Leading Anthropic's First Ever Round

Mike, it’s great to be here. It’s taken me seven years to earn my way back onto the show now that you’ve become so famous.

Yeah. Well, he’ll be mad if I don’t give him a call out, but Anjane Mitte was the one who introduced me. So Anj worked for me with me at Kleiner Perkins when I was there as a young kind of associate. But he has he was so spiky at the time. So he’s always kinda just been in the flow. We were talking about AI, he said, hey, Matt. You gotta meet Dario and Tom. This is the one company. I said, let’s do it. Got on the phone with Dario and Tom the next day.

And I, you know, I personally was like, alright. I’m I’m in. And I’ll give you the kinda, like, the the broader story, but there was part of it that was really easy and part of it that was hard, as you can imagine. You know, at the time, you have, like, a $600,000,000 venture fund. You kinda try to average 15,000,000 into a company, and a long time, it was a company that’s, like, pre revenue and wants a $4,000,000,000 plus valuation. Too early for our growth vehicle. Where does it kinda fit?

But, you know, the easy part was, okay, OpenAI is absolutely ripping with ChatGPT taking off. But Dario was the creator of that within OpenAI, as you know. The reason why he left is because, basically, he’s like, OpenAI is doing too many things. This is the one. This is the one big opportunity. So you had that kind of, like, unique insight, knowledge, conviction around this opportunity. You meet him, and he’s just, this amazing technical thinker, researcher. A lot of the best researchers wanna work for someone like that because it it kinda mirrors them.

It’s, like, that’s the leader they gravitate to. And then, you know, another easy part of it was, you know, they had basically and it was pre revenue, prelaunch of the model, but all the benchmarks, you could see that they were kind of better or at the same level of performance as as ChatGPT at the time, and they’d spent, I don’t know, a fiftieth of the capital. So these compute multipliers, you’re like, alright. There’s something special under the hood technically. And my partner, Tim Tully, who was the CTO of Splunk, great thankfully, you know, part of the team we’ve built out here.

I had Tim to kinda dive in with Tom. Alright. So that’s all kinda like, look. This is a massive market. This these markets are never dominated by one player. There’s going to be an alternative. Who’s better positioned to be the number two player than Anthropic? The hard part was what I mentioned, like, you know, wait. Why are we doing this? It’s like a $4,000,000,000 valuation of venture fund. That’s not what we’re gonna what we should be doing, what our LP is gonna say. Did Dario set the

I don’t remember exactly that part of it. But, basically, you know, if there was a mistake and it’s hard to look at this through the lens of having made any mistake. It’s basically like, hey. Look. The opportunity is there for you to lead, but I’m like, well, you know, we can’t really do this out of the growth vehicle. In the venture fund, we can only do so much. So we said, hey. We want we’re all in. We wanna be part of the round, and I’m very grateful that I have a set of partners who were just like, look.

Let’s just do this. Let’s just get into this. This is one of the biggest waves. We’ve pivoted the firm to be all in n I AI. Let’s jump on this thing and see what happens, And that led to everything from there. But if I had a partnership that was more rigid around, hey. That doesn’t fit, then this never would have happened, and we would have never gotten to the point where we led the next round and all of that. But anyway, so that’s kind of the quick story of it.

Very fortuitous. How big a check did you write? The first check was a little over 10. So that was kind of the starter check because the average, like I said, when you try to kind of, in a venture fund, kind of have this narrow window of what you invest. But then the next round is when we did the 500 plus SPV.

get to a Well, first of all, I’m glad you weren’t in my partner’s meeting. But, seriously, I mean, there there was that in the room. And at the same time, I had a, you know, a couple other partners. And this is what you want. You wanna have partners that debate things you listen to. But it’s like, look. There’s never going to be a perfect entry point into this market. If we wanted to be in this market, this was the way in. If we said, hey. Look.

This we’re just kinda priced out. We can’t be in foundation models or neolabs of any kind, then, okay, you you you sit on the sidelines. But we were like, we have to be in this market. We’re building the firm around AI, and this is absolutely the best company. So just don’t overthink it and get in. And, honestly, I think that’s been really a hallmark of how we’ve operated. I I think other firms can be and not to throw any shade at anybody because I have such great respect, but, you know, you kinda get into these situations where where we have to own 15 or 20% ownership or we don’t do this and don’t do that.

And I think the new Menlo that I’m part of has shown extreme flexibility to just do what makes sense. Let’s get in this great company. Because once you’re in, hey. If it takes off, there’s plenty of opportunity to put more capital in.

By far. I mean, look. If you can get ownership, it’s magical because if you own a lot and the company’s worth a lot, that’s gonna be great. But, a, there’s a lot more capital coming in, so it’s hard to even maintain that kind of ownership. But we’re in an outlier business right now. Right? Like, I I think for a long time, I mean, you know, I’ve been in the business for twenty five years now. You were kinda saying, like, hey. Great outcomes are 300,000,000, 500,000,000, a billion.

So you’re like, hey. You have to own 20% to get a 100,000,000 or or whatever. Those are like and I know you talk about it a lot on your, you know, show with Roy and Jason and all that. That’s not how the game is being played anymore. It’s it’s like you have to be in the big outliers to drive great returns, and you’re better off being in them at a very small percent than owning a large percent of a company that exits for three to five hundred.

Those just aren’t gonna move the needle.

Well, you know, we announced our new funds, so we’re pretty full stack. We can take big concentrated positions. Fortunately, we’ve got LPs who like to co invest with us. But, you know, we don’t have a 10 or $20,000,000,000 fund nor do we aspire to have that. So there’s some quantum of capital that’s like, hey. That’s for somebody else the next next round. But I don’t I don’t know that it’s as much of a valuation thing. I think it’s more because I would rather, you know, to be in the most amazing company, I would rather be in than not.

I think it’s pretty rare, as you know, to find companies these days that don’t end up raising a lot of capital that way outside of the the frontier companies. Look anywhere in the AI stack, even the application companies. I mean, there’s there’s part of it that companies are growing faster than ever, so they want the the capital to, you know, really be able to play offense. And there’s also kind of a part of this dynamic in the market right now where there’s this signaling effect that every x months or a year, you know, you raise capital.

That’s you know, employees wanna hear that. To keep up with the labs and some of the retention, you know, you have to do more secondary. So there’s just the landscape is just very, very different than what I grew up with.

I mean, like, if there was a playbook that I would love to repeat, it was this. I mean, so we basically built a relationship, got into the company, and said, look, We need to go all in Menlo style, you know, our recruiting team, our BD team, and just get close to the founding team, build relationships, see how we can have value. And there’s a lot of examples of that that we probably don’t have time to go into. But we got to know them, and we got to see them operate.

Let’s say that we the round closed in something like March. The model was launched in April, so you start at zero. And then sometime, you know, through the year, you know, you’d see them adding 10 this month, eight the next. So the the revenue started to build. In parallel with that, you had Amazon and Google come in both with the big investments as well as technical partnerships around Bedrock, Vertex, and then distribution So you’re like, okay. So let’s let’s take a look at from when we invested to now.

They’ve got a capital partner, a distribution partner, a technical partner, two of the biggest in the world. They’re alternative to OpenAI who’s kind of tied to one cloud with Azure. So it’s like, hey. This is the multi cloud provider. And then you just saw this kind of revenue drumbeat start. But the seminal event was, we held our LP meeting in November, and we had an Anthropic executive named Nirav, who’s kind of a a jack of all trades at a very valuable one at Anthropic come and present.

And he blew everyone away. Like, after the meeting, our LPs were like, this is crazy. Like, this company is amazing. Even my partners were like, this is so amazing that we’re in this company. It was just the description of, like, the power of the models and how it was impacting so many applications already, human behavior, all that. And we had had a bunch of inbound leading up to that. So we literally came out of that meeting and said, alright. We’ve gotta do this. We’ve gotta figure out a way to lead the round.

And two weeks later, we signed a term sheet. We aggregated all the demand from our LPs and folks we knew, and, you know, the rest is kinda history.

Yeah. I mean, I think it’s really like what guardrails or kind of parameters have you set on your fund in terms of how much you want to put in in a fund? So if, know, you’ve got a billion dollar fund, you might say, hey. We only want a $100,000,000 max in a company. But, look, we maybe we did 50 in the first round, and we wanna do a 100 in the next round, so we can’t put it all in the main vehicle. So let’s do an SPV.

So I don’t think you have to do it. I think oftentimes, it’s valuable to be able to do it because you can play offense if you need to write more capital to win a round. And, obviously, it can be helpful to a company that you come with more strength. You know, I mean, there there’s a side of it where you can say, like, well, look. It’s kind of a extra economics at times to go outside your fund mandate and and be more full stack and not let somebody else take it.

But I think for the most part, for us, it’s just like, let’s kinda keep our fund size at a level that we think makes sense for the environment. And if a amount of capital per company goes outside that, then let’s

It’s tough because in this environment, the markups are happening so quickly. You know, you’re like, well, relative to when we invested, this multiple is amazing, but it’s complicated. Right? Like, I I think, a, if you’re a believer, I think more than ever, we’re in an environment where your outliers, your winners will compound and drive fund returns. So those are certainly not the ones you wanna sell from. Now you can argue you might have some LPs, some you know, if it’s an older fund, some dynamics like that where you wanna give liquidity, but that would be, like, maybe you take 20% off the table.

But for the most part, if we’re in a winner, we want it to run, we wanna put in more capital, and then at some point, you know, you feel like the company is maturing or maybe they’re waiting a super long time to go public, and you’d like to say take some, you know, chips off the table. But it’s not something we spend a lot of time on. When

Maybe I’ll go back even I’ll expand your window to twenty four months. When we did the SPV, Anthropic wasn’t a household name yet. Like, we saw everything going on and, like, how amazing this company was. But from the outside, it wasn’t quite as obvious. So, you know, even to get, you know, the whole syndicate that we pulled together, and, I had to give my friend Ravi and Byron a call to bring them into the round as well, which all worked out. But it wasn’t it was just that was very nerve racking because Menlo had never done an SPV before.

This was your first SPV? This happened to be over 500,000,000. So you can imagine, like and by the way, it gives me great empathy for entrepreneurs, which I have anyway because I understand how hard this is. But like being on the front lines, having to be the person kind of, you know, capital raising, talking to these investors, getting an occasional turndown, having to answer second and third order questions, sometimes annoying, no offense to anybody, That’s tough, man. That’s really tough. So that was my most nerve racking, but at the same time coming out the other side of it, the most exhilarating.

And obviously, all that work was very worth it. I’ll run through a couple other the deep seek moment, you know, that was like, oh my god. What’s happened? And now you can’t even remember that. Then there was the the Dow moment. And, you know, it’s just like this environment is so dynamic. Right? Like, everything’s moving so quickly that there’s just, like, a new challenge and opportunity, both crisis and opportunity seemingly every six months or so.

Oh, you mean the thing that came out recently around people doing SPVs, not my SPVs? Yeah. Because that was fully supported in partnership with the company, just to be clear. I think the problem is it’s secondary markets, SPVs, they’ve just become too annoying and aggravating in the market to founders. And someone else is basically like, I don’t want you marketing my stock. I wanna be the one who’s figuring out who’s in the cap table, who’s an investor. And, you know, I think that there were a lot of people claiming they had access who would kind of round up people to invest in their SPV, and then they would try to go get access.

There’s just a lot of bad actors out there. And and so I think it needed a bit of a, you know, a salvo across the bow to just kinda be like, hey. Settle down, everybody, because if you’re not directly in partnership with us, you shouldn’t believe this is real.

Yeah. Well, I mean, you know, that was another wild story where you see a company go from zero to something like 300,000,000 in a year. I think we intercepted them around. Well, we kinda tried to get in when they were around thirty thirty of ARR, but around we did was around one fifty. So you’re kind of looking at this is a phenomenon. So there’s numbers, and then there’s the market, and then there’s the founder. Right? So the numbers were just, like, ripping, you’re like, alright. So this company is gonna go from zero to 300 in a year even if you assume it decelerates to whatever, a three x growth rate.

That’s 300 to a billion, and I’m talking about when we first made the investment. And then, you know, you compound out from there, and you’re like, certainly, in the first, let’s say, twenty three years of my venture career, you never saw anything like that. Now there’s a few more examples. But, clearly, this was an outlier even amongst outliers. I think the thing that we also really gravitated to here aside from, like, Anton, he’s very visionary. He’s kind of the voice of the category. I think he’s got some very unique and distinctive plans about why this kind of ninety nine percent of people, as they like to call it, everybody who was never a coder and programmer, but making everyone become creators.

She had, like, this massive vision. We felt like an iconic entrepreneur. And then, like, crazy numbers that you could do whatever model you wanted, and you’re like, look. If this thing keeps compounding and this is really the company that we believe, this will be one of the most valuable companies of all time. Do margins matter anymore? They do a lot. And and, you know, we’re we’re in this kind of, like, tricky period as investors where right now a lot of great companies have low margins, 20 to 30% margins, and, you know, they all probably have a path to get to 60 or 70.

You know, a lot of companies, just because of the cost of computing inference, it’s harder to say you’re gonna be an 90% gross margin company anymore. But, you know, great companies are, you know, 70% gross margin. But, you know, the path to get there is like, hey. I’m gonna do some optimizations. I’m not completely tied to inference around, you know, my cost structure, and I’m probably going to do something complementary to the leading labs with my own data and build a model that kinda gets my gross margin up.

So you’re intercepting a lot of these hyper growth companies with margins that are atypical for what we usually invest in, and you’re trying to figure out which ones actually have a credible plan to get to a great margin structure. And for what it’s worth, think Lovable is one of those.

Yeah. I mean, first of all, Anthropic is a fantastic partner to Lovable and vice versa. But, like, this market is so big. So there’s really two dimensions to that. One, some people worry about Lovable and Anthropic tripping over each other. I think love Anthropic always comes with things a little more like the technical user, and Lovable comes at it more from the the lay user. I’m sure there’s probably some overlap in the middle, but I think there’s plenty of big space for each one to do extremely well.

And, you know, look, Cursor was about as in the crosshairs of Anthropic as possible, and they I think they still had a pretty darn good outcome. But the whole open source topic look. It’s like any market. When you start off in a certain way, it’s just like, look. I wanna get something running. I I wanna get it out there and just prove I’ve got, you know, a a cool product, and so you just default to the simplest thing. Over time, you do more optimizations. Right? And so I’m also on the board of OpenRouter, a company that you all talk about quite a bit, and I love hearing you guys mention them.

And and, you know, that’s kind of like the north star there is like, hey. You would have some intelligent layer that intercepts an API call from any application and basically says, what’s the best model for me? Like, across whatever efficiency frontier I’m trying to optimize for. Is it price? Is it reasoning? Or is it performance? You know, latency, things like that. And at scale, like, that’s the kind of stuff you need as a company to manage and optimize your business. And so wave one of AI is like, let’s just get it going.

Wave two is like, let’s get a lot more sophisticated about what we use and when and how.

No. I think the foundation models, let’s say specifically Anthropic, have such special models, performant intelligent models. It’s gonna be hard for somebody to just gonna say, I’ve used open source with my data. It’s going to be functional and positive for some amount of what you’re doing, but I just don’t think it can be powerful enough to really, you know, displace it. So I’m my mindset generally would be like, you’re gonna use multiple models. Let’s say if you’re someone pick a company that maybe you use 50 Anthropic and 50% open source in your own model.

I don’t think it goes to that well, you were talking more cost, but I don’t think it goes to that 96% because what’s happening is companies see this. Like, yes, I can get lower cost, but if I use Anthropic, it actually increases my customer retention. I generate more revenue. I get users to engage with the platform more, and that is what the data is suggesting now with a lot of application companies. But there’s certain API calls that just don’t need that level of functionality. And frankly, it’s good for everybody.

It keeps Anthropic on their toes to keep innovating most innovative company around, so they’ll keep innovating, not stay still, and and then startups innovate in their own way with open source.

Well, I mean, I think it’s like any product, you know, that you can argue that the cheaper it is, the more it kinda opens up the market because you can do more for less and that all you know, those economic curves always spark activity. But, you know, mean, look, even within the Anthropic family. Right? Like, you you’ve got Sonnet. You’ve got Opus. You’ve got Fable. So even the even Anthropic itself is innovating around, you know, hey. It’s not one size fits all.

So I think you’re going to have the combination of something like that, a family of models from Anthropic and then a set of open source models and things that you train with your own data, and you’re gonna look across that whole tapestry and say, hey. I’m I’m using 50% this, 30% that, 20% this. And that’s those are the kind of optimizations that happen at scale, and that’s the stage of market that I think we’re just entering into, which makes it a lot more fascinating, frankly, because there’s going to be so many kind of second and third order companies that spike and take off versus, you know, the whole market being concentrated.

I think it goes back to what I said about optimizations. I mean, you know, Google with their TPUs a long time ago, Amazon with their Trainiums. I mean, just at some scale, you look at your bill and you’re like, I’m paying somebody way too much. You know? And you say, well, I’m willing to pay that for some part of, you know, my COGS because that’s just so much better and different, and I can’t compete with that. But maybe there’s some other types of activities they’re doing that I can really leverage my own technology and bring my cost structure down.

And, you know, I mean, the chip business is hard. Good luck wading into that. Right? You know, it takes a special team, especially if you’re going to compete with Jensen and a lot of other options out there right now. But, you know, these companies are smart and they’re looking at like, hey. Look. There’s some very specific thing that we do in our model that if we had a chip that just behaved like this from a memory cache, whatever, like, it would make us so much better.

And I’m sure for some percentage of the workload, whether it’s in training or inference, that could be a big deal. So that’s probably worth the swing if you’re a $100,000,000,000 revenue company.

business?

Well, first of all, what OpenRouter has is, like, they’ve just got this groundswell of organic activity with developers who come to them because they trust them. They know it’s a great inference marketplace. They love their intelligence. Like, I don’t think a ton of developers flock to Nebias. Like, if I’m a developer, I don’t wake up and be like, hey. You know? So they’re kind of in the wrong part of the conversation. But if you’re on Nebias and they’re your underlying provider and they provide routing, okay.

Fine. You know? But if you’re a company that’s building and thinking about multiple cloud platforms and you wanna kind of even obfuscate that, then OpenRouter is a great solution.

I mean, their trajectory is insane. I mean, I forget what they’ve publicly announced, so I better not say anything. This company, wildly profitable at a scale that would probably shock most people before this whole open source model, alternative model, model optimization market really takes off. I feel like we’re just on the cusp of it, and this company is already a beast. So I have massive and very high hopes.

that just happened, you know, about six months ago.

what size chat did you do? It was kinda sub 50, but in that range.

Yeah. Well, first of all, Max Max is special, as you know. Part of my diligence was watching, you know, your your interview with him. But he’s just an execution machine and, just a lovely person to be with. I think, you know, there’s always for a while here, we’re in this period of for a long time, it felt cleaner. Like, hey. There’s a model, and there’s an API, and then there’s application companies. And and, obviously, that’s kind of gotten blurrier and blurrier, and there’s a period a couple months ago.

It’s like SaaSpocalypse. You know? Everything’s going away. And I think some of a lot of that has kind of faded, and now we’re kinda sorting out, like, okay. Well, which which applications really deserve to live and why? And I think, you know, not speaking for Anthropic, but my my view is they’re kinda like, look. If the model just kinda does something and your application isn’t distinctive enough, the workflow, the value you’ve built on top of it, the model takes that market away, well, then it probably wasn’t that, you know, defensible anyway.

I think in the case of Max and Legora, you know, they have lawyers and FTEs getting in there and understanding these workflows. It’s kinda like crosses organizational boundaries. Like, I think it’s very hard for a model just to come in and be like, oh, there’s multiple constituents here because you’ve got corporate lawyers, law firms. And when you’re on a case, you’ve got a client, you know, multiple law firms. So it’s it’s just an it’s not quite an n squared problem, but it’s complicated. And you need workflows that understand that.

You need context even within the own law firm. So I think there’s just a lot of I know there’s a lot of value to build and create on top of all that, and love the way they’re executing.

Yeah. Yeah. I mean, look, Max, I I guess maybe he hasn’t been as public about it, but, absolutely, that’s part of the strategy. You know, when we got to know each other and we were thinking about the round and justifying not only the current round and hopefully, you know, participation in the future round and working with the company, The vision is much bigger than that. It’s not have to. It’s just it’s just, you know, you’ve built this base platform that happens to be really, really good at understanding complicated, sophisticated service teams, you know, legal, tax, you know, accounting, all this.

Why wouldn’t you expand into that? And then there’s probably another leg of the stool out there yet that we haven’t even seen that we’ll be talking about maybe next time, I’m on.

It’s tough. I mean, you nailed it. But I mean, what we’re doing is a barbell strategy right now. Right? So it’s like, hey. When is a certain company in a category establish themselves as a leader? Because, you know, in that kind of one to three, you may not even know who the competitors are yet. Right? And you’re going to pay as if they’re going to be the winner because that’s just the way the valuations are in that kinda, let’s say, one to 10 range. So we’ve moved our yeah.

We have a fund called inflection fund, and we always called it early growth. Early growth to us meant, like, 3 to 10,000,000 of ARR. Reality is, like, for the good companies, that window used to last, like, a year, year and a half. Now it lasts, like, a week. Or in the case of Max and Legora, that’s what they do in a day. So, you know, like, it’s just that was a hard strategy to keep pursuing. So that’s kinda like the Menlo inflection classic kind of investment.

But, really, it’s been more to these outliers where they’ve completely, you know, broken out somewhere above 10 or and that’s kinda like market specific where you feel like, they’ve been anointed the winner or you believe they will be. But to your specific question around Series A, that’s the other side of the barbell. And so what we’ve done is gone much earlier. So spending more time we’ve got the specific seed strategy where three partners can write up to an $8,000,000 check, like, on the spot. That number used to be three, so we kind of expanded the aperture and the flexibility for the team to move quickly.

But the hard part in a right now is that seed a, the time between those two things has really compressed. And if you really look at, like, the the data points between those two rounds, like, okay. So they kinda built more of the product. They kinda have, like, five POCs or maybe they had five POCs, and now they have a million of ARR. And you’re like, I know anybody can do that. Not anybody. I don’t wanna oversimplify it. But it’s not really that much of a signal, and yet the valuation goes from 50 to, you know, to 200 or something like that.

So that’s so that’s the hard part. So we we’ve really moved earlier to, you know, kind of the I wouldn’t say pre seed, but more like that seed motion has become much more prominent for us getting early, especially, you know, to a lot of these technical projects. We have very specific strategy around Neolabs too. We’re in about seven of them, but we’re not going in with, like, 200,000,000. We’re going in where we can get ownership early or be part of something that we think ultimately could be a winner and pile in.

So we’ve adapted to the environment with a bunch of strategies that allows us to pursue this barbell on a later stage and getting even earlier on the seed stage.

Yeah.

I I think the biggest thing that’s changed from the time, you know, my my early days in the business, but for a long time, is people used to have their swim lanes. And now more and more, everyone’s full stack, including our good friends now at Benchmark adding a growth vehicle. Right? And then everyone used to make this argument in the seed world, like, oh, there’s negative signalling if you let an institution in in there. I think that’s kind of out the window as well. Because for the right companies, like, everybody’s getting preempted, and the rounds are bigger.

Maybe we’re back to, you know, more collaborative rounds because they’re bigger. Everyone used to be like, well, I have to have the whole round, and now you see a lot more syndication. But this whole notion of swim lanes is gone, and that’s just the the times we’re in.

I mean, believe me, for the first ten, fifteen years of my career, every Series A you led, you would bring in another kind of top tier firm alongside you, and the view is like, look. We’re gonna work more effectively together. We’re gonna be better helping this entrepreneur grow and scale. And then for ten years, it became no. No. No. Everything has to be one investor. And some of that’s obviously a function of of ownership, but I like the syndication part.

Well, when you take on more capital, there’s implications of that in terms of how you run the firm, culture, how many people you have. And we love to be a relatively small and mighty machine with, you know, roughly, let’s say, 12 partners and a great set of, you know, principals, associates, things like that that make us better and stronger. But, like, when you go full full stack and you have, like, five different teams, you start doing sector like, everybody’s kind of out for a pass. And sometimes I’ve seen this in other places where you feel like, well, I could do great things, but I can’t really index on this small group of people.

There’s too many of the if one group doesn’t do as well, then they kinda drag down, you know, how this this other group so it kinda leads to a bit of less feeling of, like, alignment, agency, collaboration together, and that’s what we’ve really wanted to keep at Menlo. And despite having two funds and kinda two ICs, we have a very fluid amount of work across those two groups where partners from the venture fund can lead investments in our growth fund, etcetera. So it’s really more like, how do we want Menlo to meet the market?

How do we wanna run internally? How do we wanna keep our team relatively small with great people and not feel like we’re more a company, but we still really are a firm.

friend.

I think you’re best off if people pick a I’ll use the word swim lane again, meaning, like, hey, you it’s just hard to cover everything, right, especially in seed. Like, how am I supposed to be wandering around, you know, Stanford Labs, meeting with researchers, and also chasing the 20 best growth potential investments in the world? It’s just it’s just too much. And I think the pattern recognition, the density of the work that you apply to a certain area makes you better. And so that’s roughly how we’ve split our team is, you know, early stage team, outlier growth kind of companies, and everybody really focused.

But if something comes up that’s a great fit for somebody across the fund vehicles, then fine. There’s fluidity. But I really do feel like you’re best off by being super, super focused with, let’s say, 80% of your time. Think about sector wise too. All of a sudden, processors, g TPUs, GPUs are hot. Right? And then you’ve got defense tech. It’s hot. And everybody’s kinda rushing in. You can’t go in there and just kinda spearfish one investment that you run into and feel like you’ve got the expertise.

You need to understand that landscape. You need to understand the entrepreneurs. You need to understand the buy side. And if you haven’t really worked in a semiconductor company before, which I did, that’s where I started, you know, my my career to start up before I joined Pleiner Perkins. It’s so hard. You know, it can take two, three years to get the right chip out. You think you got a design win, it evaporates. Very, very hard.

Alright. Well, I’ve I’ve I’ve talked to Eric about this. And by the way, you had Bruce Dunleavy, like, one of you know, epic semiconductor investor, and he’s like, all my partners and maybe even said this on your show, but, like, you know, all his partners told him not to do it. But, like, I would every once in a while as a firm, you can do something that’s a little bit like, there’s something really special here. We might get a zero. But if this works, wow. And I’ll that’s I know I’ll take you back to our investment in Anthropic.

Like, same thing. It’s like, this doesn’t really fit. This isn’t what we normally do. But, wow, if this works I mean, you got such a special founder in Dario and an amazing market. And if these guys become the two, and that was the goal at the time, this is gonna be wildly successful. Now did we ever realize they were gonna be the normal number one? That was like a little, twinkle in the eye, but that’s the upside you get by getting yourself in these companies.

Yeah. San Francisco was a weird place for a few years. You know? Like, all the cool kids wanted to be in New York, and San Francisco felt a little bit like a ghost town, very concentrated in SaaS, not like that much interesting stuff going on. And I love seeing it have its mojo back. Right? It’s like when these waves come, the Bay Area usually leads, and so it’s just giving so much more energy. And people who are, like, lifetime New Yorkers who would never think about leaving you know, living in The Bay are now coming out here.

I think more college grads are saying, yeah. New York’s cool, but I gotta get out there and be part of this AI thing. So I think it’s great for the Bay Area. I think the the concentration of that talent is what has always made The Bay special. You know, you just kinda you’re just constantly talking and meeting entrepreneurs and understanding how everyone’s pushing themselves, not just, like, their work ethic, but more, like, technically, what they’re working on. Your context that you have by living in the Bay Area is probably like 10 or a 100 x if you’re just some really great company somewhere else.

Now kudos to you and not, you know, just you personally, but, like, you know, what’s going on in Europe right now. Like, that whole deep mind diaspora, you know, you mentioned a couple of companies like Lovable and Legora that we’re in and Ryan a couple more. Like, that’s new for us. We would always be like, oh, we can’t, you know, go to Europe. It’s kind of a more of a cottage industry there, and where does the talent really spike? But the one thing I’ll have always thought about Europe is if you’re an entrepreneur there, it was harder.

So there’s kinda more grit to be a great entrepreneur in Europe than, let’s say, in the Bay Area where it’s not incredibly hard to get into YC and just be a founder. I think in Europe, it’s always been a lot harder. So if you have the grit to get off the ground in Europe to be a global company, that says a lot about you. So I wouldn’t say we’re putting boots on the ground there, but we’re spending a lot more time and definitely interested in doing more there.

thing that’s most often is that you were late to the party. Right? Like, you know, you were not intentional enough that this was a company that you wanted to be tracking and building a relationship. So you’re coming in a couple weeks or a month before the round and somebody else has a year long relationship. That’s usually a death knell.

And so, I mean and relationships mean so much in this business because it’s it is high trust matters so much in both within a venture firm and with the companies we work with. And so it’s hard to establish that in some, you know, shotgun wedding, some sprint. So we try to be very intentional about getting out ahead of things. You know, I’d say for the best companies, they’re always going to be this, like, kinda jump ball, and and it’s incredibly important to know someone who’s associated with the company who can kinda help guide you in, land the plane a little bit.

And if you don’t have that and another investor does, like, hey. This person has worked with this board member for ten years, and they had a great experience in some big outcome. You know, it’s it’s more things like that. It’s rarely just, like, straight up, you know, valuation, stuff like that. Yes. Valuation can be painful, but for the right companies, you know, you do what it takes to be in.

That’s the way I was trained, and I learned that for most of my career, so it took me a lot to kinda shed that.

I think they see the results. Right? So, like, maybe not upfront, but we’re pretty explicit with them that we kinda have, like, hey. Here’s a core position in a fund, and then here are what call, like, tracker checks or starter checks. Or, frankly, even look like look at our Anthology Fund. Right? Like, that’s over 50 companies, somewhere between a 100 k and 1,000,000 where you kinda get in a seed round. And the companies that have graduated out of that have been OpenRouter, Whisper, Axiom Math. So there’s a couple of things.

One, that gives us a bit of proprietary, quote, deal flow, but it gives you the opportunity to be in the cap table, get to know the entrepreneur, and then pounce when you see something’s working. And I would say if you get even a wedge into a company, you’re 10 x more likely to be able to participate significantly in the next round or lead. And I think LPs get that or they are getting it.

It’s not. And it’s and it’s hard to say, and it’s hard to change, you know, the context, the twenty plus years of context around what good and great was, but that’s the reality. The environment has changed. And so if you look around and you’re like, well, that used to be top 5%, and now it looks more like top 50%. Well, we’re not trying to be in top 50%. Right? So that’s just the reality. I mean, it’s not controllable by us as investors when we look around and see these companies doing zero to a 100 in in a year.

Never seen anything like it, and there’s more examples of that than I can probably count right now.

There are several. One company that I’ve really admired as the outlier entrepreneurs in my history going back, you look at the companies that became great, you know, when I was early days at Kleiner, it like, you know, Jeff Bezos and later on, Daniela and the Collison brothers. And, like, somehow or another, these amazing founders end up manifesting the company. I don’t necessarily think it was that they chose the right market or I mean, somewhat they did, but it was really just the force of nature, the creativity, the vision, the execution, their ability to raise capital, hire the best talent, all that.

So, anyway, I think an example of that in Europe, just because it’s close to home for you, would be someone like Matti at eleven Labs. Very big respect for him. So, you know, I don’t wanna give everyone on the podcast my whole pipeline, but just because that’s one you know well, I’ll I’ll throw that out there.

The obvious answer is anthropic in some ways, but I’m I’m trying to think about and and by the way, there was two controversial points around that. One was, you know, the first is, like, is this really what a venture fund does? And the second was, like, we’ve never done an SPV before. Are we really gonna go down this path? I can’t really remember offhand anything, like, that was that profound and felt like, wow. We’re kinda putting the reputation of the firm, especially the bigger SPV, on the line to kinda pull this off and, you know, breaking new ground.

I think we know the great thing about our partners, we’ve got a very technical group. We’re small enough to have high alignment. We respect each other a lot. It’s easy to make. You know, we listen to each other, make good decisions. So I don’t find things that controversial. I don’t really ascribe to this point of view where you need, like, a bunch of no’s and there’s one person who’s a yes, and that leads to an outlier. I know there are examples of that, but that’s not really been my experience in the firms I’ve been part of or with our team.

Not in Kerry. Right? Our position is north of that. You can do the math on what Kerry usually is, so it’s not quite that on Kerry, but our

I think Menlo has always had a challenger mentality since myself, and Venky came over a little over ten years ago, and kinda Sean Caroline came back and, you know, Marc Siegel was the partner who’s there who kinda put the band together. And ever since that moment about eleven years ago, it’s just been a grind, a fight, a build exhilarating to kinda get to this point. And I feel like everyone we brought along has kinda felt Menlo move up that stack and be more and more successful.

So I think what’s driving us is what you would expect, less about that monetary outcome and, holy shit, we’ve put ourselves in a place to be one of the, hopefully, leading firms in AI, and how do we really compound and double down on that advantage? And that’s the energy I feel every day, certainly from myself and all my partners. I I just can’t see that going away. It’s kinda like it’s kinda like we arrived. We’re here. What do we do with that? And the money is great, but that’s not why we did all this.

Of course I do. And I think it’s at a firm level and it’s at an individual level. And there’s been times in my career, you know, where you feel some doubt, either from yourself or those around you, and it makes you dramatically worse. Right? And so what we try to do is have a high trust environment, build people up, and everyone is going to fail in this business. Right? It’s just kinda recognizing that sooner and kinda landing the plane or doing the right thing. The worst thing in the world is to kinda hold on and just go to try to act like the reality is not the reality.

And oftentimes, you’re doing a founder a favor by even helping them, you know, kinda kinda land the plane. So, yeah, I I I think it’s an an important point and an important thing to manage in this business.

on in the last

Oh, I mean, certainly just how big companies can be and how bold Menlo should be in pursuing those, that we need people who are free thinkers and willing to take those kind of risks, and that’s more true than ever, like just how big a company can be.

The things that I would look back on at the time as a biggest biggest miss no longer feel that way. So that’s like like I’ll I’ll give you one. You know, we were at the one inch line, winning Plaid back in the day, and I have the utmost respect for Zach and the company and what they’ve done. But at the point in time, I felt like when I lost that, that that was, like, existential to my career and ability to win, and and, you know, they’re a great company.

But I guess what that did is just more conditioned me around, like, one loss doesn’t define anyone. Now, okay, if you didn’t win Anthropic, that would have been extra painful. But the point is, like, you just gotta keep going and finding that next big one. And if you focus on the right big trends like we did around AI and get out ahead of it, that these cycles come along. And that’s what I’ve been more focused on than worried about a loss.

Alright. Seed fund. I’m less, like, plugged into the seed fund world for reasons that you and I have already discussed. I don’t follow a lot of seed funds around. But I I I’ve had a great relationship with Chad at SUSE for a long time. You know, Brooke Myers was a, you know, one of the quasi mentors of me when I was at Kleiner, and we got to know each other and seeing him kinda grow and thrive. And I I really appreciate his perspective on things. Series A, you know, benchmark.

I’ve worked with, Jason and Eric a ton and, you know, I have great respect. Hard to say not not say Sequoia as well, but anyway, since you asked for one. And then growth funds are a little trickier. There’s so many great full stack firms. So it’s like there used to be a very clear set of growth funds. Like, when we’re talking about swim lanes, it used to be like, okay. Well, there’s IVP and and, you know, there’s Meritec, and and I have high respect for both of those folks.

But now the reality is the the growth funds that you look at, it’s like, well, it’s Lightspeed, you know, Thrive, you know, folks like that that we partner with a lot and even Sequoia and Andreessen. So it’s harder to just kinda pinpoint one growth fund because it’s it’s like a blend of a dollar. There’s not there’s no way to really index on that market anymore.

I agree. The growth market has changed dramatically.

Robotics and neolabs, maybe defense tech, but just because there’s so much going in, but I like all three of those sectors. But like, neolabs. My partner, Dee Dee, put out a tweet yesterday on how there’s, like, 60 neolabs. I told you we’re in seven. But but, you know, some of them are very, you know, generic. Like, we’re building we’re getting a band together. We’re gonna build something really cool research y, and we’ll see what happens. And then others are like Chai, where it’s like, hey. We’re we’re we’re going to be very focused on creating drugs and antibodies and or or Axiom focused on math and things like that.

But, you know, there’s 60 plus of these. And, you know, when the dust settles, I don’t know what’s gonna come to You can’t you can’t expect all these companies to have great acqui hires, and there’s no way in hell that, you know, we’re gonna have 60 independent model companies in addition to all the open source and everything. So I think that’s way too big of rounds they’ve raised for where they are. Huge concentrated positions for some firms, so I think that’s a challenge.

I think that there was a bit of a false negative on some of the infrastructure stack, you know, whether it’s like observability, agent frameworks, you know, all this kind of stuff that started maybe three, four years ago, and a lot of these companies didn’t end up panning out. Right? And now the problem was goes back to what you and I talked about earlier. People were very focused on, like, single models, so you didn’t need all this surrounding infrastructure. But now as the kind of the whole ecosystem has gotten so much bigger and you’re doing optimizations, you wanna manage your your spend, you need to have much more robust observability solutions, you need something like OpenRouter.

I just think, oh, we’re we’re in this company called Gimlet, which is, you know, kinda like this technology layer to kind of obfuscate the underlying chips and technology stacks like CUDA, etcetera. There’s so much more there, and I think we started off investing in that area two, three years ago. Nothing really came out of it. Now these companies are really taking off. So that’s what we’re excited about. Kind of the develop developer stack, all the tooling above the foundation model.

Yeah. I mean, well, I’ll just pick on that one and then riff from there. But, like, we’re totally excited about that. We have about eight of these models. I mentioned Chai, but we have a company called xAI, Vilia. I can go down the list of companies building specific models to do drug discovery. So I think and then we did something like Assort Health for better health care delivery. Right? So, like, the whole medical system, which we all know is kinda broken even though The US has great health care, there’s so much more that can happen and come to us from both from therapeutics as well as just kind of workflows and how the medical system operates.

And, of course, you know, that’s a very near and dear mission to Anthropic and Dario. But aside from that, like, the thing I’m most excited about probably goes back to, like, where Menlo is now and watching how we really lean into and take advantage of this opportunity with the team we have now that we’ve assembled. That to me is probably the most rewarding thing in my career is kind of where the firm is and the people we have to execute going forward. I’d say from, like, a trend of AI and all that, these things only come around, as you know, every ten years, and this one feels like the biggest.

I’ve been through four or five in my career, and so I am just completely fascinated to see what this looks like. Because we kinda know what it looks like now, and we kinda think we know what it’s gonna look like in a year or two. But given the pace of innovation, what in the world is this gonna look like in five or ten years? Nobody can tell, and I think the how many things will be transformed over that period of time is going to be more mind boggling than what we’ve seen in our society and in my lifetime and and your and your shorter lifetime.

So I’m super excited to be investing in the middle of that and partnering with great partners and people like you who I wanna syndicate more with.

Thank you for having me on. You went from great to greater. I hope you’ll invite me on before another seven years, always love chatting with you.