Anthropic's $6B Revenue Month | OpenAI Ads Hit $100M ARR | Oura Going Public & Whoop Raises at $10B

So we start with anthropics monster week. We may be at the stage where we throw the humans under the bus, not the AI anymore, which I think at some level is pretty terrifying. We move to open AI killing Sora. I think shooting in the head is even more significant. A big part of the whole strategic direction of the company was flawed. Agreed. You're seeing the economists, the accountants have wandered into the room and they said, "We have a scarce resource here. Let's optimize it. Let's devote this compute to the people who can pay the most

for it." And then we finish on the man with the biggest balls in tech, Massa. You haven't lived till you've seen an 85% decline in an index. This is one where it's just backass barkwards. I I don't believe there's right or wrong in money. There's just money. I just don't think raising it 5 or 8 billion when you're at 80 million or 100 million of suspect AR is the most exciting accomplishment in the world. Let me be direct. Get the over it. You should conform your company around your customers and your model, not your VCs.

Being mean to a billionaire is actually a feature. Ready to go? Boys, welcome back. It is this week in Anthropic, otherwise known as the SAS OG's, which has been renamed. Um, I want To start with, you guessed it, Anthropic. unbelievable 28 day month of February where they did 6 billion in revenue which was more than data bricks has done in their entire lifetime. You know what I think was the most interesting news out of anthropic this week? It was actually the the accidental leak of claude mythos uh essentially 3,000 unpublished assets leaked. Um it's a

10 trillion parameter model apparently that is this next level step changing capabilities that they're not releasing because of how powerful it is. This is by far the most interesting to me. Jason, how did you think about this news? Well, look, obviously it's embarrassing, right? To anthropic to to to leak it. Um I actually just think we're going to see more and more of this accelerate. Um the faster we vibe code, the faster we ship, the more corners we cut in general on application level security, it happens. I mean so many folks are accidentally uploading code

to insecure GitHubs to to database to to superbases that are by default open. So this is this is accelerating uh our data which is just open on the internet and and you could say god this shouldn't happen at the entropic level and I'm sure someone will Get will get scolded, right? I'm sure it will. But overall, this is accelerating and it's going to accelerate even more as we let our AI agents make decisions. Our agents are going to decide where to put code. They're going to decide what level of security to use. And this is

going to become happen stance. And you know, it's funny. I mean, people were like, "Oh, how could Anthropic have a new um security agent and have this happen at the same time?" I think they're they're I think it makes perfect sense. the anthropic AI security agents which I've basically used in Replet's very very good and it also makes sense as we rush we're going to leak source code data PII right it was I don't know whether it's happened it was reported today all of Merur's data leak it's being held hostage all of it every single

interview every single piece of PII every single piece of humans and so are you know we used to mock these I think it's going to start happening daily and weekly in the agentic era and it doesn't excuse it but but it's Um, it it's a reality. Agents agents are goal seeking and agents are going to make not only are they going to make the same mistake as humans, they're going to work a thousand times faster. So even if they make the mistakes 10% as often, Rory, help me with the math. If they do a thousand

times more productive, they're still going to make a hundred times more Mistakes. So we're going to see it everywhere. Again, just for perspective, because there's two things going on here. Entropic. Some data leaked from Antropic about their new model mythos which of itself is meant to be amazingly powerful in dealing with cyber security and there was a whole consequence that we'll talk about in a second in terms of how that impacted cyber security stocks. But as Jason pointed out, the level of irony here is acute because it was an inadvertent leak. So you had the

situation where a a model that's meant to be amazing for cyber security actually leaks via cyber security leak. So that's kind of so we're toggling between the two on the cyber security leak. It was noseworthy entropic quote unquote blamed human error, right? We may be at the stage where we throw the humans under the bus, not the AI anymore, which I think at some level is pretty terrifying, but and and you know exactly what happened. You see this I mean not down in the weeds you often see this where you know you're about to do

a big announcement you have your content management system you stage all the assets you know be it their Fed press release or in the UK it happened on the budget if you remember Harry the budget you have the press release ready to hit play the minute the budget is ended and someone inadvertently forgets and put it on the public side in advance. It's the Same thing here. So it probably was a human error. with a whole bunch of content ready for I don't know pick a date the March the May 15th announcement of Mythos they

forget to secure it correctly and out it goes so so that's the first thing right so that's kind of the that's the embarrassing part of it and then the interesting part of it and you really do have to do this not without sniggering despite the fact that it all leaked you also have to separately talk about the fact there's some big claims on mythos right and on topic we're making via again via this leaked memo reminder no one else has seen seen it h the actual model um at least not publicly available. Obviously some people

have seen it but not publicly available and even I was trying to get copies of the leaked memo. There's just a few screenshots at this stage. It's hard to track it down at least quickly anyway. But the statement is it's way more powerful. Second thing is it's going to be way more expensive for them to serve and therefore it's going to be way more expensive for customers to buy. And then the third thing is a particular focus on cyber security. It's meant to be quote unquote extremely good at detecting cyber issues. And the result of

that and the result of that was a four or 5% decline in the average cyber security stock last Friday when this leak happened. Yeah, just two maybe just two other Things on the league just for for this tradeoff. Um, you know, I'm dating myself, but when I was at Adobe and we were acquired, we were an early customer of GitHub. Um, and so we were putting source code in the cloud and that was banned in Adobe at the time. It was banned because the source code was their crown jewel. It was pretty easy to to

make a crappy PDF reader or a crappy image generator. But to do what Photoshop or Adobe Acrobat did, all the exceptions, all the corn the thous tens of thousands of corner cases was the crown jewel, right, of of the company. And so everything we got the first exemption to be able to use source code in the cloud and pros and cons. But when when they used this onrem source code management tool, it took a month to do a release. a month a month. Okay, now we're doing 60 releases a day, right? Or even Enthropic, fastest

growing enterprise company of all time, is still doing massive releases every month or two and dropping features every day, right? So, we went to something that took 30 days at a tech leader to something that takes hours. There's tra there's tradeoffs there and I I'll take them, but we're going to see it explode in terms of like the stuff that was published today. Going back a few threads on show number 50 to Rory. One of the things that I thought was pretty cool in Chyros was two things. Um, always on background assistant that works constantly.

Our AI is working with us 24/7 and agents that can sleep, wake, and self-resmpt. The autonomous agents, which I've been talking about how this is going to consume orders of magnitude more tokens and change our life. I I'm excited to see more coming. And you know, Open Claw was just this this brief thing that woke us up to what Enthropic appears to be all in on, right? Truly autonomous agents running 24/7, hopefully safely, hopefully not leaking all of our source code, but it's coming soon, right? Not these, you know, this whole idea that we've been

doing. When we started this podcast, you went on to chat GPT or Claude. No one had heard of Claude when we started this. I was a quirky guy using Claude. And you talk to it and go back the next day. The next release, it's gonna be on all the time. All the time. Debating Harry's latest investment. Was it big enough? Is he too concentrated in the fund? Where should he go? What was Rory thinking on that deal? Right. Why was Rory abusing Harry by email again for the second time in a day? Laugh, but this

is the future. I'm excited to see it coming sooner when our agents are 247. like they're literally around us and we give up all of our personal freedoms and autonomy as part of it. I hear you on the embarrassment of it being leaked and you know the the human error element but while anthropic has mythos which is supposedly as powerful as it is you're juxtaposing that with open AI [ __ ] around with killing Sora kind of ads not really working and people being unhappy with it and it's seeming like this massive chasm of the

progression of force that is Dario and anthropic continuing faster and harder than ever with a fault altering confused and dazed open AI wandering around the product desert trying to find some water. You're just being mean. I mean, again, as I said last, and I'm sorry to repeat, is that not fair? Yeah, but again, narrative is overdone on both sides, right? So, um I think some parts of it are true. Obviously, you're true in a bunch of different things. The decision to shoot Sora in the head, right? Almost certainly a good decision. Look, it's obviously embarrassing

to say something is going To be amazing less than four or five months ago and then shoot it in the head. But if it's a mistake, give him credit for at least saying it's a mistake. Move on, right? And yeah, that relationship with Disney again, I think I I'm going to give I I it wasn't me. I was sneering at it on real time when it happened. I think someone else in this podcast said it's really significant. Just saying, right? It's clock. I do I think it's massively significant. I think shooting it in the head

is even more significant. I think it's saying that the ent a big part of the whole strategic direction of the company was flawed. Agreed. The whole that we are going all in on consumer that from what I read Sor made singledigit millions of revenue, right? And was consuming a million a week, which actually sounds way too low, right? It must it must have consumed billions and made single digit millions. It makes no sense as a product either in the short term or the long term. But if you want to own the whole consumer experience with

AI, you've they decided we have to own image and video and Anthropic never even attempted to do it right. So it's a massive retreat. It doesn't mean it's the right it's probably the right decision to your point. In fact, almost certainly is. But man, that's a our strategy was wrong. Like this is a huge own goal. Our strategy was wrong. Agreed. But I and I agree with that. But I still think that, as I say, I still think Harry's over kind of overeagering it a little bit cuz look, you made a comment about ads that

I think is caught effectively implying that the ad strategy hasn't worked. That's a bit of a a bigger leap. I mean, Sora hasn't worked. They've killed it. I think I'm with Jason. I think that's smart because I think one of the things you're seeing right now is in a world of scarce compute and astonishingly despite all the investments that we've seen in terms of actual available compute for people to sell AI on we're in a scarcity mode. You don't devote compute to things that are highly compute intensive and low revenue intensive. I mean and Sora

was almost the definition of that. video generation is extraordinarily comput intensive relatively speaking and the revenue is almost minuscule conversely you know codegen while it is comput intensive is orders of magnitude less comput intensive and there's real dollars attached to it so you're literally what's happening right now I actually think at a at a higher level it's actually very healthy you're seeing the economists the accountants have wandered into the room and they said we have a scarce resource here let's optimize it let's let's devote this compute to the People who can pay the most for

it. So that's the Sora comment. On the ads comment, Harry, it's early days for, you know, JPT ads, but again, I cite that quote that Brian Kim that I thought was really good. Of course, they're going to run damn ads because there's no other way to build a mass consumer business and they have no choice, right? because you know their their consumer conversion rates run roughly 5%. that gets them to a I think a roughly 1015 billion dollar consumer business, right? And you know, out of their 500 million uniques or whatever it is. So, one

of two things has to happen in the consumer business. Again, I'm going to leave the enterprise business out on the consumer business. Either A, they take that conversion rate to a number we've never seen before from a typical consumer business. I think that's unlikely. I don't think most consumers are going to pay 20 bucks a month for this. Or option B is you make an ad business work. They got no choice to make it work. And by working, I don't mean a hundred million dollars. People are kind of ragging on the hundred million. It's in

the noise. It's scale. Big picture here. Facebook and Google each do 200 billion plus or minus a year in digital ads. If these guys aren't doing 20 billion within a couple years, they're not even in the game. And to get to the market cap of I mean remember Facebook has a 1.7 whatever it is trillion market cap doing 200 billion. Alphabet/G Google has a three trillion market cap doing 260 billion plus thing. If they're going to grow into the market cap on the consumer side, 20 billion is not enough. They have to do 50 billion

70 billion of ads. So unlike Sora, this is not going to be a try the ads and then fold. This is a there's only two existential bets for this company. One of them is ads to make the consumer business work. And then the other is oh my god, we should have done coding all along. Let's get a competitive coding and enterprise model out there and compete with Antropic on that side. So, those are the only two things they're doing and they're the only two things they should be doing. It's straightforward. I mean, I actually see

this as good news. Like, at least they've like we've gone from the let's wander around the woods feeling cool building [ __ ] to there's only two things to do. Let's get them done. I It's net net. It's a positive. Better late than never, man. Did they had the Wall Street Journal this week, they had uh they had a story of why Daario left uh OpenAI. Did you Yeah. I mean, yes, I did. The amount of tension at OpenAI, the fact that Greg Brockman recruited them and no one would work for him. He and D

and his sister would not Work for Greg Baku, would not talk to him. They would not allow him to be part of the LLM or GTP groups. Um, then Sam had to constantly tell each of them that they were in charge, right? Told Daario he was the boss. then told Ilia and Greg they could fire him at any time if they wanted to fire Sam, right? Then begging then Daario to come back. Then Dario saying he would stay only if he directly reported to the board and nobody else. I mean the level and then and

then firing Sam and then bringing him back and then Sora and D Sora and we're not doing coding. It's just I mean I'm exhausted. I I maybe I'm wrong. I have to think at least someone like me would feel much more comfortable in anthropic where it appears there's a much more consistent process in leadership, right? Same founders, same things, same goals. It just I have to think a company organized like that's just going to ex out execute someone with that level of drama. I I I almost can't take it. You're going to kill me for

this, Rory. It's the best thing for OpenAI not to buy Sierra, incorporate that as its customer support product and have Brett Taylor come in as the day-to-day CEO and Sam can be fundraiser. Sam can be master of I'm not in the boardroom. So, you know, I I hear look at the end of the day, At the end of the day, I think you're right, Harry, and I would favor that as a board member, but I'm not going to say that publicly because I don't want Sam to break my balls. I am too unimportant for Sam

to even give a [ __ ] about. Right? So, I don't worry about that at all. So, let me say this delicately. That amount of board level and senior team level turnover over an extended period of time is probably the highest warning signal that you could have as a board member about how your CEO is doing, right? And if if it was anything other than a founder, let's put it this if it was anything other than a founder company and this level of drama was going on, you'd probably be having you probably sitting down with

the CEO and asking how's it going at least and what are you thinking of doing about this? Um I don't think you turn on people just when things go to [ __ ] But you probably want to cut down the drama from here, build a team and try and call a shot and play it for more than 20, you know, for more than 6 months at a time. when you've worked at or observed startups where the CEO is spending so much of their time load balancing talent that can't work together versus when you've worked at

one or with one where the talent's rowing in the same direction. To say that it's night and day would be an understatement, right? It's like the The the backside of Pluto and the front side of Mercury and it's just ex and I think Sam we can criticize him actually when I read the everything I've seen and then when I read the Wall Street Journal it's like my god this guy has spent so much time load balancing the drama of these extremely brilliant personalities that just oh my god that that can consume number most of your

time as CEO most of your time load balancing you're exactly right it is the drama of you know we're not dealing with a bunch of people just trying to crank out some B2B software and make a paycheck. We're dealing with people who are angsting about whether this is going to change the world, who have fears about the technology, who have yeah, desires to be seen as credited for the technology despite their fears about it. This is a I mean, as is often the case, extraordinary talented people come on an extraordinarily high bandwidth, a a demand

on attention and care and feeding. It's it's been a real slog, I'd say. Okay. The man with the most balls in investing, Massa Sun. Soft Bank gets $40 billion bridge loan to buy Open AI stock. How deep can Massa go? He'll go as deep as they let him. I mean, that's the one thing we know. If they give him another 20, he'll borrow that, too, Right? I mean, look, this is a high I checked the Soft Bank. You've got Soft Bank holdings. Have to be careful. There's the telco group which is you reasonably levered at

the Japan level and then soft bank group is around it's around 2x levered right one and a half to 2x levered in terms of equity right what that means is a 30 40% decline you know wipes them out right it's a very aggressive stance right it would be like me taking our $800 million venture $900 million venture fund borrowing 1.8 8 billion and investing at all and if you if it works I make you I really juice my return but if it goes wrong by 30% I'm done right and it's just it's it's super aggressive

I mean I suppose his lesson is mass survived 2002 when I remind everyone the NASDAQ went down 85% you haven't lived till you've seen an 85% decline in an index right and obviously if that happened or anything like it um you'd just be way on the water, right? So, it's it's a it's a fairly high amount of leverage for an investment fund to say the least. Yeah, I mean for for sure it's it's dramatic. Having said that, you know, real estate investment funds get the maximum leverage they can by design, Right? That is how they

work. I would imagine if venture had access to more debt, we we'd all we'd all load up on it. if we all could if we all could do the growth rounds in your hottest company and uh may maybe we would and we could get we could get all the carry from it with uh and the worst thing is we leave the keys to fund seven on the table we might we might load up too I'm not sure but certainly real estate funds load up as much as they can but just pushing back again because real

estate funds load up because the cash flows are predictable right at the end of the day I mean look in well and they can but they can because the cash flows are predictable they can load up agreed right we don't we it's just harder for my little fund to go to Silicon Valley Bank and borrow 200 million against the inium of risk. I would argue the Soft Bank portfolio, not the telecom company at the subsidiary level, but I would argue the Soft Bank portfolio is more like Jason fund than it is a real estate fund.

So, I think it's a high level of risk. Well, plusy, what did he lose on Weiwork? 12 billion. He know he knows he knows what it's like. Yeah. The two big assets from memory are um obviously the open AI position and I think the ARM position which I still think is in um the the the in the holding company and yeah but I mean amazing companies worldass companies Easily imaginable a border would decline 30%. So yeah it's a hell of a way to live. Speaking of declining 30% and being in the hole, we we touched

on it earlier, but obviously Mythos leak hammered cyber stocks. Uh, Crowdstrike, PaloAlto, Zcaler all down 6%, Octton, Netcope down 7%, Tanimal down 9%. Was this a justified dip or is this an unjust reaction to anthropic news? was listening carefully to the name because I was listening carefully to the names and there's different aspects of security and some of them I can say yeah maybe that overlaps and then some I go that's just a different thing right and when you listen to all the names been thrown out you say that's just you know baby with the

bath water cuz step back how does how does entropic you know make security better at the code development stage they can look at code and find security flaws so there are companies that upfront um do something like that and you know application security companies and you could argue that this is a different way of doing that maybe some of those guys will be impacted right what they're not doing for example is real time perimeter defense they're not in a run in a real time basis you know blocking people like A firewall right nor are they

doing what for example octa does right which is single sign on and authentication that's simply not what they do it's a different thing and the fact that both of those kind of stocks sold off says it's just a kind of knee-jerk reaction rather than anything thought true. It will have an impact. If you were doing application security or code review for secure security code review, you're probably going to have to either incorporate how this works in your analysis or you'll be redundant just as the the coding companies anyone kind of just as GitHub had to

roll in complete models and figure out how to adopt it. Right? So for some of them this is really going to matter and then for others it's like it's just a different thing. Stepping back, I think we're in the panicky stage, right? I think we're in the stage of because these companies are doing so well, because they're private, no one sees the numbers, because AI is so sexy and so potentially amazing. We're at the stage now where everything, anything can cause a panic. Robin Hood was down like 10% because Elon didn't potentially give them the

tender and was going straight through Erades. And that alone was like a massive hit for them. Obviously, there's a panic in the market. And the question is, is the panic justified, right? The panic is that this revenue is not durable, right? That's the panic. The cyber security one's really interesting in my in my Experience and opinion. This is one where it's just backass barkwards. Um because if you're in the agentic world, this is the golden age of security. The number of security threats and issues is going up orders of magnitude. Claude leaking its source code,

it doesn't matter. the number of of apps exploding. The number of like there's so many mobile apps that app store is like it's like a month to get your app reviewed versus a week. It is everything is exploding. These apps are being built by agents. They're being built in unpredictable ways. Folks aren't looking at the code. The pace of features being shipped, products being shipped, corners being cut. This is a golden age of taking any mature category and acknowledging good news for us. There's more threats. Good. whether I don't care whether it's application level perimeter

and like the good news is threats are exploding and that the whole shtick of cyber I'm not a real cyber security expert although I'm doing another investment right now for just this reason the whole shtick in my whole lifetime has been look you've got to constantly buy new products because new threats keep emerging like this is there's been a golden goose of cyber security that has allowed new entrance to come into a conservative category someone like whiz will show up and say Guys we know how to do this on the web And people are so

terrified of new threats, they'll take the meeting. Right? This should be the golden age for new and existing investors because the threats are terrifying. And you can't stop the rogue engineers that vibe coded something that accessed your data. This this should benefit everybody. Like everyone should be a rocket ship. Like everybody built like everybody monetizing GPUs is a rocket ship. We have and the fact that the market doesn't see it shows we're in a in my opinion we're in a true panic which is hard to predict a bottom. But I don't get it. Everyone should

be benefiting when you see an explosion in application production and a change in the paradigm. The change in the paradigm is good for everybody except you know Windows Defender from 1996. Like it probably doesn't help that product or whatever the hell they have but anyone everyone with engineers should benefit. I broadly agree with Jason. I mean there might there are more than Windows Defender 2006 that might be impacted. As I say some of the application security code review stuff could be but big picture Jason's right. Instead of having people trying to get into your firewall,

we everyone's now downloading an agent, giving it full root access to their computer and telling it have a go. And as Jason just pointed out, work overnight. It's going to I mean no one yet it's funny we my colleague Aar who Does a lot on the security we've been looking at a lot of these companies no one yet knows the exact approach that we're going to have to take to defend against agents running within the organization but everyone 100% understands that this is this is a emerging mega threat because of the velocity adoption times the

power of the solution so I I agree with Jason it it mightn't be the old guard that takes advantage of it But there's no but they tend to be I mean one of the things I admire about the security companies is the crowd strikes the PaloAlto networks of this world is they know damn fine that when a new thread emerges and a new solution emerges for that threat when when an earlier winner comes out you better spend your 300 million bucks your 500 million bucks and just swoop up the winner and add it to your

product right so I think there'll be a ton of fast acquisitions as agent security solutions emerge you know and and people will be doing if they're smart And I think those two companies are extraordinary smart. They'll be doing acquisitions long before it's quote certain because you're going to have CIOS come and talking to you, right? One thing worth mentioning on that is it was interesting again I and somebody leaked information from Anthropic. They're masters at selling fear. One of the things they're doing is They're releasing the mythos model first to sis within companies. It's kind

of like, oh, it's so scary. we're going to give you this model and give you time to figure out how to use it. Of course, part of that time will involve giving a million bucks to Anthropic for um so it's just great marketing. So, they're actually leaning into that and saying to the sisos, you're going to have to figure this out. This is the new terrifying weapon we've invented. Please give us a million dollars and we'll let you defend yourself with it. also great marketing and but it speaks to the perceived to Jason's point it

speaks to how correctly afraid every security for um SISO should be given the pace of agentic AI adoption in the enterprise the golden age of cyber I mean it's just it's just how hard is it to get a meeting whoever you are if you have any established brand we we we've got a new agentic product we're going to help protect you from this you're going to get a meeting that afternoon, right? Wish I bought them over Figma. That's a depressing chart that I'm looking at. Um, you need to let go, Harry. You need to let

go. Down 30% in a month, Rory. It's hard to let it go after 30% in a month. Okay, no crying in the casino. Move on. We we I do want to discuss revenue kind Of questionability. Uh, we've got anthropic recognizing revenue in a very different way to open AI. And then you also have questionability around emergent labses um and is it okay if error is kind of questionable in sorts of how it's accounted for. Um how do we think about that? You can choose which one you want to take. Let me just can I just

maybe Rory can dig into it but I'll I'll tell you there's one startup I invested in that's over 100 million ARR and I get them I I I own just enough to get the investor updates. It's not I'm not on the board. And I get three numbers every month. Three revenue numbers. I don't know what the hell they are over 100 million, but the smallest one is ARR. Now, I invested at seed. I don't really care. I'm in the money. I don't I don't have a choice. But I I can't understand. This company's doing great,

but I can't I for the life of me, I cannot understand these three numbers. And there's asterisk and daggers, and there's charts that go every, but they keep going up and to the right, which I think was on this emerging thing. We could talk about our next. I think that's what some of the investors said. Who cares? But I can't tell the hell the difference what a what an ARR is in 2026. Well, what I always get is like pipe, Which is complete [ __ ] the contracted and then there's live. So, first of all,

stepping back to be fair to both Entropic and OpenAI, they have a very clear and sensible way they define AR. What they take is they take the last the average of the last four weeks to smooth out times 13 because there are 13 four-week periods in a year which is more sensible than monthly because you have these varying months. So they're basically what they're saying is realized revenue for the last four weeks averaged you know the average of the last four weeks times 30 that sorry obviously if it's the average is times 52 but basically

it's actual gap revenue. what did we bill for the last four the average across the calculated across the last four weeks to take into account how it is that's their run rate right so it's actually pretty it's not commit to be fair to them it's not committed or any of the [ __ ] kind of higher level stuff it's actual money flowing through the system and traffic is roughly at 19 billion according based on that kind of trailing four month four week metric and open AI is around 25 but now let's talk about your thing

there was this kind of whole meme of OpenAI reports net on their partner revenue and Entropic reports gross. And what they're saying there is if OpenAI sells through Microsoft and Microsoft takes some money off the top, OpenAI only reports the net amount. If Antropic sells through AWS and they sell $100 worth of revenue, they report the gross amount and then they give 20 GR $20 back to Amazon as a cost of sales. So there's two different methods for what looked like the same revenue kind of nicks or same revenue approach. I thought you were going

to extend that. I thought part of where you're going was to Michael Canon Brook's point on the show was that a lot of this revenue is getting double or triple counted because it's being recognized and not only does this happen then cursor is selling it again and recognizing the revenue right the same to people keep reselling these tokens again and again and recognizing them as their own ARR. Um how many times do we get to resell these these poor little tokens? I think that's actually a great point, Jason. I hadn't got, but you're exactly right.

No, it's like the everyone's got amazing revenue growth because it's the same little token going to this little token. I mean, if we all agree to have essentially 0% gross margins, an infinite number of us can keep reselling tokens to each other, can't we? This is our new 20 VC scale faster demo day. We all resell a million tokens to each other on the first week. So everyone in batch O001 has a million ARR Its first week because we just resold our tokens to each other. So it's completely fair. The VCs don't mind. And and

you're exactly right. And the sentence that you added in passing is the key one. Until we all have to get profitable, all this, you know, can continue. And then at some point, that's why I said I think you're starting to see it. Someone's going to have to say, assuming we want to have a net present value and a cash flow, what's going on here? And then and then all this becomes more clear. I I didn't comment on the um emergent labs fastest to 100 million. Jason, you actually tried You tried it, didn't you? You thought

it was good. I did. I thought I mean listen, it's hard for me to know the criticism, right? You know, some folks in the press in the India B2B environment tried to make this some sort of scandal, right? Because and in a sense, fair enough. If you go to emergent labs and emergent labs is sort of an Indian competitor replet and lovable, which I'll show you what I learned in a minute, right? And if you go right now to the homepage, they say 0 to 100 million I think in 8 months. It's right there. It's

the biggest banner. So, in all fairness, if you're going to put yourself out there, not not just as a tweet, but if it's going to be right there on your website, one would expect 70 to 80% accuracy in that number, ideally higher, right? So, If it's lower than that, I think it's fair that some daggers came out. But I was curious. Um, but I don't actually know what happened. Is it triple counting to I I can tell you one thing that I learned which I don't love, which is that what a and a lot of

AI startups do this. So this is not unique to Emerant. They kind of hot instead of getting you use the free version, they try to get you to immediately do a free trial instantly that says it's $0 and $20 a month thereafter. Now so many folks do this. It is not unique to them. It's probably best practice in most accelerators. But I'm pretty sure that means they recognize all $240 in ARR that first month when you're paying zero. and and they trick you because you don't even Yeah, you do have to click on the Stripe

link, but you almost think you're just using the free product. So, is that if I do a $0 a month product um that's discounted as a marketing cost and I churn after 30 days, does that count as $240 of ARR? I think for a lot of startups it does. Okay, so that's a fair criticism. I'm not saying this is what emerges, but a lot of startups will instantly recognize that as $240 in AR, which is how they rock it if you're self-s served. That's how you otherwise you can't get there that quickly, right? So, so

they clearly did that. I will say what was interesting is I overall I Think the criticism is probably unfounded because I thought the product was pretty good, much better than make, like an order of magnitude better than the disaster of make. Um, because I I do a five-part test, a six-part test. The first part is awareness test. So, I ask it to redo the saster.ai homepage. Uh, actually, of all the platforms, it did the best job. It it beat it beat it beat all of them all of the leaders because I redid this recently. I

redid it and and they're all good at it. Repetit lovable vzero they're all good at they all pass the test but it actually it actually was probably the best and it and it passed a bunch of the other tests. So I'm not going to switch to emergent labs, but I would say it's in the top 10% of vibe coding apps. That's pretty good. So that tells me it's a legit business. like they did they did the work and a lot of these they're just the the truth is if you play with a lot of these

even from leaders like Nick's not the only one that's crappy okay because they're basically relying on the fact that claude code does 90% of the work for you right they're just putting the the simplest wrapper around this and so they did a good job but is I really didn't like the the way they do the billing but we'd probably have to to shoot half our portfolio companies that that do like PLG AI because I think it's a sus Practice I just don't like tricking you with this $0 for the first month when you think you're

using a free trial, right? That's the sus part. I I don't love that kind of gray art. Um, but the product's pretty good. You know what I don't like when it comes to confusing? I was wondering whether to go off on one in this show and then I thought, "Fuck it. Let's go off on one. It's been a long day." I'm pissed off by these tranched rounds. I see them all the freaking time. The amount of Sequoia rounds where it's like, oh, you know, X raises money from score at 5 billion. Trust me, Sequoia got

in at one, but they just club it together and then announce the sum and then the latest valuation and it's just very misleading. The tier ones get in early, a tier 2, tier three instantly marks it up saying same as crypto, isn't it? For years, what's the difference? Well, I think the Andre crypto fund uh the you know, essentially 80% off the the token. What's the It's the same thing, isn't it? This you're paying for the paying for the signal. I think if you break it down first of all just so everyone's on the same

page because interestingly neither Claude nor GPT was on the same page and didn't know what a tranch round was and they gave the old conventional venture trunch round based on performance milestones you know BS from back in the Day when we actually ran businesses right so didn't have a clue about this so let's be clear on the practice here the practice here is when a a company a hot company raises a round where there are effectively two different prices per share. A first, let's call it a first close and a second close even if they're

at or near contemporaneous where the first one might be at 250 and the pre and the second one is at a billion pre and you know the highlight and the headline is the always at a billion pre. There's two imp impacts of this. First, let's do the simple one where there's just a single participant in the round, right? That's where, you know, if I'm the new investor, I want to pay 600. The company wants a headline of a billion. And to win the deal, someone says, "Okay, let me put some money in at 250, some

money in at a billion. I can do math because I'm paid to do math because I'm an investor. So, I know my overall basis is a billion, sorry, 600 million. So, I'm getting what I want and the company's getting what it want, which is a headline number of a billion, right? It's silly, but that's all that's happening in that case. That's the single participant tunch deal, right? And it's and for some if a company wants a headline, that's what they get, right? Generally those things come back to bite you because by definition, if you are

the company, just as the investor can Do, Matt, presumably you can do Matt. If you accept that combined deal, you're implicitly saying, "I know I'm only worth 600, but I'd like the optics of a billion." You better be damn sure that your next round you're at one half billion. Otherwise, you'll have the optics of a down round. And if you're an optics believer, that's probably worse than the uptick. Right? So that's kind of the single participant version. The much more annoying version that Harry clearly was getting on his high horse about is when you have

the same structure, but access to those rounds where the the lead investor maybe does all of the 250 pre- round and only half of the billion round and then some new investors just get to do the billion round. So literally at the same time the lead investor is investing at 600 billion and the follower investor ne le marquee investor is investing in the same asset at a billion and there's I don't believe there's right or wrong in money there's just money right that's where at the minimum you have to look yourself in the mirror as

the other investor and saying wow that's the price of being cool right that's the price of access I'm paying 50% more because I just can't access That deal, right? And that feels like pretty invidious thing to I mean again going back to the comment the the prof you got to remember if you think about and again trying to avoid morality and saying oh because it would feel shitty. I mean you really would feel like a loser if you did that but let's play it out. This is a situation where the the the lead investor let's

say it's sequoia because everything good and strong should be sequoia. They're admitting it's only worth 600 on average and they're just doing this fakey transaction. The company is admitting it's only worth 600 on average because they're taking the money at a blended cost of 600. So what you're saying doing at a billion is you're either saying either I have a lower cost of capital and I'm willing to take a lower return than everyone else or the only positive spin you can come up with is the company thinks it's worth 600. Sequoia thinks it's worth 600.

But I am smart enough even though I don't have access. I am smart enough and clever enough to know that it's really worth a billion and I should do it at a billion even though I can't get to 600 and I'm willing to put up with the upfront tax and foolishness look because I think 6 12 months from now it'll be obvious that I bought at a great price and maybe I look like a genius. Yeah, but we've well we've entered an era though the I think the meta thing maybe this wasn't exactly what you

were Queuing up Harry but it is tough. We've entered an era where so many founders are obsessed about headline prices. Obsessed. They're obsessed coming out of demo day. They're obsessed. They're obsessed once they cross a billion, which I think should be a moment to take a pause because of M&A options. They're obsessed about driving to 11 billion and 9 billion and one uping their competition. And the numbers have become a joke to many founders, right? They just don't joke the wrong term. They don't think through the any of the ramifications of the valuation they're hid

and they don't care. And I'm not even saying that's bad. I mean, I think burning the bridges is a good way to have a big outcome, but it's become utterly gamified on many levels, right? It's just become gamified. And so this 11 trunch isn't around is just part of gamifying it, right? It's been true of YC since I started investing there. There was always a cheaper price before demo day if you're reasonably hot, a higher price at demo day, and then a 20% or 30% after demo day. So that version has just become institutionalized and

so be it. If it's what the founders want, if they want to gify it, so be it, right? I I just don't think raising it five or eight billion when you're at 80 million or 100 million of suspect AR is the most exciting accomplishment in the World. Like I'm not going to like I'm I'm going to send a few thumb emojis on the email, but that's about it. That's about it. They're all They're all fake anyway. They're all just bets, right? These are not public companies. It goes back to your point though on emergent labs

and the graph doing the eight months to 100 million. The gamification of like the race to 100 million. I'm not choosing emergent labs but they listen I think they built a good product. I think I'm sure they've been overly lamb cuz whether it's 100 or 80 or 60 I don't care. It's pretty damn good, right? Whatever it is, but if you're going to if you're going to if you're going to do that, you deserve the the daggers to come out when it's not 100%. Right. One that I thought was fantastic, exciting. I always like to

see a potential IPO or to IPO shortly. Um I thought this was fascinating. It's been an incredible journey actually from like you know Scandinavia these founders building this business. It's had a couple of CEO changes. Um the business is actually in incredible shape both actually and Whoop announced today that they raised I think it was 500 million at 10 billion fitness and health data. Do you know what actually Rory Jason's annoyingly right again? I don't know if you remember his predictions, but he predicted, if I'm not wrong, that 2027 would be the year for like

human healthcare data and longevity. Yes. And it looks like it might even be 2026. And Yeah. Know and you know, the great thing about both stories is very defend. I mean, you know, Johnny Iverside very defendable from this is not an AI envy story. This is I mean they use AI and what they do but these are fundamentally standalone products with a clear consumer value proposition and they're you know they're not going to be clawed coded on Friday. I totally see it and they clearly have had critical mass in terms of revenues. I think it's

awesome. I think the question listen the interesting thing for for these products uh obviously it's exploded is they are they are recurring you know going back to the topic of a arr these are recurring revenue products right um for the most part right fairly expensive subscriptions um and they're exciting until like Pelatin when they aren't right now it's not there's not a $2,000 cost here um but um and I'm not being critical I I think that they're exciting but there's also a fattishness ISM people can switch. So the RR the ARR the pirate R um

uh what multiples do these companies deserve what it is I I'm not smart enough to know but the but the acceleration is a force of nature right I'd love I'd love to be a seed investor don't get me wrong do you think there's a foolishness in the same way I think we as I think you can switch from v Harry you're into fitness I I'm I'm not so Much but I run 360 days a year 5 miles a day for 10 years so if there were a better treadmill a better device a better thing I

would switch and and whatever you're you're fairly fit Harry like if you're if you wear or and you love it but Whoop is is better and you care you're going to switch. So it's not it's not service now RR right it's not you will you're loyal you're loyal but but but there's just some disruption ri like look at Pelatin when Pelatin blew up but actually as the world changed even though people love Pelatin right super high MPS they you remember the Pelatin addicts of 2020 on Zoom they they loved it but when the world changed

they just the simple answer to Pelin is they just switched they they just switched and uh Whoop is different an aura and there could be a whoop or woop woop whoop aura and uh maybe one is your ankle and it has your AI rock from Johnny IV in it and we'll switch to two comments on this one disclosure we are lucky enough to have a small investment or true the acquisition of one our companies so I don't have a ton of information so I'm not going to breach any confidentialities but just an abundance of caution

I'm not going to comment on numbers at all right great products right but to your point Jason on Um, You know, it's not AR like service. Now, let me be direct. Get the [ __ ] over it. Right. Not every business on the planet, Hang on. Not every business on the planet has five year designed in. If you're running a bar down the street, every night I can go drink at a different bar. If you're selling Coca-Cola every day, I can switch to Pepsi, right? If you're selling on If you're running Amazon consumer, every every

day I can go search and go on Walmart, right? Not every business is going to have enduring kind of long-term lock in. And that's obviously you'd prefer to have lock in, right? But there are lots of business that have been around for 50 years where every day they have to earn the right for the consumer to go to them, right? And I think there's no doubt in my mind that any kind of consumer hardware software combination product has some residual asset from the subscription. But then yeah, that every new device has to be awesome. You're

in competition with other awesome products. It turns out capitalism is hard. You know, if you want to make 10 billion in value, you got to deliver value for your consumers. And I think for for what it's worth on Pelaton, I actually think what really happened to them, it's a little like the Zoom story is demand that should would have been wonderful. It would have been the greatest stock ever had that demand been spread out over five or six years increasing at 20% a year. We'd be Talking about the Pelaton compounding machine. Instead, everyone bought the

damn thing at the same time. They staffed up to kind of meet that demand. the market was wildly saturated and then the stock went down and it broke the narrative. So I I do agree, you know, I yeah, there's nothing you can do to make a market bigger than what it is. But I I I think they got whiplash by virtue of the co demand spike followed by demand fall off. No, I the question I think the meta question listen aura I I I as Harry said I guess I called it these are great markets.

They're large markets. markets where people will pay actually relatively high subscription fees for data right a lot of attractance the the meta question for venture is you know the classic Peter Teal 0ero to one only competition's for losers is what Dr. Teal said competition's for losers. Competition destroys pro profits. Monopolies drive innovation. You want to invest in monopolies. And so that's just my meta anxiety is if these are unmonopizable markets, are they good ones for venture or not? And I I I obviously there's two sides to it, but we hope to we hope I I

would feel more Comfortable investing in things that become monopolies. I mean it's a it's a better landing place um than uh than uh con than investing in bars and you can't and you can't ascribe the same durability of revenue to this as you can what like as much as I love but on the other hand you can't ascribe super high growth and you can't ascribe big Tam you right just it look if there were enough monopolies to do even one good monopoly a year I'd be in right and you know speaking if the founders are

about to get the all-time prize because they invested in the space monopoly and 20 years later they're going to cash in their chips, right? Monopolies are better businesses than competitive markets. But I do think you can still build dollars of value from a high good consumer product, right? And there are lots of prior examples of that, you know, and yet we all understand the dynamics of I think it's much less comp. I mean, actually, for what it's worth, I think if you look at consumer products that flame out, like the GoPro, it's much less, and

I'm doing this on the fly, but it's much less a competition issue. It's not like GoPro died because the competitor to GoPro emerged, right? It's that saturation is as big a problem as anything else. Well, DG DJI might disagree with you. I mean, there was a whole step function in the industry that they got they got left behind, right? Yeah. Would you prefer $2 billion in consumer hardware revenue, $2 billion worth of five-year contracts? Um, like Palunteer. Yeah, I'll take the contracts with the 90% gross margin of the 5-year lock in, please. You're a starter

for 10. But you got to give a lot of respect. I think maybe the more interesting question, Rory, that you brought up. Um, because so much has changed. This is our 50th show. So much has changed, right? When we started the show, uh, uh, public durable public company revenue despite slowdown in the top line was the gold standard, right? it was the best revenue out there. Fast forward to today, do we or going public, do we give a crap what type of R it is? Because the the durable software stuff is trading lower than the

S&P 500. Maybe I'd rather have ring revenue and I'm with with a somewhat suspect uh customer lifetime value because this the software value is so low. Maybe I don't care where my R comes from, right? It used to matter. It used to matter, right? We were so we'd be in board meetings where you would torture companies so that they would have more ARR and that they would have less variable revenue. I mean that seems like archaic today. Yeah. And and I remember doing that. I Remember telling people not to do that because I'm a big

believer is you can't make you should sell your product the way the customer wants to buy it. And I agree one of the things I hated about venture was when people would say oh make it all recurring revenue. But then the fun one that's actually really relevant right now is you remember everyone would say oh you know it's a hardware product but all the values in the software so we're really like a software company and now hilariously everyone's going oh thank god I've got hardware because hardware is defensible not software right and I think it's

a big picture comment is you should conform your company around your customers and your model not your VCs because I agree with you this kind of pretend it's AR but then next year we hate it's just a total waste of time for entrepreneurs things are what they are and you do best in business if you actually say what they are and just live and die by that. Most consumer products have high volatility associated with them. You better have a damn good R&D function and continue to build great products. We looked today this week they also

talked about how I think all birds was was it was it acquired for less than 30? It was acquire Yeah, I was literally about to bring this up Jason. It was acquired by AMX for $39 million. So my question is if a company like Ora goes public and you see weakness in a quarter, should you dump this thing Instantly like Allirds um versus forgive a little bit of weakness in a in a Salesforce or service? Yeah, I I I'm going to avoid any specifics genuine comment here, right? Because it's not appropriate. But I would say

something unlike the other two guys. I've run a textile manufacturing company 30 years ago. The technology required to make an all birds or a shoe is not the same as the technology required to make a modular electronic device that sits on the human finger and measures blood. Either of these kind of consumer electronic products, they're not a monopoly in the same way Nvidia is. But they're pretty it's pretty rare number of companies that can do that. They're not go down. Put it this way, Jason. I'll name a wearable, you'll name a wearable, and then I'll

name a sneaker, and you'll name a sneaker. We'll be done with wearables long before we're done with sneakers cuz there's a lot of different sneaker companies. And yeah, turns out sneakers are easier to make than wearables, which are easier to make than Nvidia GPU chips. Speaking of like, do we care? What do we actually care about? There were two that I I don't know if you guys know this, but I have wonderful partners, and one of my partners is much more intelligent than me, which Rory, you're going to make some form of gag about, but

he helps me put together some of the schedules, too. And he was like, "Whoa, I had no idea about this." He was like, "Whoa, Epic Games laid off 25%." I didn't even hear about that. Yeah. And then I then I had had Mark Andre on your last pod sort of laughing about how we all overhired in 2021. Well, Mark Andre was was very clear. He thought that we were all using AI as an excuse and that we were all over staffed by 50 or at least 75%. Did any of his portfolio companies do that over

hiring? No, Harry. Logically, it's it would be 75 or at least 50% over staff by 50 or at least 75. This doesn't make any logical sense, but keep going. Just picking up on the arrows here. Rory, he's pissed now. He's pissed. I would love to see you do a day of my life. I would love I now you've been cranking. I will give you two hours sleep for 6 hours a day running two companies at once and then you come. Now I'm feeling guilty. Move on. But no, don't worry. But but point being like went

completely under the radar. They didn't try and do an AI [ __ ] story. They basically said, you know, um active daily active use of their Fortnite game and their games is down, so your revenue is down, so you take your expenses down. It was struck me as a no [ __ ] layoff announcement. It's like, you know, we sell less stuff, we Have less people. It sucks, you And again, I really do try never to be cavalier about people losing their jobs because every one of those has to put food on the table. They're

not earning the kind of money we're earning and now they got to go out and find another job in a shitty job market. It sucks. But the lesson is and that's why I respect them. It's like we're selling less so we got to do what we got to do to keep the company profitable. Guys, we keep talking about these layoffs and these big numbers. I mean, it was over a thousand people laid off in this layoff. A thousand. numbers are relatively meaningless and we've had so many of these conversations. What happens to the labor markets?

Well, one thing on on the epic thing if you um and the Wall Street Journal did a good article on this one too this week on the a permanent decline of Hollywood employment. It's permanently in decline. It's it's not there there it it's on it's in decline because fewer uh movies and TV shows are being made. Tik Toks and YouTubetubes are doing it. And it's in permanent decline because every other country provides larger subsidies, right? And so there's this permanent decline in Hollywood labor. I think entertainment is is sort of a shows us the future.

EP Epic Games is entertainment too, right? And uh they will absorb as much AI and technology as They can to address the to to adapt. And it's just early. It's just early. They've had to adapt to YouTube. They've had to adapt to social gaming. And I think uh we talk about these you know thousand people at lasting or whatever but I think Epic Games is just it's I think it's a more interesting view of the future than block. We talk about folks might vibe code a B2B app but content's already being massively disrupted and some

part of that is as you pointed out to me when I got it wrong a few episodes back AI related in terms of recommendation engines. But I think a lot of it is just you a very competitive attention economy. You're right. Fortnite was the was the game everyone talked about. Now it's not. It's the nature of the gaming industry. So yes, what what does that mean? It's the Fortnite circle coming for everybody at the end of the game for everybody. Even Fortnite the Fortnite circle has come to Fortnite itself is surrounded itself. Poor Epic Games

is in the middle of its of its end game of Fortnite. It's just hidden content creators shooting it out at the very end. It's coming for all of the the Fortnite circle is coming for all of us. The the other one that kind of relatively was I think maybe a little bit overlooked is reports of Manis founders. Manis obviously for context being bought by Meta recently. Um Manis Founders trapped or kept in China. So just again give people context and then put out one question mark there. Manis was a company originally based in China had

some Chinese investors then redomicized to Singapore benchmark invested effectively refounded as a US Singapore company meta acquired it I want to say and I use the word past tense acquired because my understanding is the transactions closed and the money's moved though interestingly not a chachi panropic were clear on that but my understanding is that's what happened but then now the latest thing is two of the the Chinese government has a takes a dim view of this because they don't want Chinese talent leeching overseas and going to the US and effectively not being Chinese anymore and

they they they feel it as a brain drain. So they did something that was pretty coercive in the sense of two of the key founders of Manis I think were either in China or summoned to China and they're no longer able to leave. So that's those are the facts and yeah of course you care. I mean I think that well starting from scratch I mean that sucks. I wish him the best because that's not a pleasant place to be. I mean, I think you've had the Jack Mah thing of, you know, at Alibaba of effectively

going, as it were, under the radar for a few years when you kind of incurred the displeasure of the administration. You also have people who've had significantly worse consequences than that. So, let's start with the basic. You wish them all the best, right? Um, but I don't think another deal like this would happen to you. I think this whole Singapore washing thing is over. It's over. I I totally agree. That's where I was going to go with that long preamble. I'll tell you who did notice. Maybe no one in America spent any time thinking about

it, but every Chinese founder who was thinking about doing this is going, "Hm h I don't know how I feel about this. I don't know if I can do this deal. I do know if I do this deal, I am never going home again." But I'm with you, Jason. I think all these other China washing deals, they're put on pause or they're put on re-evaluation or next thing is going to sound harsh. It's a fairly coercive regime. If your family's not out of the country, do you have exposure there? Right. I think it puts it

it just shows I mean authoritarian governments can take pretty dramat drastic steps to impact our citizenry if they want to. And I agree, Jason, it makes it really hard to imagine doing another one of these deals without being worried about this consequence. But hopefully they'll kind of go naughty you pay 50% like you know California makes it hard to leave Too but if you pay them 13% they'll let you go to Nevada right? Yeah, hopefully it turns out to something like that. And please God, it's not something more, you know, coercive. But I I agree,

Jason. Wouldn't do another one. You know, in venture, you take risk, right? It's part of the job. So, we've all had deals where there's some rule, some corner that was cut and we talked ourselves into it's okay, right? This this is this is companies something weird about this company, but and we convince ourselves as as as talking to some mediocre lawyer or asking an LLM today that it's okay. So like the Singapore washing must work, right? They've moved to Singapore. It's got to work. And you convince yourself. You talk to a few people and you

take the risk and it it bounced. It appears to have bounced the right way for Benchmark and Friends, right? It appears they've gotten their money, but you don't do the next one, right? And there's 242 millionaires in Singapore. The majority of the inflow is Chinese. You don't do the next deal. Maybe other capital does the deal, and that's fine, right? Capital is funible. But you just inventually just don't you just can't do the next one like this. It's too risky. What do you do if you're Meta? Part of the asset you're requiring is the team.

Two billion is not a lot for Meta and they have the product. Yeah. What are you going to do, Harry? What would you recommend? Getting angry at the Chinese. That'll work well for Them, right? I mean, I think it'll be, you know, yet another acquisition that looked clever, but in retrospect wasn't amazing. Well, listen, for Meta, I'll just say one thing. I I I only have a tiny bit of information, but I I it appears to me Manis is running mostly and smoothly as as an application and a company. Now, I don't know if the

founders are working out, you know, I I certainly feel strongly when you lose your founders, you lose your heart and soul of your company, but in the short term, I I don't think it's a big deal for Meta outside of the founders because it's running smoothly, right? That that's my in the short term, it's not down. the team's functioning, they're running and um but it's crazy and at the risk of being Polyiana but also wanting to assume the best of people, I would hope that the Meta management team and board to the extent they do

have any influence can help these guys come to an amicable end. And if it requires a tax settlement or whatever, you know, just you you don't want to leave you don't want to leave people you just acquired in limbo. at some zoom out level when you listen to the rhetoric on both capitals you just have to realize that trying to tread between those two these two countries is pretty hard right now right you know you Know we have China hawks and the US government they obviously have a whole ton of US hawks or whatever the

equivalent is there's a real perception of competition you know we don't let them buy the Nvidia chips etc etc you're playing with fire in that thing and sometimes it bites you I just think overall it's natural in given the outcomes in AI and given the growth that I think it's tied to taking the highest levels of risk we've also taken because the payoff seem to be there and when this deal happened folks kind of thought this was aggressive Benchmark's never done a deal like this why are they doing a deal like this it's not even

very cheap right it seems a little crazy and they're like well we've never seen anything grow like this and the team's incredibly talented right so they took a little bit of risk and um and they made their they made their profit we're all taking more and more risk folks that you know now now it's a week of revenue at a demo day. I did a million dollars my first week, it's amazing. What about the second week? I don't know. Like it but it as long as it all works out in the aggregate. Um and I

think this is why nobody cares to Harry's point. I cared about I cared about Madness. I added to the to the list. I don't think anybody cares. We're all focused on getting a million dollars our first week. Just good realization that the worst thing that can happen is not just oh you lose your money. There are there are Worse than that. I mean speaking about cooling their shot and making billions of dollars. Steve Jervson. He's tied his career to Elon very smartly. So that's not in any negative way in terms of the investments that he

has. Plowed, tripled, double, quadrupled, everything in between. Um leaves California, buys most expensive home in incline village and and these were Jason's notes. Will anyone with liquidity be left in California? What if California is structurally bankrupt? Well, I mean, yeah, it's not a great sign when they keep leaving, is it? It's not a It's not a positive Rory staying Jason. I mean, look, all first of all, you were exactly right. All credit to Steve and all more power to him. I've known him intermittently for 30 years. He made a brilliant call to align with SpaceX,

been on the board of Tesla and SpaceX Tesla for a while and then came off obviously for those back in the day. But SpaceX too, yeah, he's he's put his money in a compounding machine and now he's clearly hit the DPI moment, right? But yeah, going back to the thing, yes, capital, I mean, the truth is this, that's why we said last week, high ultra high net worth people have a high degree of mobility. And unfortunately, if you Put the hammer up too high, they can leave and choose to go across the border to Incline

Village and save 13% on um any realized gains. Plus, as we pointed out, 5% on all gains if this wealth tax passes, you know, at the margin, why wouldn't you? You know, it's not like you need to be in California to be a Tesla board member or a SpaceX board member given they're down in Texas. So yeah, actions of consequences. Well, it's interesting also this week um Washington state did pass their 9.9% state income tax for millionaires and the governor said the reason the governor said to sign it because there's a lot of folks who

said don't do it, right? It's I mean already Howard Schultz left. He said today he said well they just deserve to pay more. And that may well be true. It it may well be true. Like I don't want to debate that. This is not political, right? I'm I'm more concerned about the tipping point when uh we kill golden geese. You know, there've been Washington and California and to a lesser extent New York have been the gold golden geese. It's uh you know, Washington said they're going to lose money. They're not going to make money on

this. It it appears that mo most folks that are neutral or right have said California will lose money on the billionaire tax. Everyone's left and and the tax itself assumed massive Amounts from Larry Ellison who's been gone a half decade, right? So, no one's It's just I do I I do worry they're all they're all they're all leaving. Everyone that doesn't work at Open Anthropic uh you know on this show we've done it 50 and I said in the beginning of this that you'll leave after the series B and and I now I see that

used again and again by these folks who are on the right on it. They say all the founders will leave after the series B. But it may happen by show 100. And one of the arguments I make is because you know the truth is this articulating the argument to the to you know the activist on the other side as being you're being mean to the billionaires is of genuinely no interest and being mean to a billionaire is actually a feature right but I think the real articulation is this if you you actually are losing revenue

that won't be available to California and the marginal dollar in California probably goes into you know payment for homelessness business, payment for young your kids, payment for foster homes, payment for marginal social welfare services that are easy to defund when times are tough, right? And by choosing to obtely tax without any attention to ability to collect that money, you've actually reduced the revenue that's available to you, right? And that's the Argument you have to make to the to someone on the other side of the table. you have literally chosen something instead of getting you know

200 50 I don't pick a number of 50 million from the Larry and Sergeys and the Jervsons of this world you went for 200 million and now you're going to get zero and what that means in real terms is somewhere down the line long after all these changes have been made somewhere in Sacramento someone will zero out a line item on the budget and let me give you a clue it won't be payments to the teachers it won't be payments to firemen it'll be marginal services to marginal people that your craft stupidity and desire to

make a political point has ended up costing them money and that's the only argument that moves the needle because it because it's true and you're right this you're saying is that it will have a net negative return how now do you feel good Rory if you were Steve would you have left I think from my perspective I'm just so glad to be in California it's so wonderful I moved around a lot early in my life I have my friends here have my life here at the margin the whole point of having money is to be

able to do what you want and for three or four or five or even 15% of your income. Do you really want to leave? Now, I will say that's why you can tax income income Relatively highly because it comes all the time and you can't control timing and therefore you have to uproot your whole life for the rest of your life to avoid it and I don't think it's worth it. So, I wouldn't move to avoid income tax. Conversely, if you have this pending capital event where literally in one year you're going to sell quote

all your SpaceX stock and realize a $2 billion gain and you're going to pay an extra 13% of that in California, which is $260 million, maybe you turn to your wife and say, "Honey, for the next two years, why don't we live in incline village 165 days? I'll pay for the plane. We'll go back every week. you won't lose contact with anyone and we will save $260 million and you go hm that's real coin. So, and that's the point about, you know, that's not the life I live. That's not the situation I'm in. But that's

the argument you make. It's like it's not crazy. That's real coin, baby. That's real coin. Is there any Is there any story that I haven't hit on, guys, that we should hit on? I just have to bring up the Ron Conway Matthew Prince one because it was so I highlighted that one on Twitter. It was just the funniest thing in the world. And uh you know I don't know Ron Conway call for context. You want to provide Some context? Yeah. I don't know Ron Conway but he's certainly viewed as one of the Silicon Valley gems

right seed investor in so many leaders. Always out there as an advocate everywhere. Uh probably could have retired years ago, right? Very founder centric. And he wrote that he had helped Cloudflare navigate some very significant issues earlier in the day I think on Jack Alman's podcast. Yeah. On on Uncapped. And and they asked Matthew Prince, CEO of Cloudflare, the question. and he said, "Well, maybe I don't remember any of that." And it's just it's not and he wasn't mean. Matthew can be fairly uh sharp as as Harry knows these days. It wasn't meant mean. The

tweet was not mean. He literally just meant he couldn't remember getting any help from this beloved VC. And I I think it just said so much to me about VCs adding value, but also VCs thinking they add value. VC's possibly adding a modest amount of value, but founders not really thinking that modest value was consistent with the bravado of the VC. It just uh it just it just crystallized the whole value ad idea to me in a in a single tweet. It wasn't mean. It's just I don't remember any of I don't remember Ron helping,

but maybe he did. Yeah, I you're right, Jason. I I did laugh at that and I think it does I Think actually my bigger heart to your point is both to some extent are right is that you know as a you all want to have agency. They all want to feel we help and you know want to be good people and you look at go hey I spend some of my time helping the CEO I feel I helped but from the company's perspective they're founding a company they're doing a million things on one or two

things on a 10-year journey you helped you remember that vividly they're like dude it just fades into the background of you know a hundred things and you know better than me Jason they have to do every day right and the truth is this I one of the proofs of this interesting way to check it is I often read business biography raphies and business stories of great companies, ventureback companies and how they formed and what happened and you know what I notice in them every single one of them very few little mention of VCs if you

just read them you you eyeball them says oh that's a biography yeah and they crop in and come out a couple of times right and I think that's right because realistically in the journey of what's going on the only significant things we done I've said this before in the podcast we put in the money and we put in more money when they need it we decide to hire hire or not hire and fire the CEO, we agree to broad strategic direction and anything after that is at Best an assist, right? And if you read the

biographies of businesses, right, what you generally see is the only time the VCs come in is on some version of those, right? And it's, you know, five pages of the journey early on interspersed around 200 pages in the first five chapters and by the time they get to the IPO, it doesn't even rise to the level of a thing, right? I was reading the, you know, the the Open AI biography, the bunch of them recent, and that's just the way it is. Microsoft like same thing right you know so don't I mean and you the

VC can feel those five minutes of impact were amazing and they feel really good about them and you feel warm and fuzzy but you know the only thing founders really remember for better or is oh my god our backs were to the wall and no one would put in money and they put in money they remember that some some sometimes in my experience sometimes sometimes they even forget that but to your point at least half the time they forget that if they forget that, they're definitely going to forget the time you made that phone call

to help them connect with XYZ and that helped them do something cuz that's something that happens 100 times a day. No, you're right. Yeah. Yeah. We're not the stars in the drama. We're we're bit players who get well paid for Our part. Boys, as always, the most humbling 90 minutes of my week. I f you'll get more. You'll be humbled tomorrow. I'd be surprised. So we start with anthropics monster week. We may be at the stage where we throw the humans under the bus, not the AI anymore, which I think at some level is pretty

terrifying. We move to open AI killing Sora. I think shooting in the head is even more significant. A big part of the whole strategic direction of the company was flawed. Agreed. You're seeing the economists, the accountants have wandered into the room and they said, "We have a scarce resource here. Let's optimize it. Let's devote this compute to the people who can pay the most for it." And then we finish on the man with the biggest balls in tech, Massa. You haven't lived till you've seen an 85% decline in an index. This is one where it's

just backass barkwards. I I don't believe there's right or wrong in money. There's just money. I just don't think raising it 5 or 8 billion when you're at 80 million or 100 million of suspect AR is the most exciting accomplishment in the world. Let me be direct. Get the over it. You should conform your company around your customers and your model, not your VCs. Being mean to a billionaire is actually a feature. Ready to go? Boys, welcome back. It is this week in Anthropic, otherwise known as the SAS OG's, which has been renamed. Um, I

want to start with, you guessed it, Anthropic. unbelievable 28 day month of February where they did 6 billion in revenue which was more than data bricks has done in their entire lifetime. You know what I think was the most interesting news out of anthropic this week? It was actually the the accidental leak of claude mythos uh essentially 3,000 unpublished assets leaked. Um it's a 10 trillion parameter model apparently that is this next level step changing capabilities that they're not releasing because of how powerful it is. This is by far the most interesting to me. Jason,

how did you think about this news? Well, look, obviously it's embarrassing, right? To anthropic to to to leak it. Um I actually just think we're going to see more and more of this accelerate. Um the faster we vibe code, the faster we ship, the more corners we cut in general on application level security, it happens. I mean so many folks are accidentally uploading code to insecure GitHubs to to database to to superbases that are by default open. So this is this is accelerating uh our data which is just Open on the internet and and you

could say god this shouldn't happen at the entropic level and I'm sure someone will get will get scolded, right? I'm sure it will. But overall, this is accelerating and it's going to accelerate even more as we let our AI agents make decisions. Our agents are going to decide where to put code. They're going to decide what level of security to use. And this is going to become happen stance. And you know, it's funny. I mean, people were like, "Oh, how could Anthropic have a new um security agent and have this happen at the same time?"

I think they're they're I think it makes perfect sense. the anthropic AI security agents which I've basically used in Replet's very very good and it also makes sense as we rush we're going to leak source code data PII right it was I don't know whether it's happened it was reported today all of Merur's data leak it's being held hostage all of it every single interview every single piece of PII every single piece of humans and so are you know we used to mock these I think it's going to start happening daily and weekly in the

agentic era and it doesn't excuse it but but it's Um, it it's a reality. Agents agents are goal seeking and agents are going to make not only are they going to make the same mistake as humans, they're going to work a thousand times faster. So even if they Make the mistakes 10% as often, Rory, help me with the math. If they do a thousand times more productive, they're still going to make a hundred times more mistakes. So we're going to see it everywhere. Again, just for perspective, because there's two things going on here. Entropic. Some

data leaked from Antropic about their new model mythos which of itself is meant to be amazingly powerful in dealing with cyber security and there was a whole consequence that we'll talk about in a second in terms of how that impacted cyber security stocks. But as Jason pointed out, the level of irony here is acute because it was an inadvertent leak. So you had the situation where a a model that's meant to be amazing for cyber security actually leaks via cyber security leak. So that's kind of so we're toggling between the two on the cyber security

leak. It was noseworthy entropic quote unquote blamed human error, right? We may be at the stage where we throw the humans under the bus, not the AI anymore, which I think at some level is pretty terrifying, but and and you know exactly what happened. You see this I mean not down in the weeds you often see this where you know you're about to do a big announcement you have your content management system you stage all the assets you know be it their Fed press release or in the UK it happened on the budget if you

remember Harry the budget you have the press release ready to hit Play the minute the budget is ended and someone inadvertently forgets and put it on the public side in advance. It's the same thing here. So it probably was a human error. with a whole bunch of content ready for I don't know pick a date the March the May 15th announcement of Mythos they forget to secure it correctly and out it goes so so that's the first thing right so that's kind of the that's the embarrassing part of it and then the interesting part of

it and you really do have to do this not without sniggering despite the fact that it all leaked you also have to separately talk about the fact there's some big claims on mythos right and on topic we're making via again via this leaked memo reminder no one else has seen seen it h the actual model um at least not publicly available. Obviously some people have seen it but not publicly available and even I was trying to get copies of the leaked memo. There's just a few screenshots at this stage. It's hard to track it down

at least quickly anyway. But the statement is it's way more powerful. Second thing is it's going to be way more expensive for them to serve and therefore it's going to be way more expensive for customers to buy. And then the third thing is a particular focus on cyber security. It's meant to be quote unquote extremely good at detecting cyber issues. And the result of that and the result of that was a four or 5% decline In the average cyber security stock last Friday when this leak happened. Yeah, just two maybe just two other things on

the league just for for this tradeoff. Um, you know, I'm dating myself, but when I was at Adobe and we were acquired, we were an early customer of GitHub. Um, and so we were putting source code in the cloud and that was banned in Adobe at the time. It was banned because the source code was their crown jewel. It was pretty easy to to make a crappy PDF reader or a crappy image generator. But to do what Photoshop or Adobe Acrobat did, all the exceptions, all the corn the thous tens of thousands of corner cases

was the crown jewel, right, of of the company. And so everything we got the first exemption to be able to use source code in the cloud and pros and cons. But when when they used this onrem source code management tool, it took a month to do a release. a month a month. Okay, now we're doing 60 releases a day, right? Or even Enthropic, fastest growing enterprise company of all time, is still doing massive releases every month or two and dropping features every day, right? So, we went to something that took 30 days at a tech

leader to something that takes hours. There's tra there's tradeoffs there and I I'll take them, but we're going to see it explode In terms of like the stuff that was published today. Going back a few threads on show number 50 to Rory. One of the things that I thought was pretty cool in Chyros was two things. Um, always on background assistant that works constantly. Our AI is working with us 24/7 and agents that can sleep, wake, and self-resmpt. The autonomous agents, which I've been talking about how this is going to consume orders of magnitude more

tokens and change our life. I I'm excited to see more coming. And you know, Open Claw was just this this brief thing that woke us up to what Enthropic appears to be all in on, right? Truly autonomous agents running 24/7, hopefully safely, hopefully not leaking all of our source code, but it's coming soon, right? Not these, you know, this whole idea that we've been doing. When we started this podcast, you went on to chat GPT or Claude. No one had heard of Claude when we started this. I was a quirky guy using Claude. And you

talk to it and go back the next day. The next release, it's gonna be on all the time. All the time. Debating Harry's latest investment. Was it big enough? Is he too concentrated in the fund? Where should he go? What was Rory thinking on that Deal? Right. Why was Rory abusing Harry by email again for the second time in a day? Laugh, but this is the future. I'm excited to see it coming sooner when our agents are 247. like they're literally around us and we give up all of our personal freedoms and autonomy as part

of it. I hear you on the embarrassment of it being leaked and you know the the human error element but while anthropic has mythos which is supposedly as powerful as it is you're juxtaposing that with open AI [ __ ] around with killing Sora kind of ads not really working and people being unhappy with it and it's seeming like this massive chasm of the progression of force that is Dario and anthropic continuing faster and harder than ever with a fault altering confused and dazed open AI wandering around the product desert trying to find some water.

You're just being mean. I mean, again, as I said last, and I'm sorry to repeat, is that not fair? Yeah, but again, narrative is overdone on both sides, right? So, um I think some parts of it are true. Obviously, you're true in a bunch of different things. The decision to shoot Sora in The head, right? Almost certainly a good decision. Look, it's obviously embarrassing to say something is going to be amazing less than four or five months ago and then shoot it in the head. But if it's a mistake, give him credit for at least

saying it's a mistake. Move on, right? And yeah, that relationship with Disney again, I think I I'm going to give I I it wasn't me. I was sneering at it on real time when it happened. I think someone else in this podcast said it's really significant. Just saying, right? It's clock. I do I think it's massively significant. I think shooting it in the head is even more significant. I think it's saying that the ent a big part of the whole strategic direction of the company was flawed. Agreed. The whole that we are going all in

on consumer that from what I read Sor made singledigit millions of revenue, right? And was consuming a million a week, which actually sounds way too low, right? It must it must have consumed billions and made single digit millions. It makes no sense as a product either in the short term or the long term. But if you want to own the whole consumer experience with AI, you've they decided we have to own image and video and Anthropic never even attempted to do it right. So it's a massive retreat. It doesn't mean it's the right it's probably

the right decision to your point. In fact, almost certainly is. But man, that's a our strategy was wrong. Like this is a huge own goal. Our strategy was wrong. Agreed. But I and I agree with that. But I still think that, as I say, I still think Harry's over kind of overeagering it a little bit cuz look, you made a comment about ads that I think is caught effectively implying that the ad strategy hasn't worked. That's a bit of a a bigger leap. I mean, Sora hasn't worked. They've killed it. I think I'm with Jason.

I think that's smart because I think one of the things you're seeing right now is in a world of scarce compute and astonishingly despite all the investments that we've seen in terms of actual available compute for people to sell AI on we're in a scarcity mode. You don't devote compute to things that are highly compute intensive and low revenue intensive. I mean and Sora was almost the definition of that. video generation is extraordinarily comput intensive relatively speaking and the revenue is almost minuscule conversely you know codegen while it is comput intensive is orders of magnitude

less comput intensive and there's real dollars attached to it so you're literally what's happening right now I actually think at a at a higher level it's actually very healthy you're seeing the economists the accountants have wandered Into the room and they said we have a scarce resource here let's optimize it let's let's devote this compute to the people who can pay the most for it. So that's the Sora comment. On the ads comment, Harry, it's early days for, you know, JPT ads, but again, I cite that quote that Brian Kim that I thought was really

good. Of course, they're going to run damn ads because there's no other way to build a mass consumer business and they have no choice, right? because you know their their consumer conversion rates run roughly 5%. that gets them to a I think a roughly 1015 billion dollar consumer business, right? And you know, out of their 500 million uniques or whatever it is. So, one of two things has to happen in the consumer business. Again, I'm going to leave the enterprise business out on the consumer business. Either A, they take that conversion rate to a number

we've never seen before from a typical consumer business. I think that's unlikely. I don't think most consumers are going to pay 20 bucks a month for this. Or option B is you make an ad business work. They got no choice to make it work. And by working, I don't mean a hundred million dollars. People are kind of ragging on the hundred million. It's in the noise. It's scale. Big picture here. Facebook and Google each do 200 billion plus or minus a year in digital ads. If these guys aren't Doing 20 billion within a couple years,

they're not even in the game. And to get to the market cap of I mean remember Facebook has a 1.7 whatever it is trillion market cap doing 200 billion. Alphabet/G Google has a three trillion market cap doing 260 billion plus thing. If they're going to grow into the market cap on the consumer side, 20 billion is not enough. They have to do 50 billion 70 billion of ads. So unlike Sora, this is not going to be a try the ads and then fold. This is a there's only two existential bets for this company. One of

them is ads to make the consumer business work. And then the other is oh my god, we should have done coding all along. Let's get a competitive coding and enterprise model out there and compete with Antropic on that side. So, those are the only two things they're doing and they're the only two things they should be doing. It's straightforward. I mean, I actually see this as good news. Like, at least they've like we've gone from the let's wander around the woods feeling cool building [ __ ] to there's only two things to do. Let's get

them done. I It's net net. It's a positive. Better late than never, man. Did they had the Wall Street Journal this week, they had uh they had a story of why Daario left uh OpenAI. Did you Yeah. I mean, yes, I did. The amount of tension at OpenAI, the fact that Greg Brockman recruited them and no one would work for him. He and D and his sister would not work for Greg Baku, would not talk to him. They would not allow him to be part of the LLM or GTP groups. Um, then Sam had to

constantly tell each of them that they were in charge, right? Told Daario he was the boss. then told Ilia and Greg they could fire him at any time if they wanted to fire Sam, right? Then begging then Daario to come back. Then Dario saying he would stay only if he directly reported to the board and nobody else. I mean the level and then and then firing Sam and then bringing him back and then Sora and D Sora and we're not doing coding. It's just I mean I'm exhausted. I I maybe I'm wrong. I have to

think at least someone like me would feel much more comfortable in anthropic where it appears there's a much more consistent process in leadership, right? Same founders, same things, same goals. It just I have to think a company organized like that's just going to ex out execute someone with that level of drama. I I I almost can't take it. You're going to kill me for this, Rory. It's the best thing for OpenAI not to buy Sierra, incorporate that as its customer support product and have Brett Taylor come in as the day-to-day CEO and Sam can be

fundraiser. Sam can be master Of I'm not in the boardroom. So, you know, I I hear look at the end of the day, at the end of the day, I think you're right, Harry, and I would favor that as a board member, but I'm not going to say that publicly because I don't want Sam to break my balls. I am too unimportant for Sam to even give a [ __ ] about. Right? So, I don't worry about that at all. So, let me say this delicately. That amount of board level and senior team level turnover

over an extended period of time is probably the highest warning signal that you could have as a board member about how your CEO is doing, right? And if if it was anything other than a founder, let's put it this if it was anything other than a founder company and this level of drama was going on, you'd probably be having you probably sitting down with the CEO and asking how's it going at least and what are you thinking of doing about this? Um I don't think you turn on people just when things go to [ __

] But you probably want to cut down the drama from here, build a team and try and call a shot and play it for more than 20, you know, for more than 6 months at a time. when you've worked at or observed startups where the CEO is spending so much of their time load balancing talent that can't work together versus when you've worked at one or with one where the Talent's rowing in the same direction. To say that it's night and day would be an understatement, right? It's like the the the backside of Pluto and

the front side of Mercury and it's just ex and I think Sam we can criticize him actually when I read the everything I've seen and then when I read the Wall Street Journal it's like my god this guy has spent so much time load balancing the drama of these extremely brilliant personalities that just oh my god that that can consume number most of your time as CEO most of your time load balancing you're exactly right it is the drama of you know we're not dealing with a bunch of people just trying to crank out some

B2B software and make a paycheck. We're dealing with people who are angsting about whether this is going to change the world, who have fears about the technology, who have yeah, desires to be seen as credited for the technology despite their fears about it. This is a I mean, as is often the case, extraordinary talented people come on an extraordinarily high bandwidth, a a demand on attention and care and feeding. It's it's been a real slog, I'd say. Okay. The man with the most balls in investing, Massa Sun. Soft Bank gets $40 billion bridge loan to

buy Open AI stock. How deep can Massa go? He'll go As deep as they let him. I mean, that's the one thing we know. If they give him another 20, he'll borrow that, too, right? I mean, look, this is a high I checked the Soft Bank. You've got Soft Bank holdings. Have to be careful. There's the telco group which is you reasonably levered at the Japan level and then soft bank group is around it's around 2x levered right one and a half to 2x levered in terms of equity right what that means is a 30

40% decline you know wipes them out right it's a very aggressive stance right it would be like me taking our $800 million venture $900 million venture fund borrowing 1.8 8 billion and investing at all and if you if it works I make you I really juice my return but if it goes wrong by 30% I'm done right and it's just it's it's super aggressive I mean I suppose his lesson is mass survived 2002 when I remind everyone the NASDAQ went down 85% you haven't lived till you've seen an 85% decline in an index right and

obviously if that happened or anything like it um you'd just be way on the water, right? So, it's it's a it's a fairly high amount of leverage for an investment fund to say the least. Yeah, I mean for for sure it's it's dramatic. Having said that, you know, real estate investment funds get the maximum leverage they can by design, right? That is how they work. I would imagine if venture had access to more debt, we we'd all we'd all load up on it. if we all could if we all could do the growth rounds in

your hottest company and uh may maybe we would and we could get we could get all the carry from it with uh and the worst thing is we leave the keys to fund seven on the table we might we might load up too I'm not sure but certainly real estate funds load up as much as they can but just pushing back again because real estate funds load up because the cash flows are predictable right at the end of the day I mean look in well and they can but they can because the cash flows are

predictable they can load up agreed right we don't we it's just harder for my little fund to go to Silicon Valley Bank and borrow 200 million against the inium of risk. I would argue the Soft Bank portfolio, not the telecom company at the subsidiary level, but I would argue the Soft Bank portfolio is more like Jason fund than it is a real estate fund. So, I think it's a high level of risk. Well, plusy, what did he lose on Weiwork? 12 billion. He know he knows he knows what it's like. Yeah. The two big assets

from memory are um obviously the open AI position and I think the ARM position which I still think is in um the the the in the Holding company and yeah but I mean amazing companies worldass companies easily imaginable a border would decline 30%. So yeah it's a hell of a way to live. Speaking of declining 30% and being in the hole, we we touched on it earlier, but obviously Mythos leak hammered cyber stocks. Uh, Crowdstrike, PaloAlto, Zcaler all down 6%, Octton, Netcope down 7%, Tanimal down 9%. Was this a justified dip or is this an

unjust reaction to anthropic news? was listening carefully to the name because I was listening carefully to the names and there's different aspects of security and some of them I can say yeah maybe that overlaps and then some I go that's just a different thing right and when you listen to all the names been thrown out you say that's just you know baby with the bath water cuz step back how does how does entropic you know make security better at the code development stage they can look at code and find security flaws so there are companies

that upfront um do something like that and you know application security companies and you could argue that this is a different way of doing that maybe some of those guys will be impacted right what they're not Doing for example is real time perimeter defense they're not in a run in a real time basis you know blocking people like a firewall right nor are they doing what for example octa does right which is single sign on and authentication that's simply not what they do it's a different thing and the fact that both of those kind of

stocks sold off says it's just a kind of knee-jerk reaction rather than anything thought true. It will have an impact. If you were doing application security or code review for secure security code review, you're probably going to have to either incorporate how this works in your analysis or you'll be redundant just as the the coding companies anyone kind of just as GitHub had to roll in complete models and figure out how to adopt it. Right? So for some of them this is really going to matter and then for others it's like it's just a different

thing. Stepping back, I think we're in the panicky stage, right? I think we're in the stage of because these companies are doing so well, because they're private, no one sees the numbers, because AI is so sexy and so potentially amazing. We're at the stage now where everything, anything can cause a panic. Robin Hood was down like 10% because Elon didn't potentially give them the tender and was going straight through Erades. And that alone was like a massive hit for them. Obviously, there's a panic in the market. And the question is, is the panic justified, right?

The panic is That this revenue is not durable, right? That's the panic. The cyber security one's really interesting in my in my experience and opinion. This is one where it's just backass barkwards. Um because if you're in the agentic world, this is the golden age of security. The number of security threats and issues is going up orders of magnitude. Claude leaking its source code, it doesn't matter. the number of of apps exploding. The number of like there's so many mobile apps that app store is like it's like a month to get your app reviewed versus

a week. It is everything is exploding. These apps are being built by agents. They're being built in unpredictable ways. Folks aren't looking at the code. The pace of features being shipped, products being shipped, corners being cut. This is a golden age of taking any mature category and acknowledging good news for us. There's more threats. Good. whether I don't care whether it's application level perimeter and like the good news is threats are exploding and that the whole shtick of cyber I'm not a real cyber security expert although I'm doing another investment right now for just this

reason the whole shtick in my whole lifetime has been look you've got to constantly buy new products because new threats keep emerging like this is there's been a golden goose of cyber Security that has allowed new entrance to come into a conservative category someone like whiz will show up and say guys we know how to do this on the web And people are so terrified of new threats, they'll take the meeting. Right? This should be the golden age for new and existing investors because the threats are terrifying. And you can't stop the rogue engineers that

vibe coded something that accessed your data. This this should benefit everybody. Like everyone should be a rocket ship. Like everybody built like everybody monetizing GPUs is a rocket ship. We have and the fact that the market doesn't see it shows we're in a in my opinion we're in a true panic which is hard to predict a bottom. But I don't get it. Everyone should be benefiting when you see an explosion in application production and a change in the paradigm. The change in the paradigm is good for everybody except you know Windows Defender from 1996. Like

it probably doesn't help that product or whatever the hell they have but anyone everyone with engineers should benefit. I broadly agree with Jason. I mean there might there are more than Windows Defender 2006 that might be impacted. As I say some of the application security code review stuff could be but big picture Jason's right. Instead of having people trying to get into your firewall, we everyone's now downloading an agent, giving it full root access to their computer and telling it have a go. And As Jason just pointed out, work overnight. It's going to I mean

no one yet it's funny we my colleague Aar who does a lot on the security we've been looking at a lot of these companies no one yet knows the exact approach that we're going to have to take to defend against agents running within the organization but everyone 100% understands that this is this is a emerging mega threat because of the velocity adoption times the power of the solution so I I agree with Jason it it mightn't be the old guard that takes advantage of it But there's no but they tend to be I mean one

of the things I admire about the security companies is the crowd strikes the PaloAlto networks of this world is they know damn fine that when a new thread emerges and a new solution emerges for that threat when when an earlier winner comes out you better spend your 300 million bucks your 500 million bucks and just swoop up the winner and add it to your product right so I think there'll be a ton of fast acquisitions as agent security solutions emerge you know and and people will be doing if they're smart And I think those two

companies are extraordinary smart. They'll be doing acquisitions long before it's quote certain because you're going to have CIOS come and talking to you, right? One thing worth mentioning on that is it was interesting again I And somebody leaked information from Anthropic. They're masters at selling fear. One of the things they're doing is they're releasing the mythos model first to sis within companies. It's kind of like, oh, it's so scary. we're going to give you this model and give you time to figure out how to use it. Of course, part of that time will involve giving

a million bucks to Anthropic for um so it's just great marketing. So, they're actually leaning into that and saying to the sisos, you're going to have to figure this out. This is the new terrifying weapon we've invented. Please give us a million dollars and we'll let you defend yourself with it. also great marketing and but it speaks to the perceived to Jason's point it speaks to how correctly afraid every security for um SISO should be given the pace of agentic AI adoption in the enterprise the golden age of cyber I mean it's just it's just

how hard is it to get a meeting whoever you are if you have any established brand we we we've got a new agentic product we're going to help protect you from this you're going to get a meeting that afternoon, right? Wish I bought them over Figma. That's a depressing chart that I'm looking at. Um, you need to let go, Harry. You need to let go. Down 30% in a month, Rory. It's hard to Let it go after 30% in a month. Okay, no crying in the casino. Move on. We we I do want to discuss

revenue kind of questionability. Uh, we've got anthropic recognizing revenue in a very different way to open AI. And then you also have questionability around emergent labses um and is it okay if error is kind of questionable in sorts of how it's accounted for. Um how do we think about that? You can choose which one you want to take. Let me just can I just maybe Rory can dig into it but I'll I'll tell you there's one startup I invested in that's over 100 million ARR and I get them I I I own just enough to

get the investor updates. It's not I'm not on the board. And I get three numbers every month. Three revenue numbers. I don't know what the hell they are over 100 million, but the smallest one is ARR. Now, I invested at seed. I don't really care. I'm in the money. I don't I don't have a choice. But I I can't understand. This company's doing great, but I can't I for the life of me, I cannot understand these three numbers. And there's asterisk and daggers, and there's charts that go every, but they keep going up and to

the right, which I think was on this emerging thing. We could talk about our next. I think that's what some of the investors said. Who cares? But I can't tell the hell the difference what a what an ARR is in 2026. Well, what I always get is like pipe, which is complete [ __ ] the contracted and then there's live. So, first of all, stepping back to be fair to both Entropic and OpenAI, they have a very clear and sensible way they define AR. What they take is they take the last the average of the

last four weeks to smooth out times 13 because there are 13 four-week periods in a year which is more sensible than monthly because you have these varying months. So they're basically what they're saying is realized revenue for the last four weeks averaged you know the average of the last four weeks times 30 that sorry obviously if it's the average is times 52 but basically it's actual gap revenue. what did we bill for the last four the average across the calculated across the last four weeks to take into account how it is that's their run rate

right so it's actually pretty it's not commit to be fair to them it's not committed or any of the [ __ ] kind of higher level stuff it's actual money flowing through the system and traffic is roughly at 19 billion according based on that kind of trailing four month four week metric and open AI is around 25 but now let's talk about your thing there was this kind of whole meme of OpenAI reports net on Their partner revenue and Entropic reports gross. And what they're saying there is if OpenAI sells through Microsoft and Microsoft takes

some money off the top, OpenAI only reports the net amount. If Antropic sells through AWS and they sell $100 worth of revenue, they report the gross amount and then they give 20 GR $20 back to Amazon as a cost of sales. So there's two different methods for what looked like the same revenue kind of nicks or same revenue approach. I thought you were going to extend that. I thought part of where you're going was to Michael Canon Brook's point on the show was that a lot of this revenue is getting double or triple counted because

it's being recognized and not only does this happen then cursor is selling it again and recognizing the revenue right the same to people keep reselling these tokens again and again and recognizing them as their own ARR. Um how many times do we get to resell these these poor little tokens? I think that's actually a great point, Jason. I hadn't got, but you're exactly right. No, it's like the everyone's got amazing revenue growth because it's the same little token going to this little token. I mean, if we all agree to have essentially 0% gross margins, an

infinite number of us can keep reselling tokens to each other, can't we? This is our new 20 VC scale faster demo day. We all resell a million tokens to Each other on the first week. So everyone in batch O001 has a million ARR its first week because we just resold our tokens to each other. So it's completely fair. The VCs don't mind. And and you're exactly right. And the sentence that you added in passing is the key one. Until we all have to get profitable, all this, you know, can continue. And then at some point,

that's why I said I think you're starting to see it. Someone's going to have to say, assuming we want to have a net present value and a cash flow, what's going on here? And then and then all this becomes more clear. I I didn't comment on the um emergent labs fastest to 100 million. Jason, you actually tried You tried it, didn't you? You thought it was good. I did. I thought I mean listen, it's hard for me to know the criticism, right? You know, some folks in the press in the India B2B environment tried to

make this some sort of scandal, right? Because and in a sense, fair enough. If you go to emergent labs and emergent labs is sort of an Indian competitor replet and lovable, which I'll show you what I learned in a minute, right? And if you go right now to the homepage, they say 0 to 100 million I think in 8 months. It's right there. It's the biggest banner. So, in all fairness, if you're going to put yourself out there, not not just as a tweet, but if it's going to be right there on your website, One

would expect 70 to 80% accuracy in that number, ideally higher, right? So, if it's lower than that, I think it's fair that some daggers came out. But I was curious. Um, but I don't actually know what happened. Is it triple counting to I I can tell you one thing that I learned which I don't love, which is that what a and a lot of AI startups do this. So this is not unique to Emerant. They kind of hot instead of getting you use the free version, they try to get you to immediately do a free

trial instantly that says it's $0 and $20 a month thereafter. Now so many folks do this. It is not unique to them. It's probably best practice in most accelerators. But I'm pretty sure that means they recognize all $240 in ARR that first month when you're paying zero. and and they trick you because you don't even Yeah, you do have to click on the Stripe link, but you almost think you're just using the free product. So, is that if I do a $0 a month product um that's discounted as a marketing cost and I churn after

30 days, does that count as $240 of ARR? I think for a lot of startups it does. Okay, so that's a fair criticism. I'm not saying this is what emerges, but a lot of startups will instantly recognize that as $240 in AR, which is how they rock it if you're self-s served. That's how you otherwise You can't get there that quickly, right? So, so they clearly did that. I will say what was interesting is I overall I think the criticism is probably unfounded because I thought the product was pretty good, much better than make, like

an order of magnitude better than the disaster of make. Um, because I I do a five-part test, a six-part test. The first part is awareness test. So, I ask it to redo the saster.ai homepage. Uh, actually, of all the platforms, it did the best job. It it beat it beat it beat all of them all of the leaders because I redid this recently. I redid it and and they're all good at it. Repetit lovable vzero they're all good at they all pass the test but it actually it actually was probably the best and it and

it passed a bunch of the other tests. So I'm not going to switch to emergent labs, but I would say it's in the top 10% of vibe coding apps. That's pretty good. So that tells me it's a legit business. like they did they did the work and a lot of these they're just the the truth is if you play with a lot of these even from leaders like Nick's not the only one that's crappy okay because they're basically relying on the fact that claude code does 90% of the work for you right they're just putting

the the simplest wrapper around this and so they did a good job but is I really didn't like the the way they do the billing but we'd probably have to to shoot half our Portfolio companies that that do like PLG AI because I think it's a sus practice I just don't like tricking you with this $0 for the first month when you think you're using a free trial, right? That's the sus part. I I don't love that kind of gray art. Um, but the product's pretty good. You know what I don't like when it comes

to confusing? I was wondering whether to go off on one in this show and then I thought, "Fuck it. Let's go off on one. It's been a long day." I'm pissed off by these tranched rounds. I see them all the freaking time. The amount of Sequoia rounds where it's like, oh, you know, X raises money from score at 5 billion. Trust me, Sequoia got in at one, but they just club it together and then announce the sum and then the latest valuation and it's just very misleading. The tier ones get in early, a tier 2,

tier three instantly marks it up saying same as crypto, isn't it? For years, what's the difference? Well, I think the Andre crypto fund uh the you know, essentially 80% off the the token. What's the It's the same thing, isn't it? This you're paying for the paying for the signal. I think if you break it down first of all just so everyone's on the same page because interestingly neither Claude nor GPT was on the same page and didn't know what a tranch round was and They gave the old conventional venture trunch round based on performance milestones

you know BS from back in the day when we actually ran businesses right so didn't have a clue about this so let's be clear on the practice here the practice here is when a a company a hot company raises a round where there are effectively two different prices per share. A first, let's call it a first close and a second close even if they're at or near contemporaneous where the first one might be at 250 and the pre and the second one is at a billion pre and you know the highlight and the headline is

the always at a billion pre. There's two imp impacts of this. First, let's do the simple one where there's just a single participant in the round, right? That's where, you know, if I'm the new investor, I want to pay 600. The company wants a headline of a billion. And to win the deal, someone says, "Okay, let me put some money in at 250, some money in at a billion. I can do math because I'm paid to do math because I'm an investor. So, I know my overall basis is a billion, sorry, 600 million. So, I'm

getting what I want and the company's getting what it want, which is a headline number of a billion, right? It's silly, but that's all that's happening in that case. That's the single participant tunch deal, right? And it's and for some if a company wants a headline, that's what they get, right? Generally those things come back to bite you because by definition, if you are the company, just as the investor can do, Matt, presumably you can do Matt. If you accept that combined deal, you're implicitly saying, "I know I'm only worth 600, but I'd like the

optics of a billion." You better be damn sure that your next round you're at one half billion. Otherwise, you'll have the optics of a down round. And if you're an optics believer, that's probably worse than the uptick. Right? So that's kind of the single participant version. The much more annoying version that Harry clearly was getting on his high horse about is when you have the same structure, but access to those rounds where the the lead investor maybe does all of the 250 pre- round and only half of the billion round and then some new investors

just get to do the billion round. So literally at the same time the lead investor is investing at 600 billion and the follower investor ne le marquee investor is investing in the same asset at a billion and there's I don't believe there's right or wrong in money there's just money right that's where at the minimum you have to look yourself in the mirror as the other investor and saying Wow that's the price of being cool right that's the price of access I'm paying 50% more because I just can't access that deal, right? And that feels

like pretty invidious thing to I mean again going back to the comment the the prof you got to remember if you think about and again trying to avoid morality and saying oh because it would feel shitty. I mean you really would feel like a loser if you did that but let's play it out. This is a situation where the the the lead investor let's say it's sequoia because everything good and strong should be sequoia. They're admitting it's only worth 600 on average and they're just doing this fakey transaction. The company is admitting it's only worth

600 on average because they're taking the money at a blended cost of 600. So what you're saying doing at a billion is you're either saying either I have a lower cost of capital and I'm willing to take a lower return than everyone else or the only positive spin you can come up with is the company thinks it's worth 600. Sequoia thinks it's worth 600. But I am smart enough even though I don't have access. I am smart enough and clever enough to know that it's really worth a billion and I should do it at a

billion even though I can't get to 600 and I'm willing to put up with the upfront tax and foolishness look because I think 6 12 months from now it'll be obvious that I bought at a great price and maybe I look like a Genius. Yeah, but we've well we've entered an era though the I think the meta thing maybe this wasn't exactly what you were queuing up Harry but it is tough. We've entered an era where so many founders are obsessed about headline prices. Obsessed. They're obsessed coming out of demo day. They're obsessed. They're obsessed

once they cross a billion, which I think should be a moment to take a pause because of M&A options. They're obsessed about driving to 11 billion and 9 billion and one uping their competition. And the numbers have become a joke to many founders, right? They just don't joke the wrong term. They don't think through the any of the ramifications of the valuation they're hid and they don't care. And I'm not even saying that's bad. I mean, I think burning the bridges is a good way to have a big outcome, but it's become utterly gamified on

many levels, right? It's just become gamified. And so this 11 trunch isn't around is just part of gamifying it, right? It's been true of YC since I started investing there. There was always a cheaper price before demo day if you're reasonably hot, a higher price at demo day, and then a 20% or 30% after demo day. So that version has just become institutionalized and so be it. If it's what the founders want, if they want to gify it, so be it, right? I I just don't think raising it Five or eight billion when you're at

80 million or 100 million of suspect AR is the most exciting accomplishment in the world. Like I'm not going to like I'm I'm going to send a few thumb emojis on the email, but that's about it. That's about it. They're all They're all fake anyway. They're all just bets, right? These are not public companies. It goes back to your point though on emergent labs and the graph doing the eight months to 100 million. The gamification of like the race to 100 million. I'm not choosing emergent labs but they listen I think they built a good

product. I think I'm sure they've been overly lamb cuz whether it's 100 or 80 or 60 I don't care. It's pretty damn good, right? Whatever it is, but if you're going to if you're going to if you're going to do that, you deserve the the daggers to come out when it's not 100%. Right. One that I thought was fantastic, exciting. I always like to see a potential IPO or to IPO shortly. Um I thought this was fascinating. It's been an incredible journey actually from like you know Scandinavia these founders building this business. It's had a

couple of CEO changes. Um the business is actually in incredible shape both actually and Whoop announced today that they raised I think it was 500 million at 10 billion fitness and health data. Do you know what actually Rory Jason's annoyingly right again? I don't know if you remember his predictions, but he Predicted, if I'm not wrong, that 2027 would be the year for like human healthcare data and longevity. Yes. And it looks like it might even be 2026. And Yeah. Know and you know, the great thing about both stories is very defend. I mean, you

know, Johnny Iverside very defendable from this is not an AI envy story. This is I mean they use AI and what they do but these are fundamentally standalone products with a clear consumer value proposition and they're you know they're not going to be clawed coded on Friday. I totally see it and they clearly have had critical mass in terms of revenues. I think it's awesome. I think the question listen the interesting thing for for these products uh obviously it's exploded is they are they are recurring you know going back to the topic of a arr

these are recurring revenue products right um for the most part right fairly expensive subscriptions um and they're exciting until like Pelatin when they aren't right now it's not there's not a $2,000 cost here um but um and I'm not being critical I I think that they're exciting but there's also a fattishness ISM people can switch. So the RR the ARR the pirate R um uh what multiples do these companies deserve what it is I I'm not smart enough to know but the but the acceleration is a force of nature right I'd love I'd love to

be a seed investor don't get me wrong Do you think there's a foolishness in the same way I think we as I think you can switch from v Harry you're into fitness I I'm I'm not so much but I run 360 days a year 5 miles a day for 10 years so if there were a better treadmill a better device a better thing I would switch and and whatever you're you're fairly fit Harry like if you're if you wear or and you love it but Whoop is is better and you care you're going to switch.

So it's not it's not service now RR right it's not you will you're loyal you're loyal but but but there's just some disruption ri like look at Pelatin when Pelatin blew up but actually as the world changed even though people love Pelatin right super high MPS they you remember the Pelatin addicts of 2020 on Zoom they they loved it but when the world changed they just the simple answer to Pelin is they just switched they they just switched and uh Whoop is different an aura and there could be a whoop or woop woop whoop aura

and uh maybe one is your ankle and it has your AI rock from Johnny IV in it and we'll switch to two comments on this one disclosure we are lucky enough to have a small investment or true the acquisition of one our companies so I don't have a ton of information so I'm not going to breach any confidentialities but just an abundance of caution I'm not going to comment on numbers at all right great Products right but to your point Jason on Um, you know, it's not AR like service. Now, let me be direct. Get

the [ __ ] over it. Right. Not every business on the planet, Hang on. Not every business on the planet has five year designed in. If you're running a bar down the street, every night I can go drink at a different bar. If you're selling Coca-Cola every day, I can switch to Pepsi, right? If you're selling on If you're running Amazon consumer, every every day I can go search and go on Walmart, right? Not every business is going to have enduring kind of long-term lock in. And that's obviously you'd prefer to have lock in, right?

But there are lots of business that have been around for 50 years where every day they have to earn the right for the consumer to go to them, right? And I think there's no doubt in my mind that any kind of consumer hardware software combination product has some residual asset from the subscription. But then yeah, that every new device has to be awesome. You're in competition with other awesome products. It turns out capitalism is hard. You know, if you want to make 10 billion in value, you got to deliver value for your consumers. And I

think for for what it's worth on Pelaton, I actually think what really happened to them, it's a little like the Zoom story is demand that should would have been wonderful. It would have been The greatest stock ever had that demand been spread out over five or six years increasing at 20% a year. We'd be talking about the Pelaton compounding machine. Instead, everyone bought the damn thing at the same time. They staffed up to kind of meet that demand. the market was wildly saturated and then the stock went down and it broke the narrative. So I

I do agree, you know, I yeah, there's nothing you can do to make a market bigger than what it is. But I I I think they got whiplash by virtue of the co demand spike followed by demand fall off. No, I the question I think the meta question listen aura I I I as Harry said I guess I called it these are great markets. They're large markets. markets where people will pay actually relatively high subscription fees for data right a lot of attractance the the meta question for venture is you know the classic Peter Teal

0ero to one only competition's for losers is what Dr. Teal said competition's for losers. Competition destroys pro profits. Monopolies drive innovation. You want to invest in monopolies. And so that's just my meta anxiety is if these are unmonopizable markets, are they good Ones for venture or not? And I I I obviously there's two sides to it, but we hope to we hope I I would feel more comfortable investing in things that become monopolies. I mean it's a it's a better landing place um than uh than uh con than investing in bars and you can't and

you can't ascribe the same durability of revenue to this as you can what like as much as I love but on the other hand you can't ascribe super high growth and you can't ascribe big Tam you right just it look if there were enough monopolies to do even one good monopoly a year I'd be in right and you know speaking if the founders are about to get the all-time prize because they invested in the space monopoly and 20 years later they're going to cash in their chips, right? Monopolies are better businesses than competitive markets. But

I do think you can still build dollars of value from a high good consumer product, right? And there are lots of prior examples of that, you know, and yet we all understand the dynamics of I think it's much less comp. I mean, actually, for what it's worth, I think if you look at consumer products that flame out, like the GoPro, it's much less, and I'm doing this on the fly, but it's much less a competition issue. It's not like GoPro died because The competitor to GoPro emerged, right? It's that saturation is as big a problem

as anything else. Well, DG DJI might disagree with you. I mean, there was a whole step function in the industry that they got they got left behind, right? Yeah. Would you prefer $2 billion in consumer hardware revenue, $2 billion worth of five-year contracts? Um, like Palunteer. Yeah, I'll take the contracts with the 90% gross margin of the 5-year lock in, please. You're a starter for 10. But you got to give a lot of respect. I think maybe the more interesting question, Rory, that you brought up. Um, because so much has changed. This is our 50th

show. So much has changed, right? When we started the show, uh, uh, public durable public company revenue despite slowdown in the top line was the gold standard, right? it was the best revenue out there. Fast forward to today, do we or going public, do we give a crap what type of R it is? Because the the durable software stuff is trading lower than the S&P 500. Maybe I'd rather have ring revenue and I'm with with a somewhat suspect uh customer lifetime value because this the software value is so low. Maybe I don't care where my

R comes from, right? It used to matter. It used to matter, right? We were so we'd be in board meetings where you would torture companies so that they would have more ARR and that they would have less Variable revenue. I mean that seems like archaic today. Yeah. And and I remember doing that. I remember telling people not to do that because I'm a big believer is you can't make you should sell your product the way the customer wants to buy it. And I agree one of the things I hated about venture was when people would

say oh make it all recurring revenue. But then the fun one that's actually really relevant right now is you remember everyone would say oh you know it's a hardware product but all the values in the software so we're really like a software company and now hilariously everyone's going oh thank god I've got hardware because hardware is defensible not software right and I think it's a big picture comment is you should conform your company around your customers and your model not your VCs because I agree with you this kind of pretend it's AR but then next

year we hate it's just a total waste of time for entrepreneurs things are what they are and you do best in business if you actually say what they are and just live and die by that. Most consumer products have high volatility associated with them. You better have a damn good R&D function and continue to build great products. We looked today this week they also talked about how I think all birds was was it was it acquired for less than 30? It was acquire Yeah, I was literally about to bring this up Jason. It was acquired

by AMX for $39 million. So my Question is if a company like Ora goes public and you see weakness in a quarter, should you dump this thing instantly like Allirds um versus forgive a little bit of weakness in a in a Salesforce or service? Yeah, I I I'm going to avoid any specifics genuine comment here, right? Because it's not appropriate. But I would say something unlike the other two guys. I've run a textile manufacturing company 30 years ago. The technology required to make an all birds or a shoe is not the same as the technology

required to make a modular electronic device that sits on the human finger and measures blood. Either of these kind of consumer electronic products, they're not a monopoly in the same way Nvidia is. But they're pretty it's pretty rare number of companies that can do that. They're not go down. Put it this way, Jason. I'll name a wearable, you'll name a wearable, and then I'll name a sneaker, and you'll name a sneaker. We'll be done with wearables long before we're done with sneakers cuz there's a lot of different sneaker companies. And yeah, turns out sneakers are

easier to make than wearables, which are easier to make than Nvidia GPU chips. Speaking of like, do we care? What do we actually care about? There were two that I I don't know if you guys know this, but I have wonderful partners, and one of my partners is much more intelligent than me, which Rory, you're going to make some form of gag about, but he Helps me put together some of the schedules, too. And he was like, "Whoa, I had no idea about this." He was like, "Whoa, Epic Games laid off 25%." I didn't even

hear about that. Yeah. And then I then I had had Mark Andre on your last pod sort of laughing about how we all overhired in 2021. Well, Mark Andre was was very clear. He thought that we were all using AI as an excuse and that we were all over staffed by 50 or at least 75%. Did any of his portfolio companies do that over hiring? No, Harry. Logically, it's it would be 75 or at least 50% over staff by 50 or at least 75. This doesn't make any logical sense, but keep going. Just picking up

on the arrows here. Rory, he's pissed now. He's pissed. I would love to see you do a day of my life. I would love I now you've been cranking. I will give you two hours sleep for 6 hours a day running two companies at once and then you come. Now I'm feeling guilty. Move on. But no, don't worry. But but point being like went completely under the radar. They didn't try and do an AI [ __ ] story. They basically said, you know, um active daily active use of their Fortnite game and their games is

down, so your revenue is down, so you take Your expenses down. It was struck me as a no [ __ ] layoff announcement. It's like, you know, we sell less stuff, we have less people. It sucks, you And again, I really do try never to be cavalier about people losing their jobs because every one of those has to put food on the table. They're not earning the kind of money we're earning and now they got to go out and find another job in a shitty job market. It sucks. But the lesson is and that's why

I respect them. It's like we're selling less so we got to do what we got to do to keep the company profitable. Guys, we keep talking about these layoffs and these big numbers. I mean, it was over a thousand people laid off in this layoff. A thousand. numbers are relatively meaningless and we've had so many of these conversations. What happens to the labor markets? Well, one thing on on the epic thing if you um and the Wall Street Journal did a good article on this one too this week on the a permanent decline of Hollywood

employment. It's permanently in decline. It's it's not there there it it's on it's in decline because fewer uh movies and TV shows are being made. Tik Toks and YouTubetubes are doing it. And it's in permanent decline because every other country provides larger subsidies, right? And so there's this permanent decline in Hollywood labor. I think entertainment is is sort of a shows us the future. EP Epic Games is Entertainment too, right? And uh they will absorb as much AI and technology as they can to address the to to adapt. And it's just early. It's just early.

They've had to adapt to YouTube. They've had to adapt to social gaming. And I think uh we talk about these you know thousand people at lasting or whatever but I think Epic Games is just it's I think it's a more interesting view of the future than block. We talk about folks might vibe code a B2B app but content's already being massively disrupted and some part of that is as you pointed out to me when I got it wrong a few episodes back AI related in terms of recommendation engines. But I think a lot of it

is just you a very competitive attention economy. You're right. Fortnite was the was the game everyone talked about. Now it's not. It's the nature of the gaming industry. So yes, what what does that mean? It's the Fortnite circle coming for everybody at the end of the game for everybody. Even Fortnite the Fortnite circle has come to Fortnite itself is surrounded itself. Poor Epic Games is in the middle of its of its end game of Fortnite. It's just hidden content creators shooting it out at the very end. It's coming for all of the the Fortnite circle

is coming for all of us. The the other one that kind of relatively was I think maybe a little Bit overlooked is reports of Manis founders. Manis obviously for context being bought by Meta recently. Um Manis founders trapped or kept in China. So just again give people context and then put out one question mark there. Manis was a company originally based in China had some Chinese investors then redomicized to Singapore benchmark invested effectively refounded as a US Singapore company meta acquired it I want to say and I use the word past tense acquired because my

understanding is the transactions closed and the money's moved though interestingly not a chachi panropic were clear on that but my understanding is that's what happened but then now the latest thing is two of the the Chinese government has a takes a dim view of this because they don't want Chinese talent leeching overseas and going to the US and effectively not being Chinese anymore and they they they feel it as a brain drain. So they did something that was pretty coercive in the sense of two of the key founders of Manis I think were either in

China or summoned to China and they're no longer able to leave. So that's those are the facts and yeah of course you care. I mean I think that well starting from scratch I mean that sucks. I wish him The best because that's not a pleasant place to be. I mean, I think you've had the Jack Mah thing of, you know, at Alibaba of effectively going, as it were, under the radar for a few years when you kind of incurred the displeasure of the administration. You also have people who've had significantly worse consequences than that. So,

let's start with the basic. You wish them all the best, right? Um, but I don't think another deal like this would happen to you. I think this whole Singapore washing thing is over. It's over. I I totally agree. That's where I was going to go with that long preamble. I'll tell you who did notice. Maybe no one in America spent any time thinking about it, but every Chinese founder who was thinking about doing this is going, "Hm h I don't know how I feel about this. I don't know if I can do this deal. I

do know if I do this deal, I am never going home again." But I'm with you, Jason. I think all these other China washing deals, they're put on pause or they're put on re-evaluation or next thing is going to sound harsh. It's a fairly coercive regime. If your family's not out of the country, do you have exposure there? Right. I think it puts it it just shows I mean authoritarian governments can take pretty dramat drastic steps to impact our citizenry if they want to. And I agree, Jason, it makes it really hard to imagine doing

another one of these deals without being worried about This consequence. But hopefully they'll kind of go naughty you pay 50% like you know California makes it hard to leave too but if you pay them 13% they'll let you go to Nevada right? Yeah, hopefully it turns out to something like that. And please God, it's not something more, you know, coercive. But I I agree, Jason. Wouldn't do another one. You know, in venture, you take risk, right? It's part of the job. So, we've all had deals where there's some rule, some corner that was cut and

we talked ourselves into it's okay, right? This this is this is companies something weird about this company, but and we convince ourselves as as as talking to some mediocre lawyer or asking an LLM today that it's okay. So like the Singapore washing must work, right? They've moved to Singapore. It's got to work. And you convince yourself. You talk to a few people and you take the risk and it it bounced. It appears to have bounced the right way for Benchmark and Friends, right? It appears they've gotten their money, but you don't do the next one,

right? And there's 242 millionaires in Singapore. The majority of the inflow is Chinese. You don't do the next deal. Maybe other capital does the deal, and that's fine, right? Capital is funible. But you just inventually just don't you just can't do the next one like this. It's too risky. What do you do if you're Meta? Part of the asset you're requiring is the team. Two billion is not a lot for Meta and They have the product. Yeah. What are you going to do, Harry? What would you recommend? Getting angry at the Chinese. That'll work well

for them, right? I mean, I think it'll be, you know, yet another acquisition that looked clever, but in retrospect wasn't amazing. Well, listen, for Meta, I'll just say one thing. I I I only have a tiny bit of information, but I I it appears to me Manis is running mostly and smoothly as as an application and a company. Now, I don't know if the founders are working out, you know, I I certainly feel strongly when you lose your founders, you lose your heart and soul of your company, but in the short term, I I don't

think it's a big deal for Meta outside of the founders because it's running smoothly, right? That that's my in the short term, it's not down. the team's functioning, they're running and um but it's crazy and at the risk of being Polyiana but also wanting to assume the best of people, I would hope that the Meta management team and board to the extent they do have any influence can help these guys come to an amicable end. And if it requires a tax settlement or whatever, you know, just you you don't want to leave you don't want

to leave people you just acquired in limbo. at some zoom out level when you listen to the rhetoric on both capitals you just Have to realize that trying to tread between those two these two countries is pretty hard right now right you know you know we have China hawks and the US government they obviously have a whole ton of US hawks or whatever the equivalent is there's a real perception of competition you know we don't let them buy the Nvidia chips etc etc you're playing with fire in that thing and sometimes it bites you I

just think overall it's natural in given the outcomes in AI and given the growth that I think it's tied to taking the highest levels of risk we've also taken because the payoff seem to be there and when this deal happened folks kind of thought this was aggressive Benchmark's never done a deal like this why are they doing a deal like this it's not even very cheap right it seems a little crazy and they're like well we've never seen anything grow like this and the team's incredibly talented right so they took a little bit of risk

and um and they made their they made their profit we're all taking more and more risk folks that you know now now it's a week of revenue at a demo day. I did a million dollars my first week, it's amazing. What about the second week? I don't know. Like it but it as long as it all works out in the aggregate. Um and I think this is why nobody cares to Harry's point. I cared about I cared about Madness. I added to the to the list. I don't think anybody cares. We're all focused on getting

a million dollars our first week. Just good realization that the worst thing that can happen is not just oh you lose your money. There are there are worse than that. I mean speaking about cooling their shot and making billions of dollars. Steve Jervson. He's tied his career to Elon very smartly. So that's not in any negative way in terms of the investments that he has. Plowed, tripled, double, quadrupled, everything in between. Um leaves California, buys most expensive home in incline village and and these were Jason's notes. Will anyone with liquidity be left in California? What

if California is structurally bankrupt? Well, I mean, yeah, it's not a great sign when they keep leaving, is it? It's not a It's not a positive Rory staying Jason. I mean, look, all first of all, you were exactly right. All credit to Steve and all more power to him. I've known him intermittently for 30 years. He made a brilliant call to align with SpaceX, been on the board of Tesla and SpaceX Tesla for a while and then came off obviously for those back in the day. But SpaceX too, yeah, he's he's put his money in

a compounding machine and now he's clearly hit the DPI moment, right? But yeah, going back to the thing, yes, capital, I mean, the truth is this, that's why we said last week, high ultra High net worth people have a high degree of mobility. And unfortunately, if you put the hammer up too high, they can leave and choose to go across the border to Incline Village and save 13% on um any realized gains. Plus, as we pointed out, 5% on all gains if this wealth tax passes, you know, at the margin, why wouldn't you? You know,

it's not like you need to be in California to be a Tesla board member or a SpaceX board member given they're down in Texas. So yeah, actions of consequences. Well, it's interesting also this week um Washington state did pass their 9.9% state income tax for millionaires and the governor said the reason the governor said to sign it because there's a lot of folks who said don't do it, right? It's I mean already Howard Schultz left. He said today he said well they just deserve to pay more. And that may well be true. It it may

well be true. Like I don't want to debate that. This is not political, right? I'm I'm more concerned about the tipping point when uh we kill golden geese. You know, there've been Washington and California and to a lesser extent New York have been the gold golden geese. It's uh you know, Washington said they're going to lose money. They're not going to make money on this. It it appears that mo most folks that are neutral or right Have said California will lose money on the billionaire tax. Everyone's left and and the tax itself assumed massive amounts

from Larry Ellison who's been gone a half decade, right? So, no one's It's just I do I I do worry they're all they're all they're all leaving. Everyone that doesn't work at Open Anthropic uh you know on this show we've done it 50 and I said in the beginning of this that you'll leave after the series B and and I now I see that used again and again by these folks who are on the right on it. They say all the founders will leave after the series B. But it may happen by show 100. And

one of the arguments I make is because you know the truth is this articulating the argument to the to you know the activist on the other side as being you're being mean to the billionaires is of genuinely no interest and being mean to a billionaire is actually a feature right but I think the real articulation is this if you you actually are losing revenue that won't be available to California and the marginal dollar in California probably goes into you know payment for homelessness business, payment for young your kids, payment for foster homes, payment for marginal

social welfare services that are easy to defund when times are tough, right? And by choosing to obtely tax without any attention to Ability to collect that money, you've actually reduced the revenue that's available to you, right? And that's the argument you have to make to the to someone on the other side of the table. you have literally chosen something instead of getting you know 200 50 I don't pick a number of 50 million from the Larry and Sergeys and the Jervsons of this world you went for 200 million and now you're going to get zero

and what that means in real terms is somewhere down the line long after all these changes have been made somewhere in Sacramento someone will zero out a line item on the budget and let me give you a clue it won't be payments to the teachers it won't be payments to firemen it'll be marginal services to marginal people that your craft stupidity and desire to make a political point has ended up costing them money and that's the only argument that moves the needle because it because it's true and you're right this you're saying is that it

will have a net negative return how now do you feel good Rory if you were Steve would you have left I think from my perspective I'm just so glad to be in California it's so wonderful I moved around a lot early in my life I have my friends here have my life here at the margin the whole point of having money is to be able to do what you want and for three or four or five or even 15% of your income. Do you Really want to leave? Now, I will say that's why you can

tax income income relatively highly because it comes all the time and you can't control timing and therefore you have to uproot your whole life for the rest of your life to avoid it and I don't think it's worth it. So, I wouldn't move to avoid income tax. Conversely, if you have this pending capital event where literally in one year you're going to sell quote all your SpaceX stock and realize a $2 billion gain and you're going to pay an extra 13% of that in California, which is $260 million, maybe you turn to your wife and

say, "Honey, for the next two years, why don't we live in incline village 165 days? I'll pay for the plane. We'll go back every week. you won't lose contact with anyone and we will save $260 million and you go hm that's real coin. So, and that's the point about, you know, that's not the life I live. That's not the situation I'm in. But that's the argument you make. It's like it's not crazy. That's real coin, baby. That's real coin. Is there any Is there any story that I haven't hit on, guys, that we should hit

on? I just have to bring up the Ron Conway Matthew Prince one because it was so I highlighted that one on Twitter. It was Just the funniest thing in the world. And uh you know I don't know Ron Conway call for context. You want to provide some context? Yeah. I don't know Ron Conway but he's certainly viewed as one of the Silicon Valley gems right seed investor in so many leaders. Always out there as an advocate everywhere. Uh probably could have retired years ago, right? Very founder centric. And he wrote that he had helped Cloudflare

navigate some very significant issues earlier in the day I think on Jack Alman's podcast. Yeah. On on Uncapped. And and they asked Matthew Prince, CEO of Cloudflare, the question. and he said, "Well, maybe I don't remember any of that." And it's just it's not and he wasn't mean. Matthew can be fairly uh sharp as as Harry knows these days. It wasn't meant mean. The tweet was not mean. He literally just meant he couldn't remember getting any help from this beloved VC. And I I think it just said so much to me about VCs adding value,

but also VCs thinking they add value. VC's possibly adding a modest amount of value, but founders not really thinking that modest value was consistent with the bravado of the VC. It just uh it just it just crystallized the whole value ad idea to me in a in a single tweet. It wasn't mean. It's just I don't remember any of I don't remember Ron Helping, but maybe he did. Yeah, I you're right, Jason. I I did laugh at that and I think it does I think actually my bigger heart to your point is both to some

extent are right is that you know as a you all want to have agency. They all want to feel we help and you know want to be good people and you look at go hey I spend some of my time helping the CEO I feel I helped but from the company's perspective they're founding a company they're doing a million things on one or two things on a 10-year journey you helped you remember that vividly they're like dude it just fades into the background of you know a hundred things and you know better than me Jason

they have to do every day right and the truth is this I one of the proofs of this interesting way to check it is I often read business biography raphies and business stories of great companies, ventureback companies and how they formed and what happened and you know what I notice in them every single one of them very few little mention of VCs if you just read them you you eyeball them says oh that's a biography yeah and they crop in and come out a couple of times right and I think that's right because realistically in

the journey of what's going on the only significant things we done I've said this before in the podcast we put in the money and we put in more money when they need it we Decide to hire hire or not hire and fire the CEO, we agree to broad strategic direction and anything after that is at best an assist, right? And if you read the biographies of businesses, right, what you generally see is the only time the VCs come in is on some version of those, right? And it's, you know, five pages of the journey early

on interspersed around 200 pages in the first five chapters and by the time they get to the IPO, it doesn't even rise to the level of a thing, right? I was reading the, you know, the the Open AI biography, the bunch of them recent, and that's just the way it is. Microsoft like same thing right you know so don't I mean and you the VC can feel those five minutes of impact were amazing and they feel really good about them and you feel warm and fuzzy but you know the only thing founders really remember for

better or is oh my god our backs were to the wall and no one would put in money and they put in money they remember that some some sometimes in my experience sometimes sometimes they even forget that but to your point at least half the time they forget that if they forget that, they're definitely going to forget the time you made that phone call to help them connect with XYZ and that helped them do something cuz that's something that happens 100 times a day. No, you're right. Yeah. Yeah. We're not the stars in the drama.

We're we're bit players who get well paid for our part. Boys, as always, the most humbling 90 minutes of my week. I f you'll get more. You'll be humbled tomorrow. I'd be surprised.