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Ready to go. Guys, I am so excited for this. We had so many interesting things that we want to dive into this week. I just want to start with diving in actually on the deep end on a series of Chamath tweets. Chamath basically said, 'Hey, TVPI's a vanity metric. You can't eat IRR. You can only eat net DPI.' When you read this and when you read his quite opinionated stance, how did we feel? I mean, I hate agreeing with Chamath on principle, but I agree with him.
Well, well, you know what's interesting? If you read the Wall Street Journal article on Thoma Bravo, they just raised a $34 billion fund, right, Harry? Your buddy. What the Wall Street Journal said, that's a record fund for PE, $34 billion. It's a record, but Q1 was a low point. No one raised a $5 billion PE fund because of lack of liquidity, right? So it kind of ties to Chamath's point, which is if you have the liquidity in today's world, you're going to get the capital, right? Thoma Bravo had $30 billion in distributions last year. $30 billion. I think that exceeds most funds, right? $30 billion in distributions, not paper markups, but distributions.
Look, from my perspective, this is simple, right? Which is there's two very different games that are called venture capital or even private capital in general. One game is actually making people money, finding companies early, making the right bets, paying the right prices and selling. And that is a DPI game, and all that matters is DPI. And that's the game I like to play. That's the game I think I value and I respect. There's also an asset gathering game, right? And the asset gathering game does exist. And here's the thing. I say this as a seed investor with full transparency as a business. The asset gathering game is actually a better business. Like if you're just in it to make money, right? And like that's you're, you know, then like you're an asset gatherer. Like that's what the market wants. And we can talk about why and the whole nine yards. The public market wants that. They care about fees, etc. So the problem is like I just am an intellectual snob and I have no respect for asset gatherers. Like I think it's a stupid game. And so for me, it's like it's, you know, I think they're just two very different things that are called the same thing and you just should be really sober about what game you're in and what you're trying to do.
I think it's really fun that we had this conversation and we ended up thinking that Chamath's on the side of good. Nice job, Sam. I mean, I'm the first to say like I think that's wild that I agree with him. My default instinct is to completely disagree with him on whatever he says, but like in this case, I happen to agree with him. I'm comfortable disagreeing with him. I honestly thought it was kind of a trite comment. It's a very typical Chamath comment. On first glance, it sounds smart, but on deeper analysis, it's kind of vaguely right, but not useful.
I mean, and because obviously for you, he cited his 2013 and '15 vintage funds. Obviously, at that point, DPI is the only thing that counts. If you're 10 years in and you're still selling promises, then you're in trouble. So that's a trivially obvious comment. But at the end of the day, you know, to say TVPI doesn't count, the truth is venture is investing in illiquid assets for five to seven years with the expectation of making a greater return. That means that for five to seven years, you don't have DPI. You've consciously just — you've consciously undied yourself. You've taken money and you've given them to the title in the ground. So in that period of time, you have two choices as an investor gauging these guys. You can say TVPI means nothing, I'll stick my head up my ass and I'll look in seven years, I'll see how they're doing. Or you can use TVPI for what it is, a proxy, a loose proxy for performance. Here's the upshot. You have to understand that LPs are just incentive driven, right? And from an LP, what you should do as a rational human being, if it was me investing in the fund, you say, yeah, the money's in the ground for five years and after that we'll see where we're at and that's all that matters, what you deliver. I know full well, I know this as an investor, that the marks that you made up or the marks of SoftBank listed something somewhere completely irrelevant. In fact, negative signal in a lot of cases. So like the marks are irrelevant and stupid. Now here's the reality is institutional LPs are people too, right? There's some junior guy who wrote the check, right? And he wants to get promoted, right? And he exists in an organization that's trying to deliver something. He doesn't want to wait seven years to get promoted, right, for making a good call or a bad call. And so it really is just a marketing thing where you're saying, 'Hey, I'm going to give the person who wrote me the check some marketing thing they can then use for their own internal purposes because everything in life is about get laid or get paid.'
I think that, I mean, there's no doubt that part of kind of having a positive TVPI is all that marketing. But I think at some level, look, let me ask a question here. If you had two funds three years in and one of them had no markups and one of them was a 2x TVPI, would you regard those two funds as exactly identical? No. What I would regard them as though, and this is how I actually do regard them when I look at my own portfolio or things like that, is very simple, which is how many credible things do you have that are going to be fund returners? That's it. Just give me the list of four things. I don't care where they're marked. Like you either have a set of legitimate shots on goal for important companies and important outcomes or you don't. If a company has a 2x marked at 2x where it went in, SoftBank, some crazy person marked it up in some crazy...
My point about the Chamath comment is to say it means nothing. To say it means nothing is a gross exaggeration. There almost certainly is some signal in that data. Let's kind of take it. Let's go right down into TVPI means nothing. I'm willing to bet if you got some kind of machine learning algorithm and looked at all the funds that three or four years in had a TVPI of 2x and all the funds that four years in had a TVPI of 8x and then correlated that to the ultimate outcomes, I bet you there would be data in that signal that says it has some value. Therefore, to state it's incorrect. It's not the only source of data. You're right. There are better sources of data if you're in a position to evaluate better data. But as an LP in the absence of anything better, there is signal in the data which means the comment is wrong.
It would be fun to look at. I actually bet that firms that hold positions at zero or cost or even are willing to mark down positions that are more honest about it in reality might actually out... I don't know, we can look at it, but the reality is I think there's this... I mean, I as an LP in many funds, you get their statements and you laugh because they hold everything at ridiculous, the high water mark they can possibly come up with are these numbers that make no sense and you look at them and you're like, this is kind of funny and the numbers look good but you're like, this is not real, right? And I just think that like it's because there's no... like because everyone has methodologies all over the board. It's all marketing, right? And I kind of unfortunately, I hate being with Chamath. I hate it, right? Like I've known Chamath a long time. Not well, but casually. And I got to say it drives me nuts that I have to be. But with him it's like all I care about early is give me five names that matter. And all I care about after you've had enough time is did you make me money or not. Okay.
But I get your point. Like it's zero is an extreme statement but you know we live in an age of memes. Yeah, that's the real... Yeah. Go ahead. We said we're living in this kind of two dichotomy world or this kind of binary world of venture in the middle. You know, SVB did this great analysis and they were saying that the middle of VC funds is getting really hollowed out. In other words, kind of mid-tier firms in terms of size are really falling apart. What happens to them? Is it a game of the very small and the very large do we think when we look at this report? I mean, you got... Yes. Like, there's no middle. You can't be a billion dollar venture fund. Is a billion middle?
Well, I'd say this. I mean, we try to raise, we try to call it $200 million early stage funds. That's what we do every few years. I'm very confident we know how to deploy that. Like, I believe there's a market where you can from a DPI perspective make money on that. It's not a great fee business, but it's a great DPI business. I don't know how you make multiples on a billion dollars consistently, right, in VC. I think once you're doing 10, you're playing a completely different game of asset gathering and asset deployment where you no longer have the same goals. So, I personally think that the billion dollar zone is like the death zone.
Gotcha. Good to know as a $900 million fund.
Yeah, actually I did actually look at the SVB. First of all, I was thinking, are they throwing me under the bus too? I checked the data and they were actually saying the two to 500 was the middle zone. So then I felt even more depressed. Now I'm a small behemoth which is even more degrading. I'm kind of a low-rent conglomerate. But I saw this stuff, I don't buy it. I mean, I think your statement is, I think in the end you have to be sized for the stage you're playing at and to achieve the portfolio construction you want to achieve. And I'm pretty confident that, you know, our typical check size is 20 to 30 million in your 30 to $40 million rounds. We want to get 30 checks. The math works, right? 30 kind of deals total. So I think you have to be sized for the game you're at, right? It still doesn't mean you can't get it wrong. And I do think to your point, one of the things I've, you know, Jason and I have been kind of batting this around over the last kind of eight weeks is I do believe the impact of the conglomerates has made everything harder, including it's harder for us to make money. So I totally buy that. The existence of people with $10 billion to spend makes it very hard for people with 900 or 500 or $600 million to spend to do that rationally in a way that probably... and I'd love to hear from Jason on this, in a way that if you're putting out 100 or 200 million you're probably a little more inured to it.
Maybe the more interesting question is for founders, right? If I think the SVB report, which I wrote up, I don't think it was really saying 800 to a billion was the hollowed-out middle, but I guess it is part of the analysis, right, that they're not raising funds. If that is true, then every founder wants to raise 20 or 30 million in their A. Now, no one wants to raise an eight... the $8 million Series A is now three SAFE notes, right? So, does that mean in a couple years your candidates outside of some scales are going to be limited to mega funds? Like, are they the only people that can write Series A checks? Because 20 to 30 million isn't even a large Series A today, right? It's a normal one. So if there is no one in the middle, then we're all stuck with mega funds to fund the seed companies, right? I mean, I guess it's an obvious point, but founders just, they better get to know folks with five or 10 billion funds before demo day or they're all going bankrupt and these are all bad companies.
Like I think that's the other way to look at this is like, you know, I know a lot of people are pulling out of Series A's entirely because they're like these are completely mispriced and like these make no sense. And like I think that the other possibility, right, is that we're in an era where there are good companies to be built and there are places to make money, right? And if you are going into corners of the economy or funding things that other people won't and so you're an N of one or an N of a few looking at spaces that are kind of really novel, there are places to make lots of money. But I think we also have to look at it the other way, which is like there's just a massive amount of capital being massively misallocated right now. It's always funny when people simultaneously have the worldview that, you know, the big funds are going to win everything, but all the money is being wasted. I mean, at some point...
Well, I think the thing with Chamath is like I don't even know the big funds need to make that much money, right? Like that because they're asset gatherers, right? Like they need to make enough money to generate gathering more assets and they need to justify their own existence and it's a good business, right? That's different than saying you're trying to make a lot of money in venture capital.
Broadly agreed. But I actually think, Jason, I want to go back to what you said because I thought it was spot on. It's like you think if there's only $200 million funds and billion dollar funds, then you're exactly right. Logically, those 20, 30, 40, $50 million checks are going to come from only 10 names who are writing 40 of them a year, not eight like us, right? And that's possible, but it's just a weird fund construction because those people are then going to be writing, you know, 40, 50, 60 checks of this size. You're going to have a very spread out partner base. I don't know if they'll be able to meet the founder needs where it is. So, I do believe...
Is that not what your insights have today, though? I mean, we've mentioned before kind of the outcomes that they have with your Hinge Health is returning 400 million on a 6 billion fund and them having like hundreds of positions and actually that being the construction they have. It might be the construct.
Yes, it is the construction they have. But at some point it gets easier when you're running big sums to put big money in a smaller number of companies than try and, you know, diversify away. If we're trying with 900 million to have 30 A's or B's, someone who's running 9 billion, if they were trying to do the same thing, would have 300 A's and B's in three years. It would be silly. So at some point it becomes a part of their business but not all their business. And then I think Jason's right, there won't... I mean, it's so funny, we're going to talk in a few minutes about, and Sam mentioned earlier, this idea of a lot of A's are struggling to be raised. I mean, the only way that worldview makes sense is actually what Sam said, is that if you have a world where people, which I call them midsize funds, quote unquote, can't survive because of the big guys and the big guys are quote stealing all the good deals and at the same time we're also saying many companies are struggling to make a Series A, get a Series A raised. Those things are coming almost opposite to each other. One says capital is scarce and one says capital is plenty and the big guys...
I would say actually the way you resolve that illogical-seeming statement is quite simple, which is every generation there's only a few companies that matter. Yes, it's very simple. So most of the money at Series A is completely wasted, right? And they might want it in larger quantum, that just is like kind of, it's kind of a war of attrition, right? It's just more money being lit on fire. Now the mega funds will just win, can win because they can say, 'Okay, look, I'm going to plow a gajillion dollars at almost any price in and because of AI or whatever argument they want to make, you know, there's no upper bound, right?' And so they say, 'We make lots of money just on lots of money being deployed.' And that can logically make sense. Seed funds are fine because you still have to be in winners, right? But it's just a multiples game, right? Which is if you're in it at zero, right? Then like, you know, you can make a bunch of checks and like make the math work from a DPI perspective. You also have a nice benefit which I very much appreciate, which is I really strongly believe private to private is an important future. And I love being early and small and first because I actually can sell into the private markets in a way that you can't if you've written a 30, $40 million check into the Series A. Too big, right? So I think those two things survive.
But what do you think about, so for selling, if selling early, right? Selling in secondaries, unicorn secondaries. How do you think about the goals? Is the goal, we talked, is it one extra fund, 2x your fund, half? Is it just risk allocation? Because this, this is, I think if you have a smaller fund, it's really, it's interesting. It is a debate because you get a... like I just the other day I had a 1x exit opportunity to return the fund once and one of my anchors was, I also brought them in as part of the deal and we talked about it, right? They followed me so it was less for them, but for them it would have been very high IRR and me a 1x, right? That sounds good on the internet, right? But then it's gone.
Yeah, so look, it's all gone. There's no more returns. In the end of the day, there's a few things that matter, right? And the number one rule as a fund, an allocator, is you cannot sell the things that matter. Rule two is, right, because I, you know, we were one of the first investors in Alberts, right, like or Astro, Rockets, or plenty of things that got out and people were excited about but thesis broke, right? And so I think you have to be really honest with yourself, right? And you're going to make mistakes. You know, I think one of the things I always say is as an early stage investor you get hundreds of shots to buy, you get really good at buying, you have so fewer shots at learning to sell that it actually takes much longer to learn to sell well, right? But it's still as important as learning to buy well. And I think you just have to be really honest with yourself, which is like, is this an infinity shot or is it not? And the second the thesis is broken and it's not, if there's a buyer at a price that makes sense because someone else has different fund dynamics. Maybe they already own a lot and for them it's like about rounding down their average in cost, maybe it's their capital allocator and they don't care as much about the negative return. Like they have different goals, there are opportunities that work for everyone.
Rory, can I ask you if it's not one of the companies that matter? Is it lighting money on fire in the kind of binary way that...
No, I'm glad you came back to that because I would say again respectfully I disagree and it's a matter of degree but no, I don't think that's a correct statement, right? I think that it is true that, and how do you express it, in every decade you look back and you go, the vast bulk of the value is driven by one or two companies. It's a power law, we all understand the math. To a rounding error, there was a decade where it was Google and then everything else, right? So you could, that's true and it's intellectually absolutely true. So you could say to yourself, if I didn't do Google, I must have lit the money on fire. But then when you make that sentence a few times, then you go and you look at your Schwab account and go, oh, I have money in there, so I mustn't have lit it on fire. There are more wins than the biggest win. It is a power law. I would prefer to have done Google than any whatever I made money on in 2000 to 2010, but I'm damn glad I did that one too. Right. And the over-extrapolation of the only three deals make money so therefore everything else at Series A is burning money is just, I mean it's true in that you'd prefer to be in Google but it's not the only way to make money. I mean just in the last couple of weeks we've had as you mentioned a couple of decent IPOs, Hinge Health, we're going to have Chime, we had something else, Mountain last week, we have another one this week. Take Hinge, someone made $400 million for their investors. 20% of $400 million is $80 million. I say this every time when someone at the office says, 'Oh, it's just a 3x.' Every single one of you will cash the check. Every single one of you. If I left them on the counter there, you'd all take them home with you, right? $80 million is still real money in America. Right.
And Rory, that's almost my point. But just to put you on Chime, like Chime's a great example of this, right? Like if you are an early stage investor, you're very sad you didn't sell last round in Chime, right? And I would argue at 25 billion or wherever the last round was done, when you look at that rationally, you'd say, look, it's a gold company, right? Is it an infinity company, right? Am I betting on this for infinity or is this a really great place where I did my job, which was to fund it early, to find it early, to fund it when money was scarce? And now we have capital allocators who are making a different assessment. I think the answer is you clearly would have wanted to sell last round. And I think it's incumbent on investors. I only know what's in the S-1, but I didn't see any of the early shareholders make the cut on the principal stockholders. When I look at principal stockholders, there's dilution, but I don't see any of the seed guys on the table. So that says to me they probably sold the 20-some amount of 25 billion when I literally only see DST, Crosslink, and they did their job. That did their job.
Well, not if it's a $250 trillion. Two separate things floating around and I want to disaggregate them. First is I'm going to fight in defense of mid-tier, right? Did the mid-tier investors who didn't do the seed but didn't do the $25 billion round, are they happy they did that round? The round that Menlo did, I think it was out of the BC, it was a couple hundred million. Can't remember what the pre was. They're damn happy they did that round. Right. And that's a classic example of a midsize venture firm making a savvy bet, doing good stock picking long after the seed but still making good coin. So that's to me, that's the first point, which is the validation that you can at that fund size, probably it was a $450-$500 million fund, then make really good coin and move the needle at the fund level. Second comment to your point, Sam and Jason, you're right. You look back and go, hm, I might have been marginally smarter if I had bought at 200, 300 and then sold at 25 billion rather than holding and selling at 12. But the big advantage they have is they'll still book probably 10 or 20x. Now 40x is better than 20x, right? So they've made good coin in a situation where, as we discussed before, the kind of $25 billion round is going to lose money. So I think that's proof. It goes back to, that's proof that you can make perfectly shrewd A to C bets sub a billion pre and make very good money in a non-quote-unquote generational company. Chime is an extremely good company. It's not one of them.
I agree with all that, Rory. And again, I'm obviously trying to be provocative on purpose, but I think we directly... here's my voice points to bring it full circle to DPI though, right? Which is when you think about how I relatively value DPI versus TVPI or any other metric, right? If I'm an early stage funder, really anyone, and you said, 'Hey, I sold my Chime stock at 25 billion for American dollars, like for cash, and I gave it to you years ago, right?' Like from an IRR perspective and a cash perspective, that is a great move, right? Yeah. Versus hang. Yeah. And so that's I think the thing to keep in mind when we go back to all this is like, you know, again, we're talking pretty deep cuts on the game of VC right now, right? As opposed to the game of company building. But like I do think like when you come back to this, like this is why I believe the Chamath line, unfortunately, and it's going to get clipped and I'm going to be upset about it, but like whatever, is like he's right. Is like it's like in the end of the day, like good investors, good capitalists make people money if that's the game they're playing and they're not asset gatherers.
Yes. And of course in the end it's true. Of course my point is it's in the end it's true. In the end, check in the bank counts. Sometimes even, as you correctly say, it's often even true. I like what you said about Facebook. You said sometimes it's even true that a smaller check earlier has more value than a bigger check later just for a whole bunch of life reasons. I mean that's why we have interest rates. There's time value of money. I remember a friend of mine, we saw this company. I was giving him grief. And then five or six years later, another company in the same space went public at two or three times the market cap. And I foolishly gave him about it. And he called on me. He said, 'Look, I've been at the thing 10 years. I made a lot of money. I got married. I have a life. I have a lovely house in Spain and I started another company. Yeah, I'd have more money if I'd held, but that was my life choice.' I think he was exactly right. So I agree.
I just thought Menlo Ventures. So obviously I don't know what their basis is, Rory. Obviously they'll make a ton of money on Chime, right? A classic great bet. They said they did the Series B, right? They win. So they did the Series B at 200, 300. Maybe we can figure it out on the fly. They're going to, this will be a nine. There'll be some dilution. They'll 10 or 15x their money, right? That'll be a fund returner or more than a fund returner. Probably just maybe a little under. But yeah, now when I want and I do like that team and then back when in 2021 they wanted to invest like in all of my companies. There was very high, very high alignment, right? For better or worse, right? What's interesting to me today from the start of the conversation is all they talk about is Anthropic today and this is a smart team. It's every, they have an Anthropic fund every because I follow all the guys on LinkedIn on nothing but their... they didn't do the seed and they're going to make a lot of money off this, right? Because Anthropic is 1 to 3 billion in revenue in 5 months, right? But it's a sign of the times, isn't it? Probably I don't see them trumpeting their coming DPI from Chime, which is epic, but Anthropic is on their social media 11 times a day as perhaps it should be, but there's no, I don't think they're taking any DPI. They're marketing to entrepreneurs, they're not marketing to LPs.
I think in venture capital it is unbelievably difficult to know what anything is worth, right? And if you're Menlo or you're anyone in the middle, my god, you have to price things properly, right? If you're plowing enormous amounts of money in late on the infinity dream, price doesn't really matter, which is how you get these ridiculous prices, right? Like, and like the reason is very simple. It's like, what is OpenAI worth? It's like, who the hell knows? But like it's like one of those things where people can dream, right? You can have a trillion dollar dream and that means that like there's very little pricing discipline. It's basically a game of pissing of who can pay more or who's willing to go further. And at seed, nothing's worth anything, right? And so you just have to have pricing discipline and remember that. The problem with me is I don't know how you know, like I said this as someone who started my career at Bain & Company. I think with these private companies catching the right price and the right dynamic and being right at Series A/B is like the hardest game.
I think some parts of that are true. I think price, you are right that the seed investor, I mean I always say, you know, we tend to do A's and B's and I always say we're at the first point where you can start to do some analysis versus just people and market, which is what you have to live on and broad directionality, right? You've got at least some pitiful facts to look at and try.
I have no facts. I exist in a fact-free zone.
Yeah. Yes. Absolutely. And we live in a fact-thin zone. So I do agree that we have to be a little, yeah, you have some data to bring and it's, but I don't agree that our pricing, I don't agree that pricing for us is quote harder than pricing for the late stage. I think late stage on average it's very, I think it's much harder to price at that late stage because on average you'll be wrong and we're seeing a whole bunch of down rounds where the last round loses money and every other round prior to that makes money. I actually think price discipline is even more important the closer you get to an exit.
They don't lose money. They just get their prep. We've thrashed that one to that. In Chime's case, they're going to lose money because they don't have protection. That's a fair eye roll, Jason. But I think the more important thing is the interesting is we always say and I think Anthropic, I think Menlo doing Anthropic was a genius move, right? So come to that in a second.
Genius move too. Totally. I think look, there's always some deals and it's very surprising that even at that two, three, five billion valuation level there's still another 10x from there. Now there's not many of them. There's literally one maybe every second year. But if you do that one, you're right. You can price like it's an A or a B but deploy money like it's an F and make a return. Yeah. 10x plus return as if it's an A or B. It's an awesome deal. There's as I say one of them every couple of years. Anthropic was one. OpenAI was one, probably Angel was one, but the average late stage deal isn't that, right? And there's just less degrees of freedom on the average late stage deal to compound. So I think you have to be a little... when I look at the people who do it well, like the Meritex, like the IVPs, there's a fair amount of shrewd price discipline in what they bring to the table or what the product they're selling is, you know, just a different product, right? The product they're selling is access to this pool of companies that are late for people with too much money or that need private access with a cherry on top of infinity, right? And they're actually not in the business.
I think that's probably not as true for the names I cited, but I think you're right. There are people who are, there are funds who are playing that game where, you know, it gets back to the whole when all the cute sexy stuff is private, there are eventually going to be entities whose sole goal in life is to put public investors in contact with those sexy private companies. The one thing I will say on Chime and the 25 billion is every single round in the billions for Revolute, everyone was saying, well, how much more can it be? How much more can it be? I think everyone is realizing now that Revolute will quite likely be at least a hundred billion dollar company and likely 150 billion. If you sold at 25, you would be grossly underestimating missing 125 billion of gains in a European neobank.
But it also just depends what business you think you're in, right? Like, you know, again, like I don't, I think that there's a very, like I don't... Aren't you in the business of making as much money for your investors as possible? Oh, well, so there's another real debate I think which is a tough one, which is look, I would argue that there's a strong case to be made that as a venture capitalist, you should not have an opinion about the public markets, right? That like you're not...
paid to have an opinion about public markets. People have their own opinions about public markets, right? And like you're paid, your job is to manage the private markets or private pricing. And that once things's public, it's like, look, that's, you know, the game should be over. Now, there's all sorts of people that juice that or like decide they do have opinions about the public markets. But like I don't know, it's something I've gone back and forth on to be totally honest with you about whether VCs just thematically should be doing that or whether you say, 'Look, you know, we can turn over shares. You guys figure out what to do,' right? But I would probably sell Revolute and Chime right now. Right now, I'll tell you why. And you can criticize it. I'm just I'm still learning, right? I'm going to be a student for too long. I'll be out of this game while I'm still a student. But both of them have about 15% market share.
True, Tam. If you're trying to decide when to sell, right, or whether they have Infinity Runway, market share is a limiter, right? And I mean, Revolute, there are folks that can get to 100% market share, but for a lot of apps, 15% I find is a little bit of headwind. Like you start to see, and a lot of times in B2B when the market's smaller, it's even before 100 million in revenue, you start to get to double digit market share. And just when it gets good because everyone's heard about you and all the leads come in. It's like, ah, all the easy 15% market share is a lot. It's a lot if it's not a monopoly. If it's not a monopoly, that is a classic thing. Everyone comes, you know, as an early stage people come to me like, well, the CAC is blank but it's going to go down. Like nope, CAC only goes up, right? Like people just consistently get this wrong, right? And so I think almost always up at scale, right? It's like this is how the world works. And like, you know, the kind of argument that you're going to get good at something and all of a sudden it's going to get cheaper is just wrong. So, Chime and Chime's an interesting one. Their CAC has fallen a bit because they track brand awareness and virality. And it took a while for Chime to be big enough to have enough viral propagation or word of mouth. I don't think it's viral, word of mouth, but now it's only since 2022 they said word of mouth is their number one source of customers. It's just sort of interesting because it's the only way you can scale, right? Otherwise, your CAC goes up, goes to infinity.
What's that? I just think I say this with respect. I actually quite like the Chime team. I know a lot of them well. I think they're good people. I don't mean to be crapping on them. I think they're good operators and I'm excited for them. But I would say this is like, is Chime an important company? I just don't see it, right? Like is it, you know, it's a good company? Like they provided some banking products to unbanked people or underbanked people. I get it. It's not bad. They did a good job. They built a good app. But like is it important? Like I just don't know that it is.
If the $14 billion market cap was in my bank account, I would think it was a very important company indeed. Right? So I hear what you're saying there, it's just like, fine, it's fine, it's not a bad thing, right? It's just, you know, it's like I remember, I think it's a good question and honestly, I liked being challenged. I would, if that is the case, if Chime is not an important company at all, then I've never done anything important in my life. I've been a decent founder, I've seeded multiple, my team has gone on to help run multiple decacorns, I've had $5 billion cash exits, but I really don't matter. And I might not. It's quite possible. I don't, I think I've helped thousands of founders build companies from scratch, but I probably don't matter if Chime doesn't matter.
I think the default is that most of us don't matter and most of the companies in the world don't matter. But the things that matter really matter, right? And like I think the job is to find the things that really matter. Do you think Salesforce or Oracle matter?
Yeah. I mean, that might not matter. I think Arthur Balfour, prime minister of England in the 1900s, a very languid, relaxed man, used to say nothing matters a lot and very little matters at all. Right? And that's really what you're saying, Sam, and it's true, but of course the correct response is, 'What am I meant to do with that?'
I think an Android can matter. I think you can tell it can. I'm not saying it will. I do think killing people matters. It's very, I think that OpenAI could matter, right? I think that Microsoft, Facebook, Google, these are companies that matter. I think Bitcoin matters. I think so, I personally think Solana matters. I think Venmo might matter. Like we can go down the line of things that are actually paradigm shifting and like have an impact. And then everything else, it's not that you can't build good businesses. You can, but when we're talking about you're not sure OpenAI will matter. You just think it's possible it could matter. It will matter. I think it might matter.
I mean, that's a pretty arrogant thing to say, isn't it?
Why? The game is young, right? Like it's not that they clearly pushed the ball forward, but like will we look back in 20 years and say OpenAI was a fundamentally important company? I think the truth is most companies fail. Some companies compound to a billion in value. A few each year compound to five billion, one every year to 10 and one or two every decade to 100 billion. Right? That's just so taking away that quote matter, and I think market cap is a rough proxy for mattering. I say that pretty confidently because I believe the capitalist system works and the things that matter the most are valued the most. Right? What I'm disconnecting with a little bit is, and I love what Jason said, I just want to come back to, I love what you said. I'm at peace with the fact that if the definition of mattering is a hundred billion dollars, I may well complete another 10 years in venture, do it for 40 years, and quote never matter. Right? And I'm actually okay with that. You know, I'll take it over my therapist. I'll be fine, right? But I know I'll have invested in perfectly good companies that have built real value that create perfectly good businesses that, you know, in some cases are worth $5, $10 billion and that's okay, right? And that's probably, I mean, the problem with only do the things that matter is in the end it tends to some kind of nihilism which is that nothing else does matter and I do think that people should wake up every day and have the opinion that they want to do things that are going to matter in the world.
I'd say the most insulting thing you could ever call me is a market participant, right? Like I find that an incredibly insulting, like, yeah, yeah, it's a pretty efficient market. Capitalism, pretty efficient. You pay 150 billion, 120 million. Who cares? Like it's fine, right? And like you have a company that's like a billion dollar company that does some stuff and like fine. I'm glad that happened. That's capitalism working, but like then you're really just a cog in the system, right? And I think that's not a recipe for outsized returns. But it is a recipe for doing fine. It's just not my goal.
I am a cog in the system. I am a, I mean, I might want to be more than that, but I think if you're not...
No, but you're a hollowed out fund that doesn't matter. Harry, you should have asked Aaron Levy when you interviewed him yesterday if he mattered.
I don't think he matters. I don't think Box, I don't think he matters.
What's, I mean, he has Aaron Levy. Oh, Box. I love it. It's nowhere near...
I don't think Aaron Levy would say Box is more important than OpenAI. I'm confident. For what it's worth, I love Aaron. He's like a, but his company doesn't matter. It's only four, five, six billion. It's irrelevant.
I completely agree. His company doesn't matter. And in fact, one of the things I told him when it went public, should he just shut it down tomorrow? His 5.5 billion company.
Absolutely not. But it does leave the keys for some random person to come run it from some hedge fund. Aaron is very excited about AI if you didn't know, right? And I think part of that is an opportunity for him and for Box to matter, right? Because Box is, again, he's done an incredible job. I'm like very pro Aaron Levy and what I said to him when the company went public, I said to him, I was like, look, one of the things I most respect about you is you just worked this to make it happen, right? Like this was not from a first principle is like an important company, right? This is not like a sexy company but you just ground it out and like I really respect that. On like I think that's like an incredible thing to have done but I think part of the excitement about a lot of founders...
But he's wasted his life. I mean, Aaron and I started together so he was 20. If his company doesn't matter, when we started he was the wonder kid. Now he's the greatest CEO I know. He's wasted his whole life is basically what you're saying because it doesn't matter. He wasted his life. But he could have sold his, Rory was there. He could have sold his company to Citrix and made a hundred million with retention payments in like 2008. So he wasted the, according to you, he wasted the last 16 years of his life. Well, he flushed it down the toilet by doing a B2B company. Money at the IPO. Flushed it down the toilet.
Well, I think, but look, I do think there's this thing going on right now where there's a lot...
Wasted his life since Citrix. Wasted his life. The poor guy.
For what it's worth, I think, I don't know, I think you probably know the math, but my sense is that he actually probably would have made more in that deal than ultimately going public. Now, I don't know where he is now, but like from that cash at 2008 plus his shares in Stripe and Gusto and others.
Yeah, he should have just founded Allbirds instead of doing Box.
If he were a fund manager, he definitely should have sold then. He was not. He's a person and he wants to run it. That's fine. The second thing I say is I do think there's a lot of exuberance about AI right now from a lot of people who are kind of in these positions. This is a company that's kind of been meh, but maybe there's an angle to not be meh, right? And that's exciting to people. Like I think that's awesome for orgs to try that, but I think it is the race to matter that becomes interesting. And that's what I think the AI stuff is so interesting in so many cases is some of it's real, some of it's not, but like there is this new opening where people are like, 'Oh my god, does this now matter?' Right? And like that's kind of the big game to play. Anyway, guys, with that, I'm actually holding up my partner reading, so I'm going to drop. But that was fun. Talk more soon.
I love this. As I say, I hope I have my therapy session set up for tomorrow. I don't matter. I'm hollowed out, but I'll get through it somehow.
I'm sure you will. As my wife says sometimes, go get some Allbirds, Rory. You'll feel better. Go to the mall at Stanford and get a few pair of Allbirds and you'll feel like a winner. Bye, guys.
The thing that I do want to go to though now is actually I thought a phenomenal report which Jason, you did brilliant work on, which was Mary Meeker's AI report. So I want to go to it though. You posted an incredible thread with 10 fantastic takeaways. I want to hand over to you on which takeaways you found most striking and why and just start there.
Look, some of it was obvious. The one I first started off, which is obvious, but I'll tell you why I put it in there anyway, was that ChatGPT is the fastest, even though Sam Lessin said he's not sure it's important, it's the fastest gain of users in the history of the world. 0 to 800 million in 17 months. Okay, that's it. It took Netflix 15 times longer. It took TikTok five times longer. The rate of adoption, I talked to so many folks especially in B2B here. They're like, you know, I don't know. I don't know that AI can really replace a good hardworking marketing manager or a good PR person or they say there's too many, you know what they say, Rory, there's too many hallucinations. To me, it was a reminder the rate of change. I don't think as humans we can process the rate of change of AI. That was my point. It's so fast that we don't understand almost how quickly it's changing. That was the main point I tried to bring in. So whatever you think AI could do three months ago, it's like super dated.
The second one, maybe Rory you could help me. This is the second one I'm struggling with. I've been struggling with this in AI for three years. Okay. The second Mary Meeker one was showing that the infrastructure spend is unprecedented in the history of internet. Right. That the big six spent 212 billion on capex. And yeah, the top line's great, but the spend here is insane. I'm just still a little confused where it's going because it's early at the application level. Where is it at the application level? Is this all going to coding and support? Is it all going to custom data analysis? Is it all going to subsidizing our ChatGPT 20 bucks a month? I just don't know where all this infrastructure... I think it's laying a foundation that is transformational, but it feels so far ahead of the application level.
I think you're right. And the hyperscalers have taken very good cash efficient businesses and they would break Mr. Buffett's heart because they've turned them into capex hogs. Right. Microsoft, Amazon, Google, Facebook all have had capex as a percentage of free cash flow go up significantly. Now, as she pointed out, the good news is in the last four or five years, free cash flow themselves have grown. So your cash flow hit hasn't been enormous. It's only been about a 10% decline in free cash flow, right? It hasn't been horrific. In a less generous economic environment, the shareholders of Microsoft might well be screaming and saying, 'Wow, 60 billion and nothing to show for it, guys. Come on here.' Right. So it's been perfect timing. It's a little actually in that respect like 98, 99. The overall economy has been favorable. The performance of the hyperscalers' existing businesses, not their AI businesses, have been pretty damn amazing. And as a result of that, the market's been able to say, 'Guys, knock yourself out. Spend $260 billion.' You know, I'm sure something will come of it soon. The $600 billion question is, 'Where are the apps?' Right? And, you know, since then, it kind of implied, though they didn't say it, 'Oh my god, there's going to be a correction.' And obviously, since then, there hasn't been, right? Everyone is just plowing on, right? They're investing the capital and the revenue is coming but, you know, relative to the spend, if someone said to you you can finance a $600 billion capex business and, you know, four or five years in you'd have 10, 15 billion in revenue and 585 billion in losses, you'd probably say, 'Ah, no, I don't need that right now,' right? But that's where we're at.
