On the Stitch Figma thing. On the one hand, massive market overreaction to a proof of concept. Give me an effing break. On the other hand, on the agenda this week: Anthropic, are they eating OpenAI's lunch when it comes to enterprise? Jeff Bezos seeks a hundred billion for his latest project. SpaceX at $2 trillion after Terraab, the debrief on Grock's $20 billion deal to Nvidia, and much, much more.
If you're a software product and you don't think AI is going to disrupt not just how you build, but what you build, then you actually probably want to actively short it. I think every VC is stressed right now. Let's be honest, who the hell is going to buy them if they don't IPO? I just worry there's some ratio of potential acquirers divided by unicorns. And I think we're at the lowest ratio of our careers. I just don't believe the hyperscalers are going to buy these companies.
Basically, it's win or die. Ready to go, guys. It is so good to be back. We had a lot of [__] go down this week. I think there's a couple of places we could start. To the arbiter of economic justice and revelations, which is Ramp, who revealed recently with I think they're about 0.5% to 1% of US GDP transactions or whatever it is that Eric used as the statement to validate themselves. Ramp data suggested that Anthropic now captures 73% of all spending among companies buying AI tools. 10 weeks ago it was 50/50 with OpenAI. Early December it was 60/40 in OpenAI's favor. Are we seeing Anthropic run away with the enterprise lunch, so to speak?
Just to start with the facts, they actually said 73% of new spending, right? And the same graph shows OpenAI is still actually ahead of Anthropic in terms of total spend. But the marginal buyer in the last 6 weeks, 8, 10 weeks has massively shifted, which is obviously the most leading indicator. You know, people in the market today for a new AI went 70% Anthropic. So just in the interest of being precise, yes, the claim from Ramp. I thought the OpenAI response of it's not, you know, the snarky comment about extrapolating from a lemonade stand was just a bad look, right? First of all, it kind of doesn't really understand statistics. I would argue Ramp is probably a pretty accurate statistical reflection of especially digital company spend in the US. I think they have got a pretty diversified customer base and they probably have decent data and they've got good data scientists. So OpenAI trying to be snark I think was a mistake. I think it does represent the facts, which is in the last three months there's been a shift in the zeitgeist and I do believe that the marginal user, the marginal person opting for AI today or even people switching today, the switchers are moving towards Claude and they're moving away from OpenAI. Doesn't mean it's the end of the world, but sometimes the first thing you got to do when dealing with a problem is to face the hard facts in the face and I think the data was good and the conclusion is real.
If Anthropic now is maybe a $22 billion run rate, that revenue does tie to these conclusions too. Certainly isn't inconsistent with it, right? The only thing I might say, I don't want to spend all our time. I think it's possible they're both right. Like OpenAI and Ramp are both right. And what I mean is in some ways this felt to me like the Cursor debate because if we walk into our portfolio companies, barely anyone's using Cursor today in my own portfolio and people said it on Twitter too, like Cursor is dead. No one's using it. They've all moved to Claude Code. And I would say in that ecosystem, it's true. And maybe if a lot of Ramp's data is still biased toward tech, they might see this same trend. I mean Claude has, if you just look at why everything's accelerated since December, it is Opus 4.5 and after. It is crystal clear as soon as Opus came out it was another step function that was under discussed. Everyone's PRs exploded, everything got better. But for the normal world, they live in ChatGPT. So I don't want to say for sure that the Cursor experience isn't happening here. So my point is they both could be right. They both could be right, but it's certainly everything. What I don't like is how OpenAI is acting wounded, to Rory's point. I don't like it. When we started this pod, OpenAI seemed invincible. No matter what Anthropic did, it seemed utterly and everything. You can just smell this era, this air of desperation. Oh, we're going to keep headcount flat to manage cost, to we're doubling headcount, to we're going really deep on agentic commerce, to we're basically cancing and Walmart says it doesn't work. It feels very inconsistent. And when I thought about this, the one thing that I love about Anthropic is it's very consistent about its ICP and goals. It has been very consistent. We know what it stands for. We know what it's trying to do. Yeah. It launches new features. I mean, it's got its new like open this next version of OpenCloud launched yesterday as we record this. But you know what's coming with Claude and Anthropic? OpenAI? I'm getting whiplash from everything. And the Debbie Downerism. It's not going to last. Last week we talked about the air of invincibility at GTC and Nvidia. It doesn't smell like that at OpenAI today, does it? It's just like a downer to be around and I don't want to try their products because of it. Honestly, to Rory's point, I actually don't want to try their new products. And I literally last night I'm DMing with our chief aerod [__] app that just launched, but it ain't gonna happen. I don't want to hang out with Debbie Downers.
If we just kind of put that into strategic takeaways in terms of their pivot now, Sora is getting folded into ChatGPT rather than being a standalone app. Hardware ambitions are being deprioritized and they're really kind of trying to consolidate efforts, stop having such a diverse product set. And then they're also, to your point on headcount, they now plan to nearly double headcount to 8,000 by the end of the year, having said before that they were actually going to keep it flat.
No, I just want people to understand the context rather than...
You know what it feels like to me in all seriousness? It feels like when we started this podcast, oh quite a while ago but not a year ago I don't think, that OpenAI was an exception to the rule. You could have massive founder turnover. You could have massive management team turnover. You could have unusual, a high like the amount of drama with kicking Sam Altman out and then bringing him back and a dysfunctional board and like it seemed to be the exception that made the rule that if you had so much momentum in a consumer, like you could overcome it. Now I feel like the downside is rearing its mind of inconsistency. This inconsistency is damaging the company today in Spain. We can see the downstream impacts of that massive turmoil.
Yeah. And I'm going to come in here and try and say something positive, but start by pointing out if we do go back to those first 10 podcasts, they announced the hardware deal with Johnny. If you recollect, I was like, 'This will never ship.' I said at the time, and I actually said right when he was on a high that I don't envy Sam because the press only has two stories. We love you. We hate you. And once they've written we love you, there's only one story left. So they're just moving through the to-do list. We've done the we love you Sam. Now we hate you Sam. Right. And he has brought it on that, you know, you spend a year talking to the prince of fill in the blank, the president of France instead of staying at home and shipping product. Eventually things get defocused, right? So, but things are never as good as bad as they seem. That's just one of my rules. It was never as good as people thought a year ago. They still have, to your point, Jason, they still own the consumer business, right? And you know there's and so job one is figuring out how to monetize that and make that a big ass business. You know it's hard to believe that there isn't something, the advertising efforts seem to be struggling now but that's job one to figure out. And then you're right, job two is to figure out enterprise in particular coding. I mean they're doing finally the right stuff. You know, perhaps a year, year and a half later, but it's still clear to me that if you just take a big deep breath and you were running that organization, focus on the two or three things, get a little more sensible on your financial trajectory, you still have a comfortable chance to be the winner. In other words, to exit two, three years from now as the largest market cap standalone financial model player, right? You blow it for another year and you won't.
You know what's interesting is there's sort of two things going on here that I see in the data, right? If you look at OpenRouter's data, it has exploded since the start of the year. So what that is saying is folks are aggressively switching between models for cost and output, especially cost. Like that's saying there are a large set of customers who are optimizing when to use Kimi and when to use Haiku and when to use Mini and that model has exploded, right? And we can see it in a lot of our more mature customers. I mean companies that are trying to optimize their spend. On the other hand, so much of us have said, listen, I mean, Claude, Sonnet and Opus since 4.5 and 4.6 are so good. I want to stick there. It's so like if you're not deep into coding or vibe coding, you don't see how much better it is in the last 90 days. And I have no desire to screw around when something gets their hooks. It's so good. And so I want to build all my scaffolding. I want to build my apps. I want to build my AI agents about something that isn't just good but now is epically good. And so you'd really, there are a lot of, even with the OpenRouter data, like I think what I mean is there's these two things happen. On the one hand the soft costs are very low to pick a different model but on the other hand there are high soft costs for managing the outputs and QAing it and qualifying it and making it great. And I don't want to do anything except Sonnet and Opus now. I don't want to spend any time on it. It's not worth the soft costs. And I think that's where the panic is. They can smell that they're losing that even as cost-sensitive customers will rotate through the cheapest possible thing.
I think true and I think it speaks to the, you know, you have these discussions, you know, do you want to be first to market or do you want to be second and you know more and you don't, you know, pioneers get arrows in the back and all those cliches. But I think the real truth is if you are first to a market with the right product, you grab that early mind share and market share and then it's theirs to lose. And just contrast the two markets because it's pretty clear the two potential mega markets here are the consumer market where OpenAI grabbed mind share with GPT and despite the, haven't monetized it yet. No one's really taken that away from them at scale. And then the other mega market is not just enterprise but within enterprise coding. And you're right, Jason, the scary thing is today, it's maybe 6, 12 months ago was up for grabs. Today kind of your description is right. It's half up for grabs. People are starting to lock in. And you know, if OpenAI allows Claude to become the default for another year and the perceived best for another year, I don't think you get to show up after a whole bunch of people have made enterprise decisions and say, 'Oh, now we finally got our [__] together. We're good too now. I promise. Please pick me.' Right? There is a moment. There is a tide in the affairs of men as Shakespeare says, right? This has been the last 6 months of coding lock-in, right? Just the recognition that coding is the mother lode app within the enterprise spend. And you're right, if you let Claude run away with that for another 6 or 12 months, you've probably sacrificed value that you'll never get back.
Yeah. Let me just give you one small example because the models are so much better since December. So since then, we have built an AI VP of marketing and an AI VP of customer success for real and they're really, really good. But here's the meta point. Our AI VP of marketing defines every day every single marketing activity. It wakes up in the morning and gives us Slack updates. It runs our weekly team meetings. Our AI VP of success, we have like 200 sponsors for SaaStr and all the humans would quit because it was too much work. It does it 24/7 and the sponsors love it. Okay. Now here, so these are great. It runs on Sonnet 3, I mean sorry, 4.7 and maybe a little bit of Opus. There is no way we're going to switch the model. This is dialed in. It works. Now, we're going to have to deal with QA when it goes to 4.8 and 5.1. There's a little bit of QA and it does change, but my god, there's no, these apps which we rely on every day, there's no way we're going to switch them to Codex because it took us weeks to dial it in and you have to train it and you have to do it. And now that they're great when there's a certain level. I'm not saying that other folks won't, but that is a lock-in since the latest models that I think deserve a code red. We will not invest the time after we've d because they're so good the models today. So that's a risk. I would have a code red on this.
Agreed. And again just donning my economics of industry hat. You're exactly, you're an individual enterprise, right? Maybe if you were a SaaS vendor of these products to a thousand enterprises, you might have a big enough engineering team where we might be what you are 6, 12 months from now to evaluate new models. But you're right, you've built a business that worked for you, right? And it's, you're right. Unless they're extorting you on token costs, it ain't broke. So, you ain't going to want to fix it 6 months from now. I agree. And that's why just like on the consumer side, every time you lock in muscle memory, I mean, I'm using Claude all the time now in co-work, but I will admit when I'm doing my random research for this thing, I still go to ChatGPT. I'm used to it. I got a lot of stuff in there. Every time you lock in behaviors like that and let them settle in for 6, 12 months, you're just, yeah, you're losing lifetime value that's non-trivial.
There are applications, if we just stick to B2B and AI for a while, there are applications that are very sensitive to token costs, okay? We've all, you know, even things like support are super sensitive, right? Because they're using so many tokens. But I got to tell you, there are so many applications like the ones I described that were not that sensitive to token costs. If you use 200, 400, $2,000, $10,000 of tokens per month for these, it just doesn't matter. And so there's the OpenRouter world where costs are super sensitive, but there are plenty of applications that will deliver epic value on these LLMs where it's not worth it. You want to reduce my token cost from $2,000 a month to 1500? I'm not going to, leave me alone. Leave your Kimis and all these, I don't care. Like I got 99 problems. This isn't one of them, right? And there are going to be more of those apps than we think.
You're exactly right. One of the things I've been thinking about for us for our software apps investments is just having this mental model of, you know, what's the token spend as a percentage of revenue? And you're exactly right, Jason, there's a ton of really interesting apps that, you know, for 5, 7, 8% of revenue on tokens are building huge value, which my sense at least is very different than the coding apps where you might be at 40 or 50%. And if you're at 5% of revenue and you're growing really quickly, you got a lot of better things to be doing with your life than overoptimizing the models. And I think you know and if you get around some open source.
Maybe even more, maybe even 20%.
I think that metric, I've actually meant to do this work and if someone has done it out there in internet land, I'd love to see it. Just looking at a couple hundred AI apps and just literally looking at the AI token spend as a percentage of revenue across them all. I'd love to know what the pattern is because I totally see very different percentages depending on the token intensity.
SpaceX, Terraab, potentially $2 trillion. We're reaching new heights. We started off at a trillion 2, a trillion 5, now Terraab and the $2 trillion number is being mentioned. Rory, why don't we start with some context from you? You're the best at providing context.
Okay. I mean the big picture context is that Elon made an announcement that they're going to build a fab, effectively build the equivalent I think almost 70% of the volume of all of TSMC right in the US near the Gigafactory because across the chip need for Tesla and perceived and the potential chip need, I'm picking my words carefully, for SpaceX to the extent that they build data centers in case he doesn't think TSMC will be able to make enough chips to support his needs and therefore continuing a pattern of vertical integration which they've had for an extended period of time, they're going to build a fab, right? Not just any fab but the most advanced modern fab on the planet for probably capex cost of 25 billion, right? That's the announcement. So I can, and it's not clear the ownership by the way, but it's I think the usage, the idea, I saw some numbers like 20%, it's kind of some kind of joint Tesla SpaceX venture, 20% of the volume in the end will go to Tesla, 80% will go to SpaceX and data centers. So that's the story. The second piece of context is, Harry, you said SpaceX now being talked about at $2 trillion. Let's be clear what you're saying about that is because I'm going to push back strongly. Polymarket said the probability of SpaceX being worth $2 trillion on the IPO went up to 50, 60% right from a lower number, right? And that's what Harry is attributing information, signal to. I would point out that Tesla stock didn't move. So if this really is, even if it's 80% SpaceX, 20% Tesla, in the market nobody blinked, right? Where actual money is, well actually significant money is changing hands. So I am significantly more skeptical that 6 months from now people are going to attribute another 400 billion of value to a statement that I'm going to build fab.
Unless they saw your math, the 80/20, and really thought of all the value going to SpaceX, right?
Even if all, I mean, yeah, yes, okay. So again it's back to the same eternal Elon discussion. At every point in time with every one of these companies you have things he's already done that you can value in a revenue multiple, things that have been announced or in process and there are various stages of d-ness and then in that case you have to assign a probability to getting it done. And if the probability is 100% then announcing a fab means you're worth the fab. If the probability is 1% then announcing a fab means you were worth 1% of the fab, right? And everybody gets to pick their percentage in that continuum, right? Right now clearly, I mean TSMC itself is just over a trillion in market cap. It's like basically saying if it really popped up by $400 billion of value, it's like basically saying TSMC has spent 30 years building the most modern fabs out there, you've announced that you're going to do the same, you do have customers for those chips in the main, so I'm going to give you a 50% probability of really getting it done. It's a pretty high Elon attributed probability number.
But do you think that's unfair? I wouldn't bet against it.
I mean, it's very, I always struggle to describe it. He is the person who's achieved more than anything else entrepreneurially in the world today. Period. Full stop. On hard engineering problems far beyond any piece of software. Right. So is it rational to say that if anyone can do it, he can? Yes, because he'd done it two or three times with cars, with rockets. Not irrational from that perspective. You still have to say, is his record on timing of being right about when things happen and when they come a little more spotty, right? I mean, I actually just went into ChatGPT and said, 'Make me a chronological list of every prediction from Elon about full self-driving.' And then I did another one, make me a chronological prediction of every prediction from Elon about when Starship will be flying and will be able to reach you Mars. It's a long line of it's going to happen 3 years from now in the case of FSD. So I think with the caveat that we're dealing with the most accomplished entrepreneur of at least the last 30 years, maybe one of the top two or three ever, you still have to say his record of predicting timeliness on terms of these things is somewhat, it takes a lot longer than you think up front and you got to figure out as an investor how you factor that into the valuation. And everyone's entitled, the beautiful thing about markets is everybody gets to play their own way, right?
I'll tell you what was interesting to me. I watched yesterday on YouTube they had a Jay Leno where he was the first one to test the new Tesla Semi, okay? And the team from Tesla came over, Franz the head designer and the head PM for Tesla Semi, and they were talking about it and they were talking about energy and the designer said, 'Yeah, we strongly believe across all of Tesla the future is fusion. It is fusion to power our trucks. It's just we believe the fusion's from the sun. There's no point in doing it on Earth and we will soon power all of our semis through fusion.' And this is a thoughtful lead designer saying this vision that has been there and they believe it. I think it's a great story that can happen that we're going to build more power than I guess exists in the world today and 80% of it's going to space. 80% of these chips that come out of this are going to space to power fusion. You can mock that or say it's going to take nine more years than we thought. But if it does create a pretty powerful vision for the IPO and beyond. I mean that's pretty, now you see it all coming together for SpaceX for real for the first time rather than we've got internet satellites and spaceships, like it sort of made sense, but when we're harnessing the entire sun because it's pretty doable because we've built a lot of it already, starting to sound cheap at 2 trillion. Who else can harness the sun?
Just to push back a little on one word, because I think it does all make direct sense. But I'm just going to call you on the word mock because I didn't mock.
Yeah, I was very, some, some...
I think you've just got to say look, someone can be 10x more accomplished than you, right? As an entrepreneur and a human being, but when you're investing money, you're still entitled to say what probability do I ascribe to that 10x more accomplished person being able to do the next thing. And therefore you have to look at this and say for how long will this be supported by a future statement and when will it be worth something on 20 times free cash flow.
But you know why it's interesting, if you really believe in DCF and free cash flow for real in the public markets, and I still get confused, if Starlink really has 53% profit margins and is wildly profitable, the fact that this extends the Starlink vision two orders of, five orders of magnitude, it's actually a reason to say hey, if I believe in this at all, my DCF has gone up. How much? I don't know. It's gone up because Starlink is so profitable at scale, like jaw-droppingly profitable, right?
Two comments. First of all, big picture, you are correct. The reason Elon can do it and no one else can is he can articulate these big step function stories where as one investor in many of his companies pointed out to me, it's a great point he made, they're not like software companies that incrementally grow every year. They're kind of step function technical challenges that you accomplish maybe every five or seven years and then you harvest on that while you're building the next step function challenge and then that gives the next lift. And I mean I think Starship's a great example of that. You had the hey I launch rockets and all I do is get government contracts and then you're like no I launch rockets and now I have a cellular service for remote cellular and now the next turn of the crank is maybe if I can get Starship working you can have cellular for everywhere and data centers in space. So you are right. These are big chunky visions each of which if realized gives you an extra pick a number 100 billion, 200 billion, 300 billion of net present value of thing. But you just got, so I agree, no one else can tell the story and no one else is credible to tell those stories. You still got to go back to what's the probability of happening, when does it happen and what's your cost of capital between now and there.
Yeah. And I would just argue if you're the classic optimistic analyst, Wall Street analyst, you can probably justify the two trillion, Harry's two trillion valuation by saying the odds that this occurs are 80%, but we're ascribing only a 30% chance it happens on time. There's an 80% chance and within 5 years it achieves similar profit margins to Starlink and you roll it all back and you can justify 2 billion over 1.x trillion right there. I think you could do it on a spreadsheet.
And that bet will be available to you and have at it.
Well, in the week of bold hundred billion dollar bets and why the [__] are we doing stage investing, Jason? Jeff Bezos seeks $100 billion to buy and AI transform manufacturing. Wall Street Journal broke this one. Jeff Bezos raising hundred billion dollars manufacturing transformation fund and acquire companies across semiconductors, space, defense, eject AI into their operations and make them much more efficient. He's apparently been touring Singapore and the Middle East to charm some sovereign wealth funds to give him the money. How did we think about this? Again, it was another week of I feel irrelevant at early stage.
I think it's a great classic Indian Creek Island investment. So you're sitting in Miami in your couple hundred million dollar home. I love you. You've got Jassy and team running the hard business. You don't have to do that that much. Luckily, they're doing the hard work. And this now I get to think big. I get to think big at Carbon or on the yacht. And I don't want to go small anymore. And I've already done it. You know, I've already built Amazon. So I'm, you know what I want to do? I'm going to remake some industries. I, you know, I was with my friends at Pure Vita getting our smoothies and we're all gonna remake industries and this is the Indian Creek Island bet and I get it, right? You don't want to screw around anymore on billionaire's bunker. You just don't want to.
Do you think he'll be able to raise hundred billion dollars?
He could just sell stock. If he wants hundred billion dollars, he can get it himself. So, I'm sure he'll get some significant slug of capital. I mean, it's hard. I mean, I don't know 100 billion. Yeah, it's so out of my peg, but...
The only problem is SoftBank seems tapped out. They're hitting their debt limits they just announced this week, right? That they're flashing above their covenants. So, but I don't think he would announce it if there wasn't a re that he didn't believe he could do it, right? So, you got to announce a decent probability.
I want to come back to what you said, Jay. I thought that was actually very insightful, the Indian Creek comment, right? And you do see this of, you know, I did it the hard way. I'm now 50. I'm 60. I'm not 22 anymore. I've got more money and less time. So, I'd like to insert myself further along in the value creation process to make it happen quicker is the logic. You're right. Because I was reflecting back. AI is this cool new technology that could transform loads of industries. Just like 20, 30 years ago, the internet was this cool new technology that could transform a whole load of different industries, right? And if you think you had really, and when Jeff Bezos was starting out, there was three different plays you could make. You could say, 'Hey, internet's going to transform retail. Let's focus on retail. I should build software and sell it to retailers so they can kind of move on to the internet. Build Shopify, right? The second thing you could do is say, hey, the internet is going to transform retail. I should buy Walmart because I'll kick ass and I'll make them become an internet company and I'll do it that way. Or the third you can do is to say, I'm going to do the hard thing for the most amount of money. I'm going to transform retail myself by building a full stack retailer. I'm going to call it Amazon and I'm just going to kill everyone, right? And the last one was it turns out the $2 trillion opportunity, right? And from zero. So your IRR is from effectively no money in, you make a couple trillion bucks from a value creation perspective. Shopify roughly a couple hundred billion dollars. Agreed? Because that's the best e-commerce technology provider. And you know, to be fair to Walmart, if you had half a trillion dollars lying around at the time, you could have scored a double because it finally adopted the internet. And you know, you make a 2x on a lot of money and you make a half a trillion bucks because now Walmart's got a market cap plus or minus of a trillion dollars and they're very much a winner in the internet age. And I was just thinking those were the three games that you play and back when you're 25 and you have incredible drive, you don't have half a trillion dollars lying around, you do Amazon. But you're exactly right. If you're in Indian Creek and you're like, 'Oh, I don't have 25 years of, you know, working out of a desk.' I'm like a 2x on a, you know, taking a hundred billion and buying a bunch of companies and, you know, injecting AI into them like I could have injected internet into Walmart. Maybe that's the play. It's inherently less disruptive and more financial engineering than doing either of the Shopify play or the Amazon play. So, yeah, I agree. I like the framing of the, it's what you do when you have too much money to want to do it the hard way.
If you talk to billionaires today that aren't pulling their hairs out because they're running public SaaS companies, okay, the vibe is similar. They want to do something huge in AI right now. They don't necessarily want to run it themselves. They don't want to be CEO again, right? But they're very motivated to do one of these plays. So, we're going to see a bunch of these plays. It's what everybody wants to do. It's logical. It's logical from Billionaire Island. It's logical.
I love seeing Sergey Brin rock up to a random hackathon in Miami. I'm not sure if you guys saw this, but in Miami, he came out at the end and, you know, was a judge or whatever standing on ceremony of a very grassroots hackathon in, you know, a random part of Miami.
Maybe the only place left in the country hospitable to billionaires. So, we'll watch, we're going to watch it accelerate.
Oh my god. The oppressed spaces of...
No, I do think, you know, when I think about this, the New York QSBS and other stuff, not, we don't have to do it. What I do think is when you saw Sergey there, right, and he didn't even move to the billionaire bunker, moved to a different part of Miami Beach, but I do think what we're missing is I think that it may become the only place in the US over the next couple years that is welcoming billionaires.
Texas does, but Austin even doesn't.
Austin does not. Austin has mixed views, but say what you will, and then I know it's, I mean, you know, Florida welcomed, I mean look, I mean it's terrible, the OnlyFans guy, I mean very, very, very controversial subject matter, but where did he live? Pompano Beach, Florida. Okay. Florida said you be a billionaire here. Okay. And so we are see, we're underestimating, it's not just taxes with Sergey. It is you may only feel comfortable if you're Bezos or Sergey in Miami soon. Why would you feel comfortable in California or Washington and New York? Seriously, why would you feel comfortable? Maybe Utah. I would feel, you just don't want to be attacked constantly. No human being wants to feel that way. You want to go where people will let you just be yourself and raise a hundred billion or do whatever. Like leave me alone. Let me live. And that's what I think people are missing with the golden goose. They're making billionaires uncomfortable. And it's not just the money. It's being uncomfortable. That's Sergey. He's gone. He ain't coming back except for staff meetings and hackathons in Mountain View. He's gone. I'll tell you yesterday, I'm here in Utah and I saw Ryan Smith yesterday. I love him. Right. Founder of Qualtrics. Okay. People love Ryan. And he took his money and bought the Jazz as well as hockey team. And he had a rough first year with the Jazz because he traded some top players. But they love him here. They love Ryan here. And I don't think in the Bay Area anyone, people are vilified. The billionaires are vilified. Why would you stay and it's only going to accelerate? So it's, here's the thing. It's hard to predict the outcome, right? I really don't think adding QSBS to New York is going to lead to the exodus that the people wanted to do. We can talk about why, but they did it in California and that alone didn't work. But when you are uncomfortable living somewhere, you leave. And Ryan Smith is beloved here in Provo where I am today. And Sam Altman is vilified and Dario gets a pass maybe because he gave away 80%. But who wants to live? Who the hell wants to live where you're vilified? Who the hell wants to live there?
Cut Sam some slack. He apparently has no OpenAI to give away. So it's...
Howard Marks left. I mean he's old, but he did leave. It's, you want to be where you're comfortable.
Speaking of like the world hating billionaires, Grok announced essentially the debrief on the $20 billion deal to Nvidia. Less than $100 million in error on being acquired. Jonathan the founder is going to make about $950 million after what will be a double taxation. Showing it's quite a costly thing, taxes in terms of the IP and team aqua hires that we've seen. How do we think? And then Chamath also reportedly made $950 million to which he responded on Twitter he made much, much more. How do we think about the analysis of this breakdown?
I think there's three different things you said we'd talk about and I think you should break them apart. You know, one is how often do you see this kind of sub $100 million ARR revenue businesses going for this kind of value? Then the second thing is what was the structure and why does it result in double taxation? And then maybe the third thing is why does poor Chamath need to tell us he's rich all the time? It's okay. We believe you're rich. You know, you may have made other people poor, but we stipulate that you are rich and even you are smart. You did a great deal here. You know, let it go poor guy. Therapy will help. But let's go back to the first one, right? How often, because the first question you asked in the notes which you always ignore when it comes to the show is when do you see this kind of transaction priced as if revenue doesn't matter? That was the question, right? When does someone pay 20 billion for 100 million in revenue? And I was thinking about that, it's easy, the answer is when the value to the acquirer is so high and they have the market cap to do it. And Nvidia with a $5 trillion market cap can pay $20 billion for something that's valuable. And there is another good example I thought of at scale because it happens a lot at small scale. There are loads of tech M&A where you know some shitty little company's doing less than a million in revenue and someone buys it for 100 million which you know is 100, 200x revenue multiple but we don't make a noise about it because it's just so small. And the reason they're doing that is because they can run it through their channel and they can convert that million in revenue into 20, 30, 40 million very quickly. It has strategic value to them, right? The number of times it happens at 20 billion is low, but WhatsApp is the other great example of that. Facebook paid $16 billion for WhatsApp and it didn't have a dime of revenue, right? And it was a great deal and it's still a great deal. So, it does happen, but there's only a few number of buyers who can afford to do that.
The Grok one, you know, they just announced at GDC last week that it's going into production. So, that's different. Okay. And I'll tell you what I find interesting in general for venture. So look, they had 100 million in revenue. They proved the concept. They prove it sort of works. And Jensen said within a year we can get this into production. That's worth billions, right? And so it illustrates how weird M&A is, so weird. This deal probably was a multiple of the last round. The last round was at 6.9 billion. There are, this is less common these days, but classically rounds would be two to three x the last of a growth round. Okay, that has collapsed for some reasons recently, but my first startup was acquired for exactly 3x round. Literally, our acquirer downloaded our certificate of incorporation, found our per share price, and showed up unsolicited with an offer 3x. Okay, that's what I think happened here. What is so weird though is that it's a reminder that so much of M&A one way or another is focused on revenue multiples either directly or potentially, and then they're just abandoned after the deal. They're just, you're worth 10.2x ARR and then we fire the sales and marketing team after the deal closes and roll it up into our core product. It's an odd thing. Necessary but odd, right? There's so many weird ways they are valued.
Agreed. Yes. And it's a weird thing because there's often this huge gap between what you're worth, you know, what you're worth standalone might be two or three billion. What you're worth to your acquirer might be $20 billion. And it's a question of how does that 17 billion of value get allocated. And obviously sometimes the buyer is trying to grind you down to $1 more than your standalone value. And then sometimes, like in this case, they're like, 'Hey, we will pay you a fair amount of what it's worth to us, which is way more than you're worth on a standalone basis, but kind of segueing to the next thing. In return for that, you're going to use this structure, which is wildly tax inefficient, but it's the only way for us to get this thing done quickly and without government review, which is the next thing to say here, which is the point. The other point you're trying to make is that you the CEO, I mean no one's going to cry for someone who made $950 million and they're not even a billionaire so no one will hate them. So that's great. I mean it's actually win another 50 million and Jason the pitchforks would be out but these transactions are very capital tax inefficient because what happens is the company sells the assets to Nvidia, books a gain because the assets were in the books at sub a billion and now they're getting sold for 20 billion. So you have to pay tax at the company level on that and then you dividend or redeem the money out and individual investors have to pay tax on the gain. So it's fairly inefficient. So you're probably wasting plus or minus 4 or 5 billion bucks on a $20 billion transaction because it's probably to the founder Jonathan it's roughly 60% effective tax rate and you can't hold Nvidia stock. You're cashed out. Like there's a lot of, there's so many inefficiencies in this deal. One, you don't even get the IP, right? You don't get the company, you don't get anything, and it's a 60% tax rate to the founders and no ability to roll over the stock. You know, avoiding antitrust, is it worth it? Probably for the 950 million. But man, this has got to be the most inefficient thing ever convoluted to avoid antitrust. It's so expensive.
And it is worth pointing out. It's just quite terrifying from a government perspective. You now have a process whereby the government makes the rules that enforces the antitrust and the government and basically you've got two choices. It would appear you either lobby extensively at the highest level as the administration and you get a waiver from the top down for that Wall Street Journal article this week which was pretty good. And option B is you pay double, you do it this way and then you pay double taxation and the government wins either way. You know, wire me the money and I'll let you off or wire me the money after it closes, but wire me the money either way. You know, it's a really perverse incentive. I mean, whoever comes into the antitrust division next time and says, 'I think we should clean up the rules and make it much more transparent.' It's probably going to cost the government 20, 30 billion bucks in terms of, you know, some combination of kickback and tax avoidance. There you go.
I have to say I do like it. Jonathan was in the desert and the dark for many years and he is a founder who's been a real respectfully cockroach who's...
gone through the hard times, who's gone through the criticism. He's also just a good dude. I like him a lot and yeah, he's so it's nice to see good people
Right, just like Traumat, another good guy who's been through the wilderness and has now got his 950 million. So I'm sure that's the point you're trying to make.
Much more. He needs money, Rory. Okay. He could. He could.
Yeah, he can now buy some more Laura Piana.
Do Roy, you brilliantly said it to me. You know, that's great, but what about me? I own stock in Amazon and I own stock in Figma. Okay, Google launches Stitch. Figma tumbles. Figma tumbles is an understatement. I saw a tweet. It was actually an announcement that someone posted and Sequoia were buying 35 million bucks of Figma stock and I was like, 'Fuck, if Sequoia and Andrew are buying 35 million bucks, I'll put in some of my money. That's a good sign for me.' I'm down 22%.
Yeah. It's 21.66 a share. I remember look when it was at 108 and you asked me what I thought it'd be. I said 35 and I was wrong. I was you laughed at me and cuz I was so pessimistic and I was wrong. It's 21. Wow. No, it's Does this have a floor?
Of course it has a floor. I mean, stop. You know, like the again, it has a floor based on its cash flow, which is strong. It has a floor with its growth rate of that cash flow. The third element is the probability of disruption. And you know, right, it's about the tricky thing about the equity business in the short term is everybody gets to speculate on that probability of disruption. So you take the cash flows and then if you love the story, you apply uplift. See Elon for details. You take the cash flow and then you buy the and if you're really scared about the story, you apply terror downlift, which is what's going on here. Now, in the end, you said this, in the end, if the business is worth it, it will grow and it will generate the cash and they'll get to do what the Palantir guy does, which I so love, which is every earnings call, he basically slams all the haters and says basically, 'Fuck you. I'm making money and you all were wrong.' Until in the short term, the market gets to [__] and moan and have its opinion, but the floor doesn't come cuz the market changes its mind. Maybe it will, maybe it won't, but that's not in your control. If you're running Figma, the floor comes if you execute. You demonstrate that you've been able to adopt, you know, to an AI-first world. You generate the growth, you generate the cash flows, and eventually it'll turn. But that's why draw downs are shitty. That's why draw downs are hard.
Well, well, you know, on this on this on the on the Stitch Figma thing, I mean, I've used Stitch, of course, as you would imagine. Um, I think most folks that chimed in on this never used it. Um, I'm confident 98% to say that
For those that don't know, which is what for those
It is a new design tool that Google launched and the bar at Google to launch a new AI tool is pretty low. They try a lot of stuff and they abandon almost all of it because then they focus on a few core products. So you literally cannot take it seriously when Google launches a product because you have no idea whether they will stick to it. They launched a Sona. Is it Sona? Sorry, I keep getting this wrong. Harry, the audio one, right? What's the one? S the the the audio one. Oh, yeah. So, Google launched a pseudo competitor. It's like cool, but it's not nearly as good. Like, it doesn't really work. And and will they keep with it for five years? I'll bet you dollars to donuts they don't because it's not core. Okay. I used Stitch. I've used all of Google's design products. I think the odds that they decide to build a Figma competitor from this for a decade approach zero. So, on the one hand, massive market overreaction to a proof of concept. Give me an effing break if I'm Sequoia or whatever. On the other hand, the markets are saying we are extremely worried about disruption. We are extremely worried about disruption. You better prove to us Figma, Atlassian, Salesforce, you are ahead of disruption and not behind it. And the market said we don't believe it. And I agree with the markets here because Figma Make is one of the worst products I've used in the last six months. But this this uh but but Stitch on its own at least it's better than Make. At least it can take context from a website and not and not hallucinate. But the market should be like where show me the money again. Where is Figma's 300 million of revenue from disrupting Replit and Lovable like we talked before? And so if you haven't delivered like Palantir or started to deliver like Salesforce, the markets are going to freaking panic that your revenue is not that durable. This is what I think it all like I didn't get the 2026 panic for a long time. I was slow. Now I get it. The markets are rationally saying we no longer believe this revenue is particularly durable. SaaS old old SaaS people doesn't believe it. Qualtrics couldn't finish its debt offering this week. Salesforce barely got its debt done. And why they don't the markets just it's not that they think that Figma is a bad company. They just don't believe this revenue is going to last a decade anymore. They don't believe it. And so you're going to see more and more of these panics for anyone not accelerating people. They're just going to panic every time it happens.
Jason, we just released a show with the CRO of Figma
And I asked him, 'How are you seeing AI implemented into your sales teams?' And he said, 'Honestly, we don't really have that ability and we haven't done it yet.' Um, and oh, and we're hiring a lot more in sales, by the way. We're not reducing headcount at all. That we're not seeing that. Uh, and oh, by the way, we're not seeing seat pricing change at all. How do you feel when you hear that? Because
Oh, you just you're just
That one. Ironically, Harry, ironically, that one does not worry me as much as the product. Okay, I will tell you what I've learned. You you and I you formally on the other 20VC, me informally, I've I know I've talked to I know a lot of the CRO and CMOs at leading AI companies. Um, the ones I'm close to are pretty good, but I also see tons of folks I call recycled mediocre. They are folks that bombed out of old B2B companies that barely did anything there, but because they have the right logo, got hired to a super. They're all over the hot AI companies. So many recycled mediocre, and they're going to hire 250 reps and not train them, and they're going to build infographics. But the products are so strong and the demand is so strong, it doesn't effing matter. So if if the guy if if if Figma Make was so great and and their AI product was doing 500 million, you you you could you could sell it with folks fresh out of a non-technical junior college, it'd be fine, right? Um so so my point is even though I talk a lot about AI go-to-market agents and I believe they're great and they work, they don't fix product market fit and a sales tools, sales does not fit product market fit. And we're seeing broken, we're seeing decaying product market fit. That's why the market panicked on Figma. They're seeing hints, just hints of decaying product market fit in the AI era. And you should panic.
Yeah, I just to pile in on that because I actually have these conversations with my companies all the time. I actually I didn't think I totally agree what Jason said. It's like when my companies come and say, 'Hey, you you've got this. We want to talk about AI.' And they say, you know, 'Hey, look at us. We're using AI and go to market.' Or they say, 'Look at us. We're using AI to build engineering.' I'm like, 'That's great, but nobody gives a rat's ass.' That that's like jacks to open. That's not solving the core problem. The core pro unless you're you making something like cars where it doesn't matter. It's just back office efficiency. If you're a software company, the number one question is how does AI change the end product you deliver your customers? That's what's going to determine success or failure. So I I thought funny I was wrong. I'd have guessed you'd have piled on to that guy and kind of bludgeoned him while he was down because I thought Harry served you up a softball for you to say, 'Hey, the idiot is not using AI.' And I'd have argued with you. But I think you nailed it. Look, you could be using AI well or badly in go to market. You can be using AI well or badly in engineering. It will catch up with you over time if you're not using it well. But that's not what's driving, you know, 30 40% price declines. What's driving that is exactly what Jason said is the market that look at this and saying there's disruption risk here. I don't know the terminal value here. I don't I'm just nervous. So I got to be paid for that risk. And
He didn't take my softball, did he, Rory? How
He didn't normally he's so disciplined. He
But Rory's got the important point. You there's good there's you got to have the right AI or your company's going to decline. Listen, would I would I listen? I'm sure the Figma guy is great, but honestly, if I interviewed a CRO today and didn't have any AI agents that he he or she had brought in to our last podcast, I would recommend to the CEO, don't hire her or him. Okay, for sure. But would I think this was would I be much more worried than if I talked to a CTO and this the new CTO they wanted to hire didn't really believe in in using agentic coding, then then I would ask for my money back. Can I have all of my investment back at 1x? You can keep your markup. Just give me my 5 million back.
I'm going to go one level more than that. Is that you're right not using a go to market bad not using AI to build product maybe I want my money back but if you're a software product and you don't think AI is going to disrupt not just how you build but what you build then you actually probably want to actively short it like for example they're not doing that but if Figma or Salesforce or someone was to say I don't think AI is relevant is relevant for our customer base and they don't want to use AI in design if someone was to take that pain you'd be like oh my god you're just going to be you know just left behind. And that's why Figma's insensitivity to how mediocre Make is really worries me.
I don't care if if if Dylan or the team said, 'Listen, we're Make isn't good enough, but what? Give me time. Give me six months. It's going to be great.' But saying this product that is the worst vibe coding tool I have you that is used in the last 6 months. The fact that there is no public awareness that this is an issue re worries me. Jason, can you help me understand that? Because Dylan is a is a good CEO. I don't
CEO. Yeah. Yeah. So, what
I think we all listen, I don't know for sure. Okay. Um, but I think everyone at scale has a trap which is there your installed base is a trap. It is an opportunity and a trap. It is the greatest thing in the world to sell your agentic product to to sell Agentforce to is the 44 billion of AR that's it's the greatest opportunity because you don't have to earn that base, right? But it is also 50 years of debt, 50 years of features, 50 years of of offline integration, a non-agentic gaps. They want 50 years of of endless work. And if you're not careful, it will consume 98% of your resources is that install base, right? They need so much attention. And I do think literally Make is the only vibe coding product that I have used where you say build me a website for 20VC. Use 20VC.com as a template. And it can't go to 20VC.com and pull the context to make the website. Now, Replit couldn't do this in June of 2025. Lovable couldn't, but anybody can do it today, right? Including, you know, who could do it pretty good was uh Stitch. Stitch got the context right of the design projects. I get it. And that just shows to me whoever's running it doesn't care about these use cases. They just don't care. It has fallen behind. And I really my guess is my guess is there's a small team on this. You know, they're still growing what 35%. Right? I mean, this is this is one of the best out there. But the demand, here's the trap, and we all have portfolio companies like this. The trap of ma of earning that 35% imperil can imperil your agentic growth. It can consume more than 100% of all the product and engineering and CS resources you have. Right? Even Michael Ken Brooks when he was on the show, he alluded to it, right? And then they did the layoffs. He's like, I got to get these resources because otherwise Jira and Confluent and everyone's going to suck it all up and I have no people.
It's a trap. It's a trap. And think of some of your portfolio companies at scale north of 100 million. They don't describe it this way, but you know, it's a trap, especially when they have a mediocre like VP present at the at the board meeting and the mediocre VP is like, I just I want to do it, but I don't have the people. I need another 700 people to build that. You like gh.
