If Figma isn't good enough, what hope is there for the rest of us in software? I look at my portfolio. What the hell am I going to say at board meetings this week? Rory...
But hang on. I'm just going to say something. You know, this is 20VC with me, Harry Stebbings, and this week, my word, we have a lot to discuss.
We've spoken about the breakup of teams. I have to jump to the ultimate breakup of breakups being Sam versus Elon. How do we see this playing out?
It's going to be the gift that keeps on giving. If you're the kind of person who slows down at a traffic accident, in other words, if you're like 90% of humanity, you're going to be slowing down every time the depos come out. It's going to be great.
In some ways, I feel like venture and tech is a bit of a scam. Our job is to convert very high revenue multiples into cash almost unnaturally through M&A, through public offerings when they haven't earned it in free cash flow.
You describe the system correctly, but you kind of imply it's called a scam. I don't think it is a scam. How would 99% of humans feel when you're like, 'F, if I just stayed at Stripe and just played Minesweeper, I could be worth 10 billion.' And I think that haunted him. Elon's in an asymmetric win-win situation and OpenAI is not. The only way it doesn't matter is if every investor looks at this and says, 'I'm not worried about the risk. In the end, Elon will lose.'
Well, isn't that what they said?
Ready to go.
Team, I am excited to be back. We've got a lot of stuff to go through this week. And I wanted to start with a really optimistic view of public markets, which makes me question whether venture today as a model can still make money. Because when we look at Figma down to pre-IPO levels, when we look at Datadog now 20% down, even Coupa, Monday killed, you know, we talked before about PagerDuty consistently. We're just in the dumps with public markets. How do we analyze this? And do public market multiples today make the venture model increasingly challenging?
No, they don't. Because the public markets, actually, it's almost the exact opposite. Those multiples, what they say is when companies go X growth they get much lower multiples, right? Slow growth companies get low multiples, high growth companies get absurdly high multiples, right? And you know, you could have also cited Palantir at 70 times forward sales, right, for a 45% grower. Every venture capitalist is going to make a trillion dollars. So what you're really seeing is the markets are just basically doing what they always do. They're sifting and they're basically saying low growth, we're going to value them very low and perhaps too low. We can come back to that in a second. And so that's what's really going on here. So it's not a 'oh tech is doomed.' What it is is it's a sifting and a sorting. Things that look like they're going X growth are getting thrown out, getting discarded at pretty low valuations, and things that are perceived as exciting and on trend are getting very high valuations. And venture is nothing if not a trend business. So I would argue for venture it's pretty good. It just reinforces the dynamic of this business. 60. Always be in the hot stuff and you'll be fine. If you're in the trailing edge stuff, you're toast.
Goodness. Here's how I think about it. Just be more pragmatic. If Figma isn't good enough, what hope is there for the rest of us in software? I'm not saying that there aren't folks that are exploding, the ones we know, the ElevenLabs and the Replits and the Lovables and the Higgsfields and others, but what if I feel like none of the unicorns are better than Figma. Almost none of them are. And if Figma isn't good enough, it's not good enough. It is not a great IPO. I'm not even sure it's a great public... it's a great product, right? I'm not even sure it's a great public company. And I look at my portfolio. What the hell am I going to say at board meetings this week, Rory? Great job, guys. But have you seen Figma?
But hang on. I'm just going to say something. You know, boys, great job, lads.
This is the problem with anchoring, right? You know, like Figma, it's a little bit down from its IPO. It's obviously... but then all the screen, it's hugely down from when all retail priced it the day after the IPO. If you look at it versus the IPO, you're right. It's still down a little, but it's not nearly as catastrophic. It's still a 12 billion market cap company. It's still growing. Yeah. It's still trading at 10 times forward sales growing at 30% plus. It's an awesomely good company. Um, that's just the value. In other words, 10 if you invested at eight or six though. What?
Maybe not if you invested at unicorn valuations. It's not just...
That's exactly right. It's again, the message is really clear. When you pay up for high growth companies and the growth slows even a little and the belief goes out of the multiple, you're in for a long hard hole. And we've come back to this I think a few times before. You can be valued on free cash flow. It's a long journey from the hope and the sizzle of a forward revenue multiple and a high growth rate to the steady anchor of, you know, 12 times free cash flow. It's a long and tedious journey and there's a long flat period for the stock while that happens.
I feel like, you know, one analysis I, you know, it's billowing at all. There's just windows when there's lots of liquidity and high prices and then it's crap 80% of the rest of the time. Another version I've always thought is, I don't want folks to take this the wrong way, but in some ways I feel like venture and tech is a bit of a scam. And what I mean by that is that our job is to convert very high revenue multiples into cash almost unnaturally through M&A, through public offerings when they haven't earned it in free cash flow. Our job is to find companies worth 20, 50, 100, 200 times revenue and magically convert that to cash. And when it does, that's how we build 5x or higher funds and that's how we make money. If we have to go to an EPS world, we're dead. I feel like we're waiting for these moments and it's even worse because when multiples are way down like today, no matter what the Carta data says, there is no liquidity. It evaporates from the system.
But you say that, I mean, you describe the system correctly, but you kind of imply it's called a scam. I don't think it is a scam. Let me play it back. What's really, because, you know, one level more sophisticated analysis here says what's really happening is everyone has long since internalized the following sense: in the end, the surviving tech companies at scale are astronomically good businesses, right? Microsoft dominates the PC era and it's an... going back along, it's an astron... so therefore, you know, you want to own that and therefore you just work your way backwards that says, okay, at the point in time when I don't know which company is Microsoft, I can't wait until it's trading at 10 times EPS to buy. So I got to take a chance and, as you say, buy a basket of things that might be Microsoft and you price them long before they have EPS. So you price them on forward sales, right? And the truth is four out of five of them turn out not to be Microsoft. No one even remembers what Borland Software does. If I put a gun against Harry's head, he couldn't tell me about Claris, VisiCalc, Lotus, etc., etc. And all of those stocks traded high and then went down. But it doesn't matter a damn because in the end, as a whole, the system, the venture guys, the public markets were correct, which is this is a big ass trend and the winner will be worth $4 trillion. And if the losers, if you write off half a trillion in guessing to get there, that's why it's very hard to fund an old school SaaS company today because people are just saying, look, you're great, you're going two to five, you're great, you're a profitable company. And again, this is the thing I, these people who rain down a little bit of con, VCs who kind of project a little contempt, 'Oh, your little $100 million revenue thing doesn't matter.' It can come across as a little callous. And a fairer statement is this: your $100 million revenue SaaS company is an awesome entrepreneurial achievement. You are to be hugely congratulated. It's magnificent. It's just not something that we can properly finance because we're just not going to make a public market venture return here.
If I am a founder of Linear or RevenueCat or any of this generation of companies, maybe 5 to 10 years old in that broad range, and I'm at 50 to 75 million of revenue, and I'm not an AI-first company particularly, and maybe AI helps a little bit, but I'm 50 to 75 million. I'm growing maybe 75 to 125%. What do I do when I look at...
Harry? You know, you've been too up. Like, I think the truth is if you're going 75 to 100%, you're fine. Stop. You know, like this idea, like, because if you're going, look, if you're going 100% at 50, you're going to be at 100, then your growth decays to 80, you're going to be at 180, then your growth decays to 40 or 50, you're at 300, you're going to get to scale. So you've got your funny face on for listeners who can't see it. Harry's got on his 'I disagree' face.
It's not that I... I'll tell you. We'll read. Listen, I don't want to get lost in the weeds. I only disagree with you for two reasons, Rory. They're just structural. One is as someone with a relatively modest amount of capital and a concentrated strategy, I haven't bought 20% of a startup in like 7 years. So, and I haven't done a round at a million in revenue growing quickly in the teens in a decade. Now, if I could buy 20% of these companies for in the high teens pre-money like I used to do when Harry and I met, then I would be pretty zen about today. I'd be like, 'Whatever the Lord brings, 500 million, 200 million, three billion. If I have to own 5% at 50 million post demo day, the math works out in the aggregate. Gary's got it all proved. No criticism, but it really ratchets the pressure when the valuation's three times higher and the ownership's at 25%.' I think that this is where the Figma thing gets stressful, right? I mean, you're not quite as good as Figma. I'm going to end up owning 4%. You're going to be worth four billion if everything goes well. 5 billion. I, guys, I don't know how. Teach me about crypto.
I'm so sorry. I push back again. 75 to 100% for the biggest and best funds. It's not enough when you have an ElevenLabs or you have a Lovable or you have an Airwallex.
Let me answer your question though.
Yeah. And Rory can challenge it. I agree with you. If that is all you have, and Rory will disagree, I'm very worried about you today. Right. The question is your job, and for some folks you're dead in the water. For other folks it's not too late. Your job is how are you going to attach to AI trends. So if you look at RevenueCat, right, the whole vibe coding mobile thing, I think they tripled the number of developers on their platform in the last four months or three to four months of the year. So their job is to do what WorkOS and others did, which is directly linearly convert that to revenue. They have the... RevenueCat has massive tailwinds which it didn't even have at the start of last year. Okay. And there's a lot of folks like that that have AI tailwinds. If you have none, you sure better figure them out right now, right? And this is the answer. For example, I have one of my first investments. I mean, it's been around for a decade, okay? And it's not even at 10 million yet for a decade. Okay? I'm the only investor. They're cash flow positive. I love them. It's a very specific use case with limited competition. They finally added a way to do deep AI analysis on their data and reports that for their niche was impossible until December. Blew up. They will more than double this year after a decade of like 10% a year growth, 20% being pretty good. So if it doesn't fully answer the Figma question, but this is your job right now. Like, sit around your company. Those kids at YC built an agent for your space. Why the f wasn't that you? There's no excuse. We all use the same LLMs. There is no excuse for you to not have an agent as good as the new kids. There's no... I honestly don't think there's any excuse.
Agree. And going back to your pushback, Harry. I mean, I think it's in the framing of your question. I know what I know. Let me tell you precisely why I think you're wrong. You said if you were the CEO of X, Y, or Z and you're going at 70%, then you kind of did the throwing your hands up in the air thing. I think you're wrong for them, right? I mean, what is true is this. If you're at 50 million going 50 or 70%, you may struggle to get venture capital because you're right, everyone's focused correctly on the things that have the embedded upside of potentially exploding to hugeness and you're probably at a stage now where that kind of mega growth is not going to reaccelerate from there. So the probability of a mid-stage SaaS company exploding into something amazing is rounding error zero. So as an investor, that's not attractive. As the person who owns that asset and maybe you own 20% of it, right? You can't just say, 'Oh, I wish I'd done something different with my life and now I wish I was an AI company.' You got to play the hand you're dealt and Jason's exactly right. The first thing you do is say to yourself, 'I may not be able to raise much more venture capital on attractive terms. Run my business accordingly.' I am now... just like I thought we were going to talk about the public SaaS stocks here like you hinted in your questions, but you took us offline. But it's the same thing. Live in the world you now find yourself in, which is where capital is no longer free for your sector. You know, if you describe that negatively, you can say it's because venture capitalists are fashion chasers. If you describe it in a logical way, you can say it's because the kind of extraordinary growth has vanished from SaaS and has now reappeared in AI land. Run your business the way you do it so you don't need capital. Then, as Jason said, look at what these next generation people are doing and find a way to attach it to your business. And if you grow at 50% then 40 then 30 and you get to 200 million of revenue and you sell five times, that's a billion dollars. And if you have 20% of that, you have $200 million. It makes you one of the probably 10 million... I've done this math about in the top 5,000 richest people in the world. It's okay, but it's a grind. And that last sentence, because it's a grind, explains exactly why venture guys aren't investing. Because grind is not in our MO. We'll come back to new rounds. You mentioned the grind isn't in our MO. When the grind isn't in your MO, you move on. Yes.
And you ever seen the Home Alone movie cover, which is like Macaulay Culkin screaming at the bad guys? I feel like someone needs to do that for poor Mira Murati because I think she's the only one left in Thinking Machines after everyone else this week. We've seen the implosion of Thinking Machines with, you know, now two co-founders leaving. Barrett's off.
Yeah, maybe last week. They have raised significant amounts of money at $50 billion valuation. How do we analyze this news and what's left of the team?
It happens with seed rounds.
It's just part of the risk.
That is a... that is... I was going to come up with a whole bunch of other things, but Jason is exactly right. You have to remember, despite the big D, Jason, that's a great answer. This is a seed round and I know why Y Combinator do this thing is that the number one cause of failure at the seed stage is, you know, founder incompatibility. And this is just seed rounds with extra commas and they discover after a year they don't want to be doing this and they want to go back to the big company. Jason, you're exactly right. That's the big insight. It's a seed round. Just treat it like a seed round.
I'll tell you one niche thing I never understood about this company. On paper I get it. Andre, Sequoia put in two billion. You're basically taking... Mira is taking an OpenAI co-founder, a whole bunch of the team, and it's just going to be Anthropic again, right? They're going to recruit some of the best and they're going to do it. In theory you should do that bet in 15 minutes if you have the capital, right? It's just take a bunch of the best guys and go do a modern... it worked at Anthropic, right? Good god, it worked at Anthropic. The part I never got, here's the weird part, and maybe this has nothing to do with the tensions. I mean, her background is not technical and this is the part I never got. A degree in arts from Colby College. And I'm an engineering product manager at Tesla. I'm not saying she doesn't have 50 IQ points on me. I think she does, but I don't know how you run a lab if you're not Ilya in the early days of OpenAI or Greg at least. I don't know how you get the respect of the team if you're not on their level as a researcher. And it's a challenge for a lot of other B2B companies. How do you recruit this S-tier AI talent if your team isn't at that level? Who the hell would want to go work there? Comp aside, right? The best. Why do folks leave OpenAI like after a year and leave five or 10 million? They're just so smart. They just want to work on smart problems, right? And so this one I felt was unstable. People loved her, I think. But I'm super skeptical of technical companies where the CEO isn't one of the greatest technical visionaries in the industry. I'm just... I'll never do that investment again. I'll never do an investment again where it's not like Databricks or better as CEO. I just won't do it.
What happens in this situation?
There will be some version of the following clause that says if you know more than X team members leave, then you have the ability to call for redemption and just basically wind the company down and say you spent 20% of the money. So, you know, if you can't get an M&A outcome where you get a 1x, then you can wind the company up. You give them two billion. They spend 200 million. You take another 200 million to bribe everyone to go along with it. And you get 1.6 billion back. And you say to yourself, 'That was a risk that didn't work. I only lost 20 cents on the dollar. I can recycle that money into the next OpenAI round. Everything's fine.' Right? That would be a far better outcome than we're going to commence the long and bloody march trying to fix this thing, trying to hire new people. Because Jason's right. It's... I mean, it's such an insight, Jason. It's a seed deal that went wrong. What do you do when the core premise you invested in turns out not to be true and you spent 10% of the total money? If you're smart and you don't have another compelling idea, you give the money back. You incur the respect. Everyone respects. Okay, I got it. You moved on. You call it.
From an investor perspective, I wonder where they're sitting there going, it would be totally fine to, you know, take a 20 cent haircut and be done.
Do you think they'll do that? It probably felt safer when they made the investment that worst case Meta wanted to buy them. Worst case, we exit for five or six or 10 billion to acquire the team. We don't quite make as much as you might think on paper because of how the deal is structured with employees and retention. But worst case, we make some return on this deal. So it's not as... that was probably... I think it's not as crazy as we might think from the outside because with the quality of the team, we're going to get high chance we get our two billion back. Seems lower odds today. The way I described it, if I was on the board, we're not going to get our 2x from the M&A outcome. But if we get our 0.8x to a rounding error, it doesn't matter. Especially if you can quickly recycle the capital because this happens so quickly. It's all in the current fund cycle. So just so listeners know, if you're in the investment period for a venture fund, you wire a billion dollars into investment A, instead of waiting 10 years and getting 0.8 back, if you get 0.8 back in 12 months, you can reinvest that 0.8 and very quickly just move on. It's almost like it didn't happen.
So much better. It's like...
Forget about IRR. You can put that money to work. You can put that money right out the door.
Literally, I mean, ask yourself...
You might not even... the loss is a bummer. But if you're trying to get 10x outcomes, you almost don't care. Just give me the money back and let me invest it tomorrow.
Watch this. If you got that... if you put out a bill... if you got the 0.8 back six months ago and you put it in the last round at Anthropic, that 0.8 is now a 1.6. So on your initial billion you're actually ahead 60% despite having lost 20, right? The whole trick, and when you remember this is why at heart venture is a capital allocation business. You are trying to stuff your money into the place where it will grow the fastest. Once they start going down, venture guys, it's brutal, but the rational thing to do is reallocate to success and away from failure.
I think we underestimate the challenges and the wars for AI talent and we talk about it being compensation based and brands but...
It's mission based. Yeah.
Yeah. Well, it's even more. It's like the best researchers in AI, the best, the ones you need to win, they only want to work what they want to work on.
And they will leave a lot of money behind.
That's why we've all moved to no vesting anymore at OpenAI because we want the folks who like, you know what, I just don't love my job at Thinking Machines. Come to OpenAI. You will lose nothing. And folks want the smartest folks in AI, in applied math and others. They only want to work on the intellectual challenges they want to work on. And if you can't deliver that and the right boss, there's so much portability that they will just leave. And that is an environment almost impossible for 99% of software companies to create. And maybe Thinking Machines does, I don't know, maybe it doesn't have that environment anymore. Maybe it just can't provide that environment any longer because you have to provide the job the researchers want. You don't get to decide what they do.
I think you're right. And it's, you know, we had it on the thing. Let's talk about now Ilya raising, you know, money at three billion. And that's an example of... I personally look at that and say, wow, that's a scary bet because, you know, in somewhere between 2017 and 2022 we unlocked, collectively the industry unlocked LLM and we are mining that vein. And it took five years to unlock it and we're mining it now and this guy's making the big call that says, nope, we're going to find a different vein, that's not the right vein to go down, we're going to do something new. Right? From a probability of success perspective, if you're a money person, you kind of go, hm, maybe, but that's a lot of risk. But you're right, from a researcher perspective, they go, 'Wow, that's way more interesting than grinding out the fifth marginally better LLM. I want to do that.' And he's been able to attract talent. He's been able to attract capital. I think you're exactly right, Jason. People want to do the things they want to do. And to the downside protection point, raising 500 at three, you're basically looking at that going, do I think I'm going to recruit my 500 on a talent acquisition? If so, I'm just riding upside as an investor. Actually makes sense.
Again, I would say the two things I would... what I'd love to know and I don't is what terms have been written in on behalf of the money to protect from what we just talked about, the if the talent bails thing. I wonder are there evolving standards on that around redemption or around rescission events? But you're right. If you say to yourself, you've got one of the two or three godfathers of AI plus whatever team he assembles. I believe, I think we talked about last week, he's chairman, someone else is building it. Again, you're making the same bet.
You seem to have a monopoly of talent outside of the valley which is quite powerful. He does have a monopoly on AI talent in France in a way that...
Well, I'm not sure monopoly, but as we were discussing before you came on, one of the interesting things about the current political environment is the extent to which non-US sovereignty-based AI plays probably have had a vindication in the last few months. So I don't know how that factors in. Yeah, I mean, as I said, as a capital provider, you look at it and go, it's a much higher risk bet than, you know, we know how to build LLMs. Let's just build a slightly better one. So, you know, from a risk perspective, you go, 'Wow.' But to Jason's point, I mean, we kind of got... I think I took the conversation off a little, but I think Jason's point is the right one. The big attraction you have is you're selling to the researchers, who are the people you need to appeal to, the chance to do something wildly new. And you know, if you can figure out the 2026 equivalent of the transformer paper and, you know, if you can figure out the equivalent of 'Attention Is All You Need' and publish that, that's what you're selling. And if I'm a researcher, that's what motivates me. I mean, I'll just struggle along on my five million a year, whatever I'm getting from OpenAI, but maybe I can change the world here and that's the logic. So you got to play to that.
You're lucky if you're not Thinking Machines or OpenAI, if you have one of these people at your startup. You're lucky if you have one. And it probably has to be your CTO because she or he probably has to do it themselves. They probably have to be your chief AI officer and researcher because unless they're incredibly charismatic, your company for selling vinyl mugs online or whatever, it just... none of these guys are going to join you. Even if you could afford the five million a year or 10 million or 20 million, they just don't want the job. They just don't want the job.
No, it's a very efficient market for talent and you've just got to... Yeah. I mean, you know, the venture guys, it's funny, it's kind of the old capital versus labor thing. The venture guys have tried and succeeded in making it a fairly efficient market for capital and then were shocked to discover that labor makes it a very efficient market for labor in response. And you know, go team. I mean, Karl Marx would be kind of glad in a weird kind of way. This is what successful labor empowerment looks like.
We've spoken about the breakup of teams. We touched on OpenAI a couple of times there with Mira. I have to jump to the ultimate breakup of breakups being Sam versus Elon going to trial. How do we see this playing out? Who wins? What do they actually win consequentially? What does this look like?
Look, it's going to be... first of all, let's be honest, this is... it's going to be the gift that keeps on giving. If you're the kind of person who slows down at a traffic accident, in other words, if you're like 90% of humanity, you're going to be slowing down every time the depos come out, it's going to be great. So, first start with it. So, now I'm going to start with an utterly different idealistic comment as we get into this whole mess and we will for a few minutes. It's worth pointing out that when I reread a lot of the stuff, they did all start by making a charitable donation for something they passionately believed in where they weren't trying to make money. You know, Elon chipped in 30 million plus, Sam Altman chipped in 10, Reid Hoffman chipped in. They genuinely believed, actually, and we'll come back to that statement because some might say it's a lie, but it appears that everyone genuinely believed at the start that they were doing something for the good of the world. They were doing something for charity, and they were trying to understand what AI could do and head off existential dangers at the pass. So, as is so often the case in life, I think everyone's intent was pure when they forked over real money to try and do something. So, I want to start with that. You know, thank you everyone for trying really hard to save humanity. And then the old rule applies, no good deed goes unpunished, right? So, the whole thing is now a mess because just to give the kind of the zoom out comments here, it was a not-for-profit company. At some point it became obvious to the management team around 2017 that the costs to build what OpenAI was to become was such that you couldn't keep going as a nonprofit. You have to become a for-profit entity. During the period when that started to happen, Elon had his demands on how he wanted that to happen. Sam and Greg Brockman had their perspective on how they wanted it to happen. They ended up, as it were, breaking up. Elon resigned from the organization. Fast forward past the drama of '22, in late '25 the conversion to a for-profit took place finally and it was approved by California and Delaware and now OpenAI is a for-profit corporation with the largest individual shareholder being the foundation. And the argument that Sam and Greg would make is, hey, you invested money in a charity and that charity now owns 30% plus of one of the most profitable, one of the largest companies on the planet. So, you kind of got what you paid for. That's the argument they're making, right? And therefore you're entitled to nothing. You made a $30 million donation. You created a 300... well, probably 150 billion foundation. Congratulations. You've helped humanity. You got what you paid for. And Elon's comment, which is going to be tricky to prove, but it's going to be messy, is not just 'I don't like that,' but 'all along you guys were planning to cheat me and planning to make it a for-profit company.' And therefore, because his ask is not just, hey, I want my 30 million back. That's, you know, chump change in the back of his couch, right? His argument, which is very aggressive, he's saying, hey, you guys planned this all along and therefore my damages claim is not just give me my 30 million back and it's not stop the conversion to a for-profit because that's already happened now, that can't be stopped. It's like, you guys took my 30 million on false pretenses, therefore I'm owed roughly what 30 million would own out of that company.
Now, which is a hundred billion dollars of value. He's basically saying, if we're going to go for profit here, guys, and you guys were lying to me all along, then I want my share of that now. So you're all going to have to take dilution such that I get my 100 million. The damages claim is 70 to 130 billion dollars, which would come in the form of extra shares of OpenAI to Elon, and everyone else would have to take that dilution. That's the ask. That's what's going on here. In the end, it's an economic argument on the basis of fraudulent intent from day one.
Is Elon doing this to slow them down? Is he doing this for the... I don't think he's doing this for the 70 to 100 billion dollars.
Yeah, I think he's doing it because he can and it's fun. I mean, look, billionaires are going to billionaire and near trillionaires are going to near trillionaire, right? He feels shafted. I mean, it's a win-win. He feels shafted because he does feel that he got mistreated in this process, and you're right, it's good for Grok if it slows it down, and you might win a hundred billion, and there's not a ton of downside other than a bunch of legal fees because, you know, no, they got no claim on you, right? So it's an asymmetric win-win situation for him, provided you have the couple hundred million dollars of legal fees it's going to consume here, right? Because we are litigating over a hundred billion dollars, right? And look, and then the other thing that happens is, and he's lived through this on the Twitter litigation, deposition and discovery is a sucky process because you write down stuff in your email, in your diary, and then it suddenly comes out, and it's always embarrassing, right? So, look, the truth is this. If I spewed out your last 10 years of emails, I'd find some embarrassing stuff, right? And it's happened to, if you remember, it happened to Elon in the Twitter litigation. I mean, some of those texts just look juvenile. You just, oh wow, you're the richest man in the world. You sound like an idiot. That sucks. In this case, they were able... I mean, if you look at already what they've got on the record, they've got poor Greg Brockman who kept the diary in 2017, you know, writes in his diary as one does, what does it take to get a billion? What does it take for me to get to a billion dollars? And now that's come out, and now they're going some version of, you were cheating me all along. You wanted to do a for-profit. I mean, can you imagine, Harry, having to get your diary from 8 years ago? And then you had Ilya who had to do a 10-hour... and this comes back to the whole mirror thing, right? He had to do a 10-hour depo on the 2022 CEO drama, which is not really relevant to this because the quote-unquote alleged fraud happened in 2017 or '18. But again, it's just a fun chance to get all the mess out there. So they depo'd Ilya for 10 hours, and we finally got to hear what he thought about the great fiasco. And it's kind of embarrassing for everyone. Everyone looks like an idiot in 2023. The board looks stupid. Ilya looks a bit naive because he relied on Mira. She looks a little naive because she was... It just looks like amateur hour everywhere. So if you're Elon and you're like, I can torture these folks and look stupid, maybe it postpones if there's any kind of credible case. And remember, a judge was asked, because what we call OpenAI did go for summary dismissal, which is what you do. You say, hey, there's no case to answer here, just dismiss the charges. And the case, I should say, they're not charges. And the judge said, no, there is a case to answer here. I'm not saying it's right. I'm not saying it's wrong, but there's a credible discussion here. So now they got to go to a trial, right? And I don't know how that impacts fundraising, but for the next one, two years, there's the potential of every financing of OpenAI now has, you might have to take 10, 15, 20% dilution if they lose a jury trial. The intent of the other founders, Sam and Greg Altman, wasn't day one to court. I think Elon's case is built on a slender conspiracy thread, but it'll sound compelling to a jury when you also have all this dirt about, you know, like who the hell knows.
Rory, what happens? And Jason, what happens?
It drags on a long time and it gets in the way.
Elon wins no matter what.
Yes, that's the right answer.
This is a jury trial. And again, we're not experts, but a jury trial is unpredictable and there are bad facts on both sides. Like, this is the movie The Social Network. I know they're making another sequel at Meta. This should be the next Social Network. There are bad facts on both sides. And if Elon was not the richest man in the world, he would settle for 30 billion or whatever that Winklevii got. He would do the same deal. Give me 5%. They would settle on the eve of trial for 5% to Elon. They would say, we're just doing it to move beyond. They'd give him 5% or 4%, and if it was about money, he'd move on. Just like the Winklevii got their 4% or 5% of Meta, Facebook. That's what would happen if it was about money. The fun thing about the sequel to The Social Network is they ain't going to settle for that. He's going to go to trial and he's going to win. And Elon has bad facts, but this man has already been bad-facted the last couple years in public. His worst fact, forget about that. It's now Oakland is very liberal. Elon's worst fact was that Trump hated him for about six months. He fixed that issue. Now he's back in the inner circle. Get a couple MAGA folks, Republicans on the jury. We don't know. Sam Altman fired by OpenAI board for reasons not fully disclosed. I have one strong theory. Greg Brockman and I, you know what I think really happened with Greg that I think maybe people missed? This is my theory. The guy really partially regretted leaving Stripe as the CTO on the fourth employee. He leaves, Sam recruits him from Stripe when it's worth three billion and says, 'Don't worry, we'll make it up for you at our nonprofit. Come do this thing. We're going to change the world.' And it's very exciting, and Greg really doesn't want to work on the Stripe API anymore. He's already gotten payments to work. It's kind of boring, right? And he leaves in 2015, Rory, when the world seemed very flat and simple, right? And he left, and he turns around and he's like, 'My God, I left billions behind.' How would you feel as a human being that didn't make the money Sam had already made? Sam's already become... he wasn't a billionaire then, but he's on the path, right? He's raised hundreds of millions at his own venture fund to invest in YC startups. He personally owns 2% of Stripe. How would 99% of humans feel when you're like, 'F, if I just stayed at Stripe and just played Minesweeper, I could be worth 10 billion.' And I think that haunted him. And I think that's where these journal entries come from. It's not him being douchey and saying, 'Man, I want to.' It's him haunted by Sam getting him to leave Stripe at 3 billion. Haunted by it. We've all... I've been haunted by some mistakes I've made too. I think he's haunted by it, and I think that's going to create a whole bunch of bad facts the deeper we dig that Greg was haunted by leaving the money at Stripe.
First of all, interesting, and it's... Yeah, I'd be haunted too. Haunted... I'm not going to speculate, would be haunted if he left a couple billion behind.
Yeah. Yeah. No, I mean, one of the things that's also sucky about this when you're in litigation is suddenly everyone, including Rory O'Driscoll, who I think has never put eyes on you, has a [__] opinion about you. That's the really sucky thing. And the great... I think I'm not sure I agree with you on Elon in terms of the jury. I want to come back to that in a second. But I do agree on one thing: he is post-pain when it comes to public shame and obloquy. There's nothing left to do for him, man. Right. So basically everyone else is going to have to get down in the muck, and he is already so far in the muck that, you know, on various different parts of the last three years, 40% of the country have hated him, and it's been a different 40% each time. So there's nothing left for him to do, which actually gets to the how do you think... you ask how do you think it ends, right? I think, Jason, you're right, if it was normal people, they'd settle. If it goes to jury, I think two comments I will make from a facts perspective. I think in the end, Elon has to prove his case, and it's a high bar to prove, right? Because you've got to not only prove... you've got to prove right when they were raising the money charitably, they were all along intending to swipe it and, you know, build a for-profit. And I think that's very hard to do because Altman's money went in as a for-profit, a not-for-profit too. So I think it's fundamentally... I think Elon's wrong on the core assertion. I don't think this was a cunning device to cheat everyone, because if they wanted to do that, they could have just done what Anthropic did, which is the totally sensible interim stage of a public benefit corporation and saved all this freaking drama. So I think stripping aside all the bad facts, I think the core assertion that Elon is making, which is they misled me into giving them 30 million for this thing which was never going to be a charity and therefore I get my money back, I think that's wrong. Right. So, but to your point, you still got to prove it to a jury. Now, the other companies, remember, he has to prevail. So as long as there's one person on the jury who hates him more than he hates Sam, he ain't going to win. You know, actually, civil trial, it might be 10 out of 12. But I think in the end, it's going to be hard. Like, first of all, it's going to be a very unattractive cast of characters in a, if it is an Oakland, an Oakland courtroom. You get Sam to come in and say, you know, hey, talk about how you said this is going to make everyone unemployed. Then you get Elon to come in. They're going to hate the whole being on the stand thing, which everyone's going to have to go on, right? And I think the jury will get, if they get into that room, they're going to go, 'Wow, I don't like any of these people. Why should you know, right?' But the problem is this. For Elon to win, he has to get them to all vote for him. And a kind of hung jury is fine. For the prevailing wisdom, unless Elon prevails, he doesn't get it. So, I think way down the line, two, three years from now, at the end of a long and bloody trial, the probability is he doesn't win the case. But, Jason, you're right. He's already won the... if what he wants to do is get kind of psychic revenge, this is going to be the best... this is like Peter Thiel spending on Gawker, you know, right? Sometimes a billionaire just wants to spend a couple hundred million bucks in this case to grind the other guy and make him sorry.
I think he wants every bad fact about Sam to come out. Every bad fact in this trial. We haven't even heard why the board fired him, right? If someone subpoenaed and depoed my diary for the last 10 years, and if you keep notes on days when you're feeling like [__], you know, you're like, that's not great. So that's the problem with litigation. That's the problem with convoluted structures. You end up in litigation. That's why keeping it simple was step one. And once you didn't keep it simple, trying to keep everyone in the tent. When you don't do that, you end up being sued by the richest person on the planet who's angry and mad at you. It's a tough place to be. If you're Sam, do you not go, 'Hey, I'd rather have the dilution. Not go through three years of distractions and actually get him off my case, bring the enemy inside. I don't have a stock anyway.'
Don't settle at five, settle at 100 to... Yeah, you know, give him...
I don't have stock anyway.
Well, sort of. I think that was dishonest.
Yeah. Let's not even worry about that. Let's... But you're right. Because the truth is this. Even if... But you're right. Actually, the big question is like, if, I mean, maybe to put it, if this is getting in the way of the next financing and it's been seen as a credible risk, then would you be better off, even if it's extortion, to cough up? Which again is why, again, Elon's in an asymmetric win-win situation and OpenAI is not. The only way it doesn't matter is if every... and I don't know if every investor looks at this and says, I'm not worried about the risk in the end, Elon will lose, so therefore we can ignore it and...
Wasn't that what they said, that our exposure is capped at Elon's donation of 30-some-odd million? That was the public announcement, right? Or pseudo-public leaked, right? And that's why his aggressive claim is, on the facts, very contestable. I mean, it's a real reach. The claim is a reach to say it's not just my 30 million back. Basically what Elon is saying is it was a for-profit all along. You guys just didn't tell me. And if it's a for-profit all along and I put in, if I was the 30 million seed in what was a for-profit company, then I want what a 30 million seed would get. It's a stretchy claim. You're right, Jason. And OpenAI are going to say there's simply no way from a point of law perspective we're going to concede that. And even if we lose a jury trial, we'll go in on appeal, right? And they're just going to say they're going to litigate it the whole way down. But you're right, that's fine. And this actually ties, funnily enough, to the ads come and everything else. What I don't... the key question that I don't know is how will the investors look at it? And, you know, do you have to take, if you're writing a check right now, you know, do you think, am I paying 600... if I'm paying 600 billion or 800 billion, do I need to say it could be a trillion because it could be 20% dilution? I don't know, right? Or do you say...
You said last week there was no existential risk to OpenAI. I said there might be some structural economic risk. You said...
But this isn't existential. To Harry's point, in the end, you can fold, give the man what he wants, which...
If you can't, if it's hard, I don't think this will make it any harder for them to raise capital because greed trumps fear. But if it did, it could create some risk, right? If it made it harder to raise capital...
I think you have to fold because the winner in this case, I know it's ridiculous to say, but the winner in this case and the guy laughing with popcorn is Dario.
But you can't fold. I don't think he'll let them fold. I could be wrong, but there's no chance that there wasn't some lawyer discussion talking about what would it take to resolve this, right? In a quiet room off the, you know, there's just no way that OpenAI has a fiduciary obligation to find out what it would take to settle it, right? Arguably, they have to. So, Elon has no... didn't want to take it. He just, he wants his day in court.
And that's why you have to settle if you're Sam because the...
You can't settle if he doesn't want to settle.
No, I mean, to be fair, you don't have to. I mean, because as I think about as an investor, what would you say? You'd say, here, let's just say this is a round at 700 million pre. There is a probability of an additional 15% dilution, but it's not 100%. Maybe it's only 10%. Right? So really, risk-adjusted, you are kind of a... you add a 1.5, but so you don't assume... you're assigning a probability to a capped, large, and uncertain event, right? Which is there is some chance that I take 15 or 20% extra dilution, but it's not 100%. So it doesn't drag the financing down to zero. It merely means there's an asterisk risk on it. And to be fair, anyone who's financed OpenAI today, if you look, the funny thing about OpenAI is it has, even though this looks very risky, I'm going to make a weird statement. OpenAI, from a structure perspective, it's less risky now than it's ever been. If you look at all the risk, the first money went in, it was, hey, it's for-profit and not-for-profit. And then you had that disclosure, hey, we're never going to make money. So, what can you do? You know, in the last year, they've been able to convert to a for-profit company. So, a huge step took place last October, November of '25 when OpenAI... I mean, the real danger would have been if they hadn't been able to convert to the for-profit company because at that point, the whole thing was at risk. When they got that done, right, they took a big step function decrement down in risk. So even though this feels very risky, it is less risky than the risk under which they were able to raise, you know, 200 billion plus or minus. So it'll be fine. It's just a risk. It's going to be a monstrous pain and it's going to be popcorn time for everyone else.
I think you're being way too nice. Like, at a time for OpenAI where you have Gemini killing you on consumer, Anthropic killing you on enterprise, but you're just lumping everything in together, you know.
Because you have to. This is...
The litigation, I can't isolate things like...
You, but actually, funny enough, you have to in the sense of whenever you have that kind of litigation, I've been to companies occasionally have it. What you have to do is to say this, the one thing, the really dangerous thing about litigation is if it kind of subsumes the whole company because the thing about litigation, it gets your blood up and you start trying to win and you just get emotionally vested in it. If they're smart, they'll have a great GC who says, 'Other than depositions, none of you talk about this ever again. We will deal with it and our 100 million worth of lawyers.' Right? Because you can't let that get in the way. So, let's assume you do that. And now, now you're still running a wildly successful business with a whole bunch of competition. And you're right, you've got to deal with Gemini. You've got to do Anthropic. You got to get ads out the door. You got to start having a convergence plan on profitability, which is, I think, why the ads are coming out. Yeah, you still got lots to do, but, you know, it's no... with the exception of the litigation from the world's richest man, nothing's changed from two weeks ago.
Is ads coming at just the wrong time as Gemini is killing you on consumer and producing better and better models and Google are really feeling tailwinds to come out with something that does deprecate the product even in a small way? Is it coming at just the wrong time?
But I think you do. I mean, I think it actually speaks to something. Why do you introduce ads? I mean, if you look at, there's three big ad... the two biggest ad businesses were Google and Facebook, and both of them agonized for about a year before introducing ads. Google in 2001, 2002-ish, and Facebook in '05, '06. And then everyone goes to the following logic. There's no other way to monetize. There's simply no other way to monetize. And the cost to serve a free ChatGPT customer is higher than either Facebook or Google, and the conversion rate to paid... because Facebook and Google... So, so what are you going to do for business model? Facebook and Google didn't have a paid tier. So one argument could have been a certain percentage of the free people will just convert to paid, and that will be enough to make the business work, right? But the truth is consumer conversion tends to run well under five. Yeah, 10%, probably 5% or less. You just don't get enough conversions to serve the free tier. You've got no choice. Once you recognize you got no choice in the end, just like, I mean, Facebook hated ads, Google hated ads. You can hate ads till you're blue in the face, but America wants free [__]. And the only way consumers get free stuff is if you run ads. So, there's no choice. So, I think it's kind of a... it's inevitable. So, rip the band-aid off. Especially if capital is going to get more expensive. You just got to go do it.
I think the ads will be great.
