, right? They've had a very limited number of secondaries compared to OpenAI. What do you care? Uh, we talked about this once in the pod years ago. I worked with a CEO that was guaranteed 6% through IPO. He didn't care either. I saw it. This was a small, this wasn't OpenAI. He didn't care about nothing. He didn't care about how many rounds or how much he gave to his CRO because he got re-upped. If you ignore the basis and the tax issues, he got re-upped constantly to 6%. Why would Sam? Sam just wants to build the biggest greatest AI on planet Earth and if he dilutes everyone 99%, it doesn't impact him at all as a shareholder.
I do agree with that. And then but then on top of that extra positive comment for Sam is that he may also be right in not caring. In other words, this may be one where you got to do what it takes to win and you don't want to come up short but on budget. You know, one of my quotes I use occasionally is no one ever... I use it on this podcast. No one ever said to Winston Churchill, congratulations, you won World War II on budget. They just said, congratulations, you won World War II. Right? Sometimes...
Yeah. No one remembers the budget. No one remembers the budget for World War II. We just... winning is the only thing. Remember, we talk about the stock-based compensation. I'll come back to this point in a second. Those numbers are understated for purely technical reasons that I'll come back to in a second. But he's sitting there going, you know, some of my key people are getting $20 million, $50 million offers from Meta and that's really liquid stock. I got to hold on to my people, right? So, he's doing what it takes to win. And if the market is big enough, then he'll be right. And again, it's this S-tier talent, to use your phrase, Jason, where you know, well, you have to put up with a lot. You have to swallow your spite. You just got to make it worth the while. So I think it's entirely necessary and rational for your top-tier talent. And then to the other point I made, which is that it actually understates the number if in fact the stock-based comp accounting is really weird because it all crystallizes at the point when you issue the shares, right? And if you issue options, let's do RSUs because they're simple. If your stock is at $10 a share and you give someone, you know, one RSU, effectively you amortize, you know, $10 over the next four years and you give it to them two years ago. Right now, the stock is at 40 bucks a share because the stock's going up, you still only amortize the initial price. So for companies that are going up in value, the stock-based comp actually understates the amount of economics that are being transferred to the employee. That employee is probably making four or five million if he's getting 1.3 of SBC, right? By the way, it's really crappy on the downside. You saw this after 2021. If you issue shares to people at a high price, the expense is really odd because it's a high price. It's a high stock-based comp. Then the share price goes down. The poor employees literally making nothing. If it's options because they got options at a high price, but the stock-based comp looks enormous in the GAAP P&L, right? That's why it's partially relevant. Stock-based comp is kind of very complex to track. It's partially relevant. But the other thing you got to look at really as a rough rule of thumb and it's also not perfect is what percentage of the company are given away every year. Right? Typically for a public company it's not growing quickly, it's 2 or 3%. I wouldn't be surprised if every year some of these companies are literally giving away between 8 and 10% of the company a year. And that's because as I say that 1.5 probably understates what's going on here. You know, you're just giving huge grants to people. I could be wrong and it could be starting to kind of taper out now. But as an example, you know, just looking at the publicly available information in a year when, you know, when Anthropic raised money at four or five billion, then they're at 14, then they raised at 60. Your rough math would say four billion to 60 billion is a 15x. It's just a 5x on a per share basis because you're issuing so much capital to raise capital and then you're issuing so much capital to employees and that's just... you can figure that out from the publicly filed document. So there's just a lot of dilution going on because these are businesses that need a lot of capital and they need a lot of great employees. But again, if the prize is worth it, it'll all pay off and those people...
Still even with this comp, they're still leaving in the first year.
They're still leaving. Exactly. I... Jason...
We still only have like 60-something percent retention in researchers at OpenAI. It's crazy even without a cliff.
That is a great point because I'm remembering now when I'm off on committees and you're exactly right. One of the questions people say, we got to do more on the equity. My first question is what's the retention and what's the success rate on new hires? And if I was the VP of HR and I was on the board and I was giving that VP grief about these grants, the VP could turn to me and correctly say, hey Mr. Driscoll, you're right, Jason, we only got 60% retention. So, by definition, if you believe in markets, Mr. O'Driscoll, we're on the pain and we've only got, I don't know, 50% conversion of offers, you know. So, you're exactly right. It may be that's the money it takes to get these people in the chair. The money it takes is provided in large part now for OpenAI by Masa. SoftBank closes its OpenAI investment. It turns out it's already up two to 3x on paper. Is this Masa's greatest play ever? Do we think...
His greatest play ever was doing Alibaba and getting 20% of Alibaba, holding it for 20 years, and making hundreds of billions of dollars, right? Um, but I think it's a fun... it's so revealing because if you think about it, and just for people's background, Masa had negotiated a deal to put in, I think, 40 billion into OpenAI, but it had to close by December 30th of this year, right? And the price at around 300 now looks cheap. But you just got to love the risk tolerance of someone like Masa who is willing to commit 40 billion he doesn't have until he sells other [__]. I mean it's literally like he did a little inter-Masa margin loan. It's like, I have the right to put 40 billion in OpenAI. Now I better find the money by selling other stuff and I'm scurrying right down to the line to find the money the week before Christmas. It's just like the level of risk tolerance that that guy has is just amazing, right? And he got it done. And you're right, Jason, the IRR in a day is amazing. You close the investment on December 29th, you put in your 40 billion and next day you should be carrying that thing at 500 because that's what it's worth right now. So, you know, fun.
You know what might be his best investment? Even though you're right, Rory, I'm sure it can't compare to Alibaba over time and the entry price was much better and everything. He's the only double-digit shareholder.
So if OpenAI goes to the moon, this may be his best deal ever. Yeah, he had to enter later, right? Yeah. The entry price was high, but he got his double... like it's not easy to get double digits at... this is a pretty hot company. It's hard to get double.
It's a great point. I mean, and it gets to the... It's interesting. It's a little like the Nvidia. It's funny because he obviously sold Nvidia at one point in time, but it's that kind of single-mindedness. What you admire about him is when he has conviction on a bet. You know, some of us put in 5% or 10% of our fund. Some of us, you know, like famously at SpaceX founders put in 20%. Masa would take his fund, leverage it three to one and just go all in. And when he's right, what it means is, you're right, Jason, that's a great point, is that you end up being the... I mean, the sentence says it all. The largest individual shareholder in the most important one or two companies of the next decade. That's pretty cool. It's Thrive on steroids.
It's Thrive on steroids. You got to love it, man. Boy.
And if it is wrong, he might be Ellison. He might check out. If this one goes sideways, he might have to retire and call it a day. Ellison can keep going on for his alchemy. Has to work for Masa.
Roll and roll again. I love it. Did you guys see the news about the OpenAI hardware? And Jason, you put it in the notes well, but a pen-like object which has a camera and has a microphone in it. Did you see this? And how did you feel?
