Sam Altman Offers Trump 5% of OpenAI: Fool or Genius?

You did look like a panda. I mean, you had those great big You look dumb, but that’s okay. Sorry. I mean, it’s a look.

good. Pale skin, Brit goes to beach. It’s a common thing.

Well, it’s a quagmire in the sense that you’ve now been entrapped in some kind of preapproval process and the they’re talking about some kind of structured preapproval process, but that hasn’t been finalized yet. But the zoom out comment is, you know, six months ago, you could ship software like a free man, and now you have to get permission from Washington before you do it. It’s a big change. How does it pan out? Who the hell knows? There are some arguments in part in the cybersecurity for some process, but it’s definitely a big step.

And all other things being equal, you’d prefer not to have to get permission from any administration before you can pursue your business. I think part of the reason the US is such a dynamic economy is because we don’t have a ton of Europe does, and now we do. We sneered at GDPR, and here we are.

Whether more regulation is better, people have been talking about safety in AI for a long time, is not the same issue, but a related issue for a long time. This is the grown up state of LLMs and AI. It’s just going to have this level of oversight, whether we like it or not. At the end of the day, this particular issue seems minor only because Fable’s going to sort of a variable pricing per token pricing in a week or two anyway. So most of us aren’t even going to use it because it’s too expensive.

It’s going to be a niche model, at least until it until it percolates into the standard opus and sonnet over the coming months. So the world impact will be minor. The world’s changed to me. Sam Altman offering 5% of his company to the US government was much more interesting in some ways than whether some suboptimal but inevitable oversight is coming to the LMs.

Well, if you own of 100% of it, now you only own 95. You’re kind of a little bit pissed.

Yeah, exactly. I will happily give you away some of I’m not again, stepping back. What problem is he trying to solve? I mean, I think it’s absurd, to be clear, but let’s try and go from first principles. What problem is he trying to solve? By definition, it’s not any of the security issues we just talked about, which at least are vaguely credible, right? It’s not cyber. It’s some kind of macro AI is to destroy everyone’s So we got to give back. Right. And they produced a nine point plan.

OpenAI did, I think about a month ago that, you know, some kind of, we’ve to rethink everything because of the economics of AI. And they’re talking about maybe we, we need to, I mean, let’s put it out there, grandiosity. We’re talking about restructuring the taxation system of America to tax more on cap gains and less on income because so many people are going to be put out of work because of AI that we want to lower the tax burden on labor and increase it on capital.

And this is all part of that. And the whole thing is so delusional and so far from where we are now that I just stopped listening. You’ve got a really great growing company, no discernible impact on employment yet. You’ve got a bunch of issues you’ve to sort out because you have been lapped by your direct competitor. And your focus is a on telling Congress that they should, know, remember for context, if they give 5% of Anthropic, it’s billion. Your focus is telling Congress that raises plus or minus trillion a year.

So you’re 1% of it for one year. Your whole donation gets rid of 1% of a raise for one year that they should restructure their entire taxation system. Sure, we’ll get right onto that. The House Ways and Means committee will call a committee, every lobbyist. it’s like kicking off a process that you won’t be able to control. And I predict, I mean, it does go back to the kind of comment on preapproval. You start with preapproval, suddenly you end up with an ownership interest, then you end up with a board member.

And what the are these people doing? It’s like rewriting Atlas Shrugged, where John Galt goes to Washington and says, why don’t you regulate me more? Why don’t you take more? Why don’t you us? Mr. Mooch? Grab some of my stuff. What the fuck are these people thinking volunteering for this stuff? Madness.

I I completely agreed with you at first, right? 100%. I’m like, this is the weirdest kissing the ring in a weird corrupt administration where our president made billion off crypto and friends last year profits. And that’s cool now. It’s cool for a president to actively trade any stock, his own meme coin, and make billion in one year. I mean, the guy’s 80. What does he need it for, right? So at first I was with Rory, but then I step back for a minute and I’m like, listen, Sam Altman, beyond being the CEO of OpenAI, is one of the most successful investors of our generation of all time, right?

And he knows everything about how startups and scale ups are run, and he’s seen it all. And I think in some ways he runs OpenAI with that playbook in a way the others don’t. Okay, It’s like a super startup. How he funds it, how he thinks about it, the relationships, the scaling. And to me, when I step back after I had the exact same view as Rory, like this is crazy kiss in the ring, crazy stuff. This is not Intel dying. It’s like, you know, you give 5% of your company to Shopify like Klaviyo did so that they don’t destroy you.

We see this all the time in our portfolio. Like, you don’t want to give 40% of your company to your partner and 5% is not immaterial. What I’ve learned from my portfolio, and I think you guys will agree, is it creates an unexpectedly large amount of alignment. You sell 5% of your company to billion partner. It don’t matter to Rory’s point. It just don’t matter if they own 5% of your startup. It doesn’t matter if you help almost how big you are. It is immaterial. But I’m constantly shocked how much that brings you into the boardroom, how it brings you.

So my only point is, and I could be wrong, giving 5% of your company to placate the federal government so that you’re the good guy now. like Stargate point when Sam was up there, right, with Larry and everybody. He was the good guy for a little while. I think as an investor, I take the dilution.

No, No, no, no, no, I mean, I understand what you’re saying, and I’m to paraphrase. Ownership stake, which much larger entities align the large entity with the smaller entity. And that’s what this is. And it’s a good thing.

Well, more than I would have expected as

expected to be. So let’s just two. Because

it shouldn’t. Because it’s immaterial to the federal government and it’s immaterial to Nvidia taking stakes in most companies. It’s immaterial to the economics. Right?

There’s two arguments I’ll make against that. The first is a business one and then the second is a government one. Right? Business one. Microsoft owns 30% of OpenAI. If ownership stake resulted in besties, they’d be besties. They’re not besties. They’re in a stale marriage looking for a divorce, but can’t quite pay the tax. It hasn’t worked. And that’s with 30% alignment with a profit maximizing entity like Microsoft, who is rational. Now apply that to the US government. The idea that because they own some of you, they’ll align with you is just, that’s just not the way politics works.

Go back, look at the tarp. Now, admittedly that was when the banks had screwed up. know, they come in, they own a little bit, they don’t have voting control, but they tell you who you can pay and who you can pay. And the weak banks deserve that. But JP Morgan was like, why am I getting that? That’s the tarp. If you think in this case, because not only have you said, give me 5%, but you’ve also produced a document that says the things that we’re doing are so catastrophically impacted on the economy of this country, Mr.

Congressman, that you govern, that you need to redo your entire taxation system. It’s about an hour before Bernie Sanders says, you know, you’re right. This is really impactful. Maybe we should go for 50. Because if you really are impacting a trillion economy, if that’s your, in my view, absurd statement, but you’ve made it and Dario’s made it, so you’re entitled to own it. If you really are destroying labor in a trillion economy, do you think the monster, the political monster is going to say, I’ll settle for 5.

That’s grand. Call it billion. You’ve destroyed trillion of labor value, but we’ll settle for billion. Bernie’s already said he wants 50 And you deserve whatever happens to you. You deserve being regulated by the government. You deserve having to be intrusive. I mean, maybe you get something small and tactical, but it’s such a mistake.

These

They’re morally smart people. Yeah. And because they believe, rightly or wrongly, that the impact of this technology is so important that all these things need to be on the table. And to be fair, that belief is what gave them the self motivation and the confidence to raise billions of dollars. that narrative is what it took. because if you walked in and said, hey, I need billion to build some stuff and it’s going to have a minor impact on some parts of compute, I don’t think you got your billion.

You needed to tell a story like every great CEO. This is the world’s greatest fundraising CEOs telling the biggest story. And they told the biggest story that’s what allowed them to get the now billion. But once you’ve told that story, and genuinely once you believe it, and in the case of Entropic in particular, once all your employees believe it, if you believe this thing is dangerous from a cyber perspective, from a jobs perspective, you just suddenly end up down this road. All these things become next level logical if in fact the basic premise is correct.

And if on the other hand, you believe as for what little old me does, I’m not them, I didn’t invent this shit, but it’s a really important technology, but it’s not going to put of the US labor market unemployed. Then you believe these kind of preemptive changes and conversations are a wild overreaction and wildly early. And we’ll find out which it is. I mean, look, in five years’ time, if Dario is correct and 50% of white collar jobs have been replaced by AI, which I don’t believe for a second, then you’re damn right there’s going to be political controversy.

And if you think 5% is going to feed that beast, you’re delusional. If half those nice middle class people in the middle class jobs all across this country lose their jobs to AI, it’s going to take a lot more than, I think it works out to about $140 per head, which is what the 5% of topic would be worth, to keep the wolf from the door. So if you believe these things are to happen, that’s why they do it. I just don’t. So I’m like, whatever, this is a mistake.

Who Who are you marketing to?

wolf that you said you were. I mean, again, it’s it’s like, hi, I’m a wolf, but I’m a good wolf, right? I mean, is it trying to clean up the mess you created to some extent? Yes. You spent three years saying everyone’s to be unemployed because of this thing and it’s wildly dangerous. And now you’re like trying to walk that back while at the same time sucking up.

I think Sam is a very thoughtful communicator and he puts stuff out there early to socialize it. And they seem like little comments and they seem like exposition, but I think they’re all very carefully thought through. And I think the issue is less about and Rory just hit this with Bernie Sanders. The issue is less about whether it’s a good idea to get 5%. say do it like the Klaviyo Shopify thing if you think it’s going to work. It’s more so it’s not 50 or 20.

Sam is just anchoring this idea that, hey, 5% will align us with the American people, the federal government, with the administration, without getting into politics. And he’s anchoring this at rather than 50, because not only does he need the alignment, he’s sensing the political wind. So I think it’s, you know, these things seem to come out of nowhere, but I think he’s a very interesting communicator. He’s a very good anchor in a way that isn’t triggering, generally speaking, the way he does this. Maybe other things are triggering.

And he does a pretty good job of telegraphing where we might end up before it happens. Right. So I think it’s just anchoring. Maybe really doesn’t matter what we think because it’s already happened. The decision essentially has already been made that the federal government will be acquiring a stake in OpenAI. And Sam is just anchoring it as the smallest possible stake to get ahead of this discussion.

That hasn’t happened yet, to be clear. I mean, that decision hasn’t been made. Now you are, I mean, the US government, for the first time in a long time and definitely absent a bailout, has already taken stakes in a bunch of tech companies like Intel. So who knows, maybe it’ll happen again. decision hasn’t been, quote, unquote, taken. I don’t think this administration has a decision making process. But you’re right, it’s definitely quote unquote on the table. Just being clear.

I mean, to be clear, the proposal from OpenAI, just to be grounded in facts, wasn’t we give OpenAI, I guess, 5%. It was like companies should. So the implied statement is everyone should, including Anthropic. It’s like everyone should give away 5% for the US government. So to some extent, you know, he’s volunteering other people’s capital. I mean, it just all gets to the same. And we started with Fable. It all gets to the same thing. The US government is going to get enmeshed in AI in a whole load of different, probably contradictory ways.

Right? It can range from, as I say, cyber danger to wider regulatory danger to economics to Chinese open source threats. You’re just going to be enmeshed in politics. And it’s funny because, when you watch the internet take off, the whole emphasis was cut us free. And then if you look at two of the biggest deals at the start of the internet, maybe three big, I’m going to give you three really interesting 1990s regulatory issues that were amazing, amazing for the internet, and the exact opposite of today.

One, you had the Telecom Deregulation Act that said AT&T, you got to be broken up and everyone’s got to give independent access, which allowed broadband to take off. You had section, I think, the one that said websites are not liable for third party comments on their website, which effectively is what Google, Facebook, and everyone has relied on. So it was a huge amount of free speech. And then the third one was for a long time no sales tax, which you could argue the justice of. But all those things were basically Silicon Valley managed to have 20 20-year year run with the internet where the message to Washington was leave us alone and we did great. just now many of those have been revisited.

It’s just super interesting. We’re going with the opposite approach now, which is, hey, don’t miss us. Regulate us. You know, putting our hand up and saying, pick us. We’d like to be regulated too. I mean, oil and gas must be looking at this going, wow, these people are crazy. Like no one down in Exxon is saying, you know, oil and gas is really important. Why don’t we give Washington 5% and check advance before we do drilling? Know?

You know, there’s a different since just because this is 20 VC, not that I disagree with any of that, but maybe maybe this is too micro of a point. But I think in the age of AI, massive dilution has been sort of institutionalized. Founders don’t care anymore. Not all founders, not all founders. But even two years ago, before all of this, before these massive rounds, I would say most folks were fairly dilution dilution-sensitive. Certainly VCs always have been to an extent. Now I find founders, you’ll look at really hot startups in the news. and if you peel the layers back and you look at the stub rounds and the up rounds and the half rounds, they’ve done 16, 17, 20 venture rounds often, right?

Even if each one is 5% dilution, 20 rounds at 5% dilution. Rory, help me with the math. It’s a lot of dilution. And so and look at look at Anthropic. You’ve got Dario at one point something percent equity, right? Sam’s at nominally zero. So I mean, Anthropic is the most successful startup of our lifetimes, but the founder owns one point something percent. It’s just an example, but I see it across tons, not all, right? But so 5%, it’s like nothing, man. It’s like, I did, that’s like the stub round I did last week.

I did around at 10 and then 14 and then 18 and 22 two and 29 and TechCrunch runs it up each time, but those 5% and 6% add up. They really add up, right? Every Ramp press release, it’s so exciting, but I hope they’re not too dilutive because there’s just so many of them.

It’s an interesting point, and I think fundamentally I don’t think either of those CEOs are primarily money motivated. But you are just a great point, Jason. You are right. It is very different. Normally, the two winners in a you know, like, if you look at Microsoft, Bill and Paul Allen own good slug each, and even Ballmer owned enough to buy a basketball team at the end of it. And it’s the richest man in the world, one of the richest men in the world. And you’re right, it is really odd where one of the two CEOs own 1.7% and the other one zero.

You’re right. It totally takes the edge off the dilution conversation because it’s someone else’s money.

It’s not that I say as a seed investor, I sort of hate it because I’ve watched myself be diluted to levels I never even thought would ever happen. Right. When I started investing, like, like literally. So as an investor, have to internalize and realize it’s basic for me, it’s doubling again my entry price, right? As a seed investor, I used to think my real entry price was twice what it looked because of dilution. Now I’m thinking it’s four times. So Harry just talked about doing a seed deal at 60.

Right. I think you’re really doing it at $2.40, Harry, is the honest math today, right? And founders, not all founders, look, there is absolutely a vibe of I’m going go through YC, I’m going to raise six at 60 and never raise again. Amen, right? But so many founders today after that first round are not dilution sensitive. And maybe it makes sense if it’s a huge outcome. It’s just different. It’s just different.

The only fact based comment I’ll make is the data from Carter, which is always excellent, says that dilution per round is going down. So maybe in part, founders are willing to raise more because the dilution per dollar is lower. So maybe not the founders of Entropic OpenAI, but in general, if the pricing goes up, you know, you can do more rounds and end up with the same dilution. I think that’s happening in a lot of cases as well.

Yeah. But I think what I’m personally seeing, and I think Dara is an example, I’m seeing both. I’m seeing smaller rounds, but so many rounds. Yeah. So many rounds that each round you kind of don’t mind as an investor or board member. Great. Wow, that’s a great deal at 6% dilution. That’s not double digits. And then four months later, you do another one and four months later, and it’s It sounds like I’m complaining. I’m just learning. But if I’m doing that 5% to hold off any regulatory issues, man, just do it.

You are right. I like the learning comment because you’re right. Look, I will admit that one of the areas where I think I may have been too rigid is, you you do think about, you know, you don’t have hard ownership targets, but you want to have between 10% of investment to matter. And you’re seeing now, Spark’s going to do amazing and very deservedly, they’re going to own 1% plus or minus. SpaceX, I think, found it. Who did the original check when the rockets were still blowing up, for God’s sake. ballsiest check out there. you know, they’re sub 5% or 3% or 4% of SpaceX.

Right? So you’re right, Jason. I think for these huge outcomes, the mental math and the mental model you had gets really turned on its head, which makes sense. If you have three orders of magnitude larger exit, you can get away with just about anything on the dilution side.

I mean, Ramp’s done 12 announced rounds, according to Claude. Wow. So I’m to guess it’s more like with stub rounds, like 24 rounds typically. Right? I think it’s done 24 rounds of funding. Right?

And Databricks us down in the second half of the alphabet.

it series M. These are honest found These are actually old school founders living in the AI age at Databricks. They’re honest. Right? It’s not performative at at Databricks. You know

Are you sure it’s that’s the right outcome?

No, Listen. I’m not being critical. It’s It’s a beloved product, right, with real traction, and it’ll return your fun one. That’s great. To use Rory’s term. Everyone’s talking their game a little bit, right? And so when I sometimes I see him say that, I agree with him as a founder, Right. I love it. But sometimes, you know, I hear a little bit of Brian Armstrong in that, you know, it’s it’s a because like, listen, maybe I could have done even better. As great As linear is, maybe I could have done even better, but I chose to be capital efficient.

And sometimes I feel like, but was that the right choice in 2026 when the prize is so large? If the exit’s a couple billion, it’s good. If the exit’s a billion, then you just I’m not, I’m not literally, I just sometimes wonder when I see it and I’m not saying that I’m right. I’m not remotely saying I’m right.

I think what you’re weighing off to try and kind of step back, what you’re weighing off is optionality versus upside. There’s no doubt if the if the price is a trillion dollars, which it has been in at least three cases, it looks like it really doesn’t matter what it takes to get there. You just have to get there. And if skimping on it reduces the probability of getting there, 10%, it’s a huge mistake. If on the other hand, the prize is, as you say, a billion or billion, then raising too much eliminates the optionality of taking that billion dollar exit.

Right. And, you know, to be fair to a founder, 20% of a billion dollar exit is life changing, life changing, especially with qsbs. for now. I think the truth is it’s different by opportunity. Not every opportunity is an entropic opportunity. there’s going to be, I mean, linear is a hard one to place in that because you squint one way and you go very bounded, very well executed, will be a great outcome no matter what. You do, to your point, Jason, you can’t see another world where do you have to become something bigger to even matter?

Yep. I think there’s a related point just for founders today that’s changed this. In some cases, insensitivity to dilution is different. It’s just different, right? Because if the outcome is massive, it doesn’t matter. And the other one that has changed to Rory’s point, and I think this is a positive because it certainly terrified me as a founder, but it’s not all positive is no one’s worried about making their last round high priced investors money anymore. Literally no one is Because I believe investors have learned to accept 1x when it doesn’t work out without drama, blocking, without threats.

I’m not saying weird PE firms and nonstandard investors, they play games all the time. I see it. I see I’m watching a threat through my portfolio from a nonstandard VC right now that is blocking round after round after round. But the scales of the world and you’re not blocking exits. And so I think founders, oh, I raised it billion, but maybe I exit at 800 and I get an million carve out. They’re just not worried. I was terrified as a founder out of for every round I would get blocked by the douchebags.

Okay. I just don’t see any of that fear exist in founders anymore.

That’s true. you’re right. And it never made sense to do it because the man and the founder wants to sell you But you’re right. I do. Across cycles, I have seen the hedge fund that you let into the last round suddenly just refused to sign the docs, even though it’s totally, you know, they’re getting a 1x. And it’s appropriate because if you think about the late stage business, you’re only taking one risk, which is valuation, which means your downside is, is the 1x. You should be prepared to take that and move on.

Yeah, without drama. Right? It’s just changed. I think this is the age of growth investing and the fact there’s no downside because your investors won’t block that billion dollar round adds velocity on the not on the investor side, but on the founder side. Like I have taken another round as a founder for sure if if I thought I wasn’t gonna get blocked. I have done it a heartbeat.

I didn’t get it at first, Jason, but now I’m getting it. And you’re saying, and that’s the argument that says if the high price later round is relatively low blocking rights, relatively low dilution, and it gives you upside optionality and doesn’t preclude downside optionality, which is my point, then you’re saying I would be wrong. And in fact, there are cases where if you as a founder are running a company, you’re doing million, there’s some chance it can be a billion dollar revenue company. Take the late stage round.

It might work if it’s a 50% chance it works. if it doesn’t, yeah, you’ll have the preference stack. Don’t waste the money and you’ll still be able to get out with the exit you would have had otherwise. I don’t know if I buy it, but that’s the argument.

I think it’s a big, but I can’t think of a founder I’ve invested in doing the big round that is worried about the return on that high priced round. Just

I agree.

And my generation of founders, we were terrified of it. We were terrified of the expectations.

I remember those terms where you have the block unless it’s a 2x sale and all that bullshit. So you were really stuck with that late stage money. But I agree. That’s actually a fair point. It’s freed up the risk.

Yeah, I actually watched it because all the whiny people were saying he looked deranged. And I watched it and really enjoyed it. But I actually thought he wasn’t deranged. I mean I thought he was more

Yeah, it’s so funny because some of the examples, it’s clear there’s a whole lot of personal dynamics there and his examples about his college and his example, all that. That’s just his baggage to bring to the table. I read a biography recently, super interesting dude, obviously, with a lot of angst. So I think there’s a lot of noise in the system from that. And then, you know, it was cute. He called Dario a world historical figure, which is the Hegel concept, you know, the German philosopher.

And Alex Karp is, of course, doctor of German philosophy. So now we’re dealing with big brain, making big brain references on CNN, which perhaps isn’t the right place for it. But when you strip away all that, I think you’re right, Harry. The two comments he made were spot on. Corporate America is saying, I’m spending all this money. Am I getting anything? Which is the ROI comment. And then the other comment, which I hadn’t heard as much, and it’s obviously a little bit, but he said, and Corporate America is saying, am I giving them all this information?

Are they training them? Are they learning my business? And are they going to be selling my business to everyone else? What’s my IP? obviously it was a self serving comment because then they were like, well, Palantir will solve these problems for you, Mr. Corporate America. And worth pointing out, people can bet you the moment, but stock went up 9% on the day, I didn’t realize that. checked it just before I came in. So I didn’t think it was crazy at I think it was, yeah. I mean, stylistically, you kind of go, wow, that’s a crazy style.

But oh my God, the points are spot on. I don’t know, Jason, did did you see it?

I only saw the clips that as Harry knows, it’s all we watch is clips now, right? We create long form content to create clips. That’s life. I think, listen, anybody on the application side is going to be sensitive to token model costs and all of that, right? It’s a theme that’s real and is blown up. He’s talking his game and his dependency. The one that that maybe he got slightly wrong but is the most interesting because it’s still a real issue, right? Is whether whether OpenAI and Anthropic are really training and slurping up all of our data.

Right? That seems to be slightly exaggerated based on their terms of use and everything today. But mean, this was the same week that HubSpot had to walk back that it was going to share all your prospecting data with other customers. And I want to tie them together. Okay. HubSpot’s an older school B2B company. But HubSpot said a week ago, hey, we have a prospecting tool. Prospecting is really important. It’s actually become much more important in the agentic world because all these hot AI GTM products are automating prospecting.

Right? So we’re going to do what everyone’s tried to do for about a decade and a half is we’re going to pull all your data. We’re going take all of Harry’s verified contacts, all of Rory’s and Jason’s We’ll pull them so that when you do outbound, you’ll have a truly validated set of contacts. their customers erupted that you’re sharing my contacts. They had to roll it back within a week. And it’d be fun to talk about in general, but I think it teases to the question that I think vendors overall are going to push the limits here.

They’re going to push the limits on training on your data. OpenAI Anthropic kind of lied about the books and they definitely lied about training on YouTube and they’re going to push the envelope here to make their LLMs better. And HubSpot did it and Salesforce is going to be tempted to do it. Every vendor that is seeing massive competition or slowing growth is going to be tempted more and more to cut corners on training, privacy. And HubSpot got caught. At least they walked it back. Right. But I think we should all be worried if we care about our data for real.

And sometimes we over worry about this, right? We’re not We’re not all anarchists or whatever, but people are going to be tempted to do more and more with our data. I think it’s a very valid worry. And if you’re Palantir selling to the government and highly regulated industries, I think it’s a great it’s a great play. It’s a great play. You can’t really trust these guys not to share your data.

And I think the ROI comment was clean and that comment on data wasn’t as you’re right, Jason. It wasn’t as obvious that they’re doing that. But of course, the other thing that Karp mentioned correctly was is that Anthropic in particular had opinions about how their AI should be used by the DoD. he was making the point when people are giving you millions of dollars, they don’t want your fricking opinions, they want your technology. And I think he did a very good job of positioning himself on that side of the table.

Good for him.

Yeah. You be

My only thought was why not earlier? Why not? If you’ve got the capacity, why not lease it? Didn’t bother SpaceX, Didn’t bother Amazon twenty-some-odd some odd years. Harry can do the history for us. Didn’t bother Amazon opening up AWS back in the day when it had excess e commerce capacity. Why not, man? Why not? It’s one thing if if if Meta was still had massive cash flow didn’t need. right? But it’s been such a I’m not sure exactly what their net cash is from their infrastructure spend.

Maybe it’s zero. It just makes sense, At this point. It just makes sense. Why not?

It’s been interesting. Two companies have done the same thing, which is buy a load of compute to build proprietary assets, fail to build those assets, and then decide instead to sell that compute to others. And both of them have had a very positive market reception from that. And one of them is SpaceX obviously, and then the other obviously now is Meta. You ask yourself what’s going on long term? What is the market actually thinking? Are they thinking there’s a Goldilocks scenario, which is we, the market, believes that Meta in the short term has excess compute and therefore we’re glad they’re selling it.

And in the long term we believe they have a wonderful use for this compute that we can’t quite figure out yet. And therefore long term will be this AI centric play and it’ll all be wonderful. That’s one view of the world. And, know, you have the same kind of view like that of SpaceX, which is, oh, short term, they had to rent this computer. They got an extraordinarily high price for it, for which all congratulations. But does the market really believe over the medium term, you’re going to be an AI model provider using cursor being top to bottom, of the art model?

Right? That’s one view of the world. Or is the market simply saying, both of you have failed at your long term goal, but being a cloud provider is a great business and go team. And the thing about the latter is you kind of find yourself saying, two more entrants into a pretty crowded market. It totally made sense for the neo clouds to go down 10% because it’s like all other things being equal, would you prefer to have two competitors or four? You’d prefer two. So at the margin, the entrance of SpaceX and Meta into the NeoCloud business was worth exactly that 10% to 15% decline for Nevis and CoreWeave.

The interesting question was, what does it mean over the longer term? I think there’s two positive scenarios. One positive scenario is they build these standalone models, they take that compute back in and they use it all. That’s great. And the other positive scenario is being a hyperscale cloud provider turns out to be a great long term business. That’s great too. Obviously the bad scenario is if a whole load more companies go through the same journey Meta did, which is, oh, we think we need all this compute, but we don’t.

We can’t build something useful enough for it. And then you’re only left with a few buyers of compute. OpenAI and Anthropic can clearly use it, and a whole lot of sellers of compute. Maybe it won’t be such a good business two years from now. And that’s the risk, is that it turns out that right now the assumption, and Zuckerberg said it, is, hey, we should invest because if we can’t use it, we can always sell it. And And this is what you’re seeing right now. Everything there is true up until the moment that compute demand isn’t there at the margin.

That’s not happening now to be clear. It’s never been tighter. But if that changes, then all these assumptions go out the window. Then Then the market will say, no, I’m not glad that you bought this shit and are now selling it to other people. I wish you hadn’t bought it at all. Take the hit. But that’s not where we are today. compute demand still appears to be pretty strong. Right now it’s working. But it is odd to be able to get away with having a plan a reverse that with plan B and getting a 10% lift.

I think you’re phrasing the question wrong with all due respect. You’re basically saying, oh, is it Zucker real? And they’re both wildly talented, let’s use the Karp word, world historical figures, right? Which I think is true, actually. I think the real question is, is there another five gigs of demand out there that wants to be satiated? Does Anthropic have an open to buy? If The truth is this, if a customer wants to buy something, as every salesman knows, it doesn’t take a fricking genius to sell it if you have it.

But if Meta has a gig of compute lying around and entropic, you know, five miles down, 20 miles up the road, wants to buy that compute, I predict that sale will happen. If Entropic or OpenAI doesn’t to buy that compute, then all bets are off. That’s the only thing it boils down to.

Listen, maybe I’m not that bright on this, but Zuck also just paid essentially million to hire a head for WhatsApp, right, By investing million into cred. Right? So it seems to me, I might be wrong, not trying to trigger anybody.

Probably more, right? Really? Because that was a million investment. Let’s They just paid well over a billion dollars to get to

something too. I agree, Jason. It was widely

So So what’s happening there? Well, clearly, and you can see the numbers, the core Meta apps are working well. WhatsApp, Facebook, Instagram. This is the engine that keeps going. And so in a way, Zuck’s treading water while he figures it out, right? Did he overpay for scale? Alex went, maybe, I mean, probably, right? But he’s treading water. And listen, a lot of our founders are in this boat. The main engine’s working, right? Something’s working. I don’t have all the answers today in the age of AI, right?

My core business is still doing well. and I can either kind of hide from it or I can go maybe too, all in without having the answers, but at least I’m in the game. And, you know, did Llama really work out? Did scale work out? I don’t know. But when the core is so successful, you stay in the game and then you rent out the compute. It’s okay, Right? So I give the same advice to founders that are doing reasonably well. Stay in the game, man.

think you’re totally right, Jason. The core business is doing amazingly well. Now, one minor nuance, they say that part of the reason it’s doing well is the AI is improving their targeting. And I believe that, but I don’t believe it justifies the billion or so they’re spending. But you’re right. The core business is doing well, which means that there’s no fundamental fatal error risk in continuing to invest in this new marketplace in AI.

So if you were a Meta board member, not that the Meta board members have any power whatsoever because Mark controls all the votes, but I also think as a board member, one of the big picture jobs you have, and you have very few jobs, but one of them is if the company is doing something that could have fatal error risk, that is when you at least record a no vote and you say, I wouldn’t do this. If the CEO came in to me and said, I’m doing this, I’d have to say, you’ve earned the right.

You’ve got a billion cash flow business. Don’t understand where you think the billion of investment is going to get, but you’ve earned the right to continue to play. So even if there was a meaningful board at Facebook with actual votes, if I was a board member, I’d be saying, I might get it, but you’ve earned Jason’s exactly right. You’ve earned the right to play. You’ve hedged. And worst case, we spend billion, and we’re wrong, just like VR. So yeah, I agree. One of my big ahas is people talk a lot about the fact that all the hyperscalers are spending almost all their capex and even starting to tap the debt markets to invest in compute.

My big is this spending isn’t going to stop because the supply side says stop. Facebook aren’t going say stop. Google isn’t going say stop. Microsoft isn’t going say stop. Really, it boils down to the demand side. As long As enterprise revenue growth rate, even though it’s one-seventh the size of your CapEx bill, as long as the revenue growth rate is 2xing and 3xing, which is what we’ve seen from OpenAI and Anthropic even at today’s run rate, the spend is to come. The demand side is going be what shuts off the spigot, not the supply side.

And I think Zuckerberg is just the best example of that. He is going keep playing as long as there’s some hints on the demand side it’s not a fatal error. And neither of them have been triggered.

I love it. Now that round trip revenue is like totally cool and not something you go to jail for, like, let’s do it every single place we can find it, right? Let’s just Let’s just do it. And I’m not saying there’s anything literally wrong with it, but go for it, right? And capture them early. I’m just shocked with how many folks have screwed this up over our investment histories. How many folks don’t just go ultra all in on startups? And if you want to pick YC because it’s the simplest way to go all in, just do it. right?

It is such a talent magnet. But why everybody and folks have woken up to it to some extent, but every leader should be showering startups with infinite love their first 24 months. It’s the best long term investment you can get. If there’s any lock in or anything at all, shower them with love.

And let’s talk about what’s going on here because what Nvidia has said is, and the details matter is that for, you know, next generation neoclouds and one, I think Sharon AI, which is one of the examples, they did two deals recently in early July, they actually did some kind of explanation of what they’re doing. They’re basically quote selling you the chips front. So they are to recognize that hardware revenue front And then they’re giving you as the buyer, the neo cloud, a backstop that if you can’t use that compute, you get kind of put back rights on it.

Right? So it’s basically hedging the risk. It wasn’t clear for me on what I read when the money actually changes hands, but what was clear is they are taking the revenue upfront. So it’s as legal as church on Sunday, it’s AS 606. AS They’re separating the revenue upfront from the guarantee over time. So it’s accounting legit, but it is pretty aggressive. I mean, what it’s basically saying is their push has been to diversify away from the hyperscalers and they’ve achieved that.

Even though they obviously, the bulk of their revenue comes from a small number of hyperscalers, they are starting to expand the number of significant customers and the top three customers, I think, don’t quote me on this, in the data center business have gone from the 80s to the 50s or something like that. So they’re trying to make all these guys, these new neo, clouds work, and they’re leaning in backwards effectively, but there’s a lot of contingent liability they’re taking on. And Jason’s right. You do that, it goes back to the same sentence over and over again.

As long as the raw demand for compute and intelligence keeps going up and to the right, these deals will look wildly smart because they’ll work. And if that slows down and there’s excess capacity, these deals will look horrible because you’ll not just not be if you’re Nvidia, you’ll not just be not growing quickly, you’ll be debooking prior revenue, you’ll be kind of taking, you you’ll be taking money back because your customer will have gone bust. The whole thing is a derivative bet on keeping this thing going.

Not crazy, but that’s what it lies on.

I don’t think in in this point, when we record this, anyone’s managing for downside in You’re don’t think I think we’re so far deep into a bull run like we’ve never seen before. Bubble or not, I don’t don’t. you’re managing for downside. I think I’ll check out of that board meeting. Thank you. Here’s my junior associate.

You’re right. And I funny. I remember thinking a year ago when I realized Nvidia were talking about stock buybacks. I remember saying, actually, I think I said it on the I said, I wouldn’t do that. I wouldn’t do buybacks now because buybacks are a conservative. I actually think if you’re going to be stupidly aggressive with your cash, this is actually a better way because it keeps the thing going. Now, I do think the time to manage for the downside is when no one is managing for the downside.

So there’s a little part of me that just goes, oh, we’re at that stage of the cycle. And, you know, we remember that stage of the cycle in 2030, but and, know, I want to say again, history doesn’t repeat. It does rhyme, but it doesn’t repeat. These are different companies, different times. But it is interesting. We’ve reached a point where the number of good customers who can pay cash and have a big balance sheet is tapping out. So you gotta find more customers keep the growth going.

And to do that, you gotta subsidize them.

I last week said I thought it was mad. And I actually saw the comment from Andreessen, who I think is just super smart. He responded to your thread his comment was, there’s two arguments in favor of it that I didn’t internalize last week when I said, I think it’s crazy for OpenAI to be building their chips. And the two arguments were one, Andreessen’s comment, which was some version of you got to own the compute. If you don’t own the compute, you’re screwed. A little like the crypto.

If you don’t own the keys, you don’t own the crypto asset. So he was very much viscerally, you got to extend the whole way down. And I just think he’s been so smart about Anthropic in 21. He’s been so smart about the need for compute that that made me pause and think, am I wrong? And then the second thing, kind of more technical, is if you build your own silicon, you can optimize the silicon for your model and probably get significantly more efficient than you might do buying a general purpose computing platform from Nvidia and adopting it to your specific model.

So there are two arguments that I didn’t have in my head literally a week ago in favor of this thing. But I will admit, I still find myself going, if you’re at the app layer and that’s where your value is, and then you have the model and then you have the hosting provider and then you have the chip, just needing to do that amount of vertical integration just feels weird. I don’t get it, but I could may not be understanding the big picture is my more tempered approach than last week.

The only thing that makes zero sense to me is the argument that, hey, at OpenAI, we need to build our own chips because we have very specialized needs that Nvidia can’t meet. I have a little bit of experience in the semiconductor industry. If you’re driving that much volume to them and you need a special version of a chip, they’ll build it for you. Like, this is not true. Like, okay, fry me in the comments or whatever. I admit, my experience is a little dated. For this amount of dollars, in my limited experience in the semiconductor industry, They’ll do your own tape out.

They’ll build your own. It’s so much money. 80%, 50%, whatever the revenue. If OpenAI needs a different chip and it’s really that simple, you’re going to get it. This is just responding to believing that the margins are so high in video to survive. We have to recapture that margin. I just think the idea that it’s customized for us is just soft language because everyone’s kind of dancing around being Zuck esque agro here, right? Everyone on either side is maintaining relationships, but it makes no sense in my experience.

It just makes no sense.

I think there’s two interesting things, right? One is if Kling can pull this off, why the hell couldn’t Sora pull it off, right? Why couldn’t you build a more cost I’ve used all these models, right, inside of Higgs Field. Right? We could talk about it. The second thing is it’s just more interesting that I wondered. So Kling, you said billion. that’s what they’re doing it at, at, million. Now Higgs Field where Harry and I are both investors, I was one of the first 10 users or customers.

Higgs Field just announced they’re at million in revenue, actually doing 2 a day now just in credit card billings outside of the enterprise. Okay. So however we define ARR in today’s world, 607, whatever, 500, billion. revenue. Kling is just one of the models they use, but it is important to their product. And they’re allegedly raising at billion. So one question that asked, I sort of thought is, is there a Chinese valuation bubble potentially in AI like there have been in prior rounds? It’s a different market, right?

And that just creates different dynamics for capital raising, right? For startup foundation, valuations, AI valuations are and I don’t know this to be true, are going to be meaningfully higher in China than US. By its very nature, it changes how the game is played. valuations are higher, Right? Because you got one at million doing AI video models, billion One, a partial layer on top of it that’s cash flow positive at billion. Is that a 3x arbitrage? I don’t know.

It’s a argument.

didn’t get the billion. It’s a question more than a banging my fist on the table. Right? The meta learning, I just didn’t know that video would be this big, this type of generation, right? You know that it’s big on the consumption side. We just sit doom scrolling all day, right? All of us, right? But it wasn’t clear to me when a year and a half ago when these, when the outputs were pretty crappy, just like a lot of it wasn’t clear to me that the demand would be so insane.

But now that people are actually beginning to build films on these platforms, the amount of video you can consume, it’s the amount of video you consume is infinite, right? So maybe Sora should have figured it out because it was pretty good. When I would run all four together, Kling, Sora, VO, and I forget the other one, the other big Chinese one, because you can run them all on Higgs field. You can just run them all on videos. It’s pretty Sora it’s kind of a, I think everyone thought it was kind of a bummer.

They shut it down. Right. They just couldn’t make it cost effective. You know, a slightly inferior product. Maybe, maybe that’s what the market wanted. Right. Kling is still pretty cool.

Yes. I also think there’s much less freebies on Kling. They’re very quick to charge. I mean, I think that from recollection, it’s so funny how quick do we forget. I can’t remember how much Sora gave for free, but look-

Too much probably, right?

Exactly. The point is that if you’re OpenAI, your highest and best, you have another use for that compute that’s enterprise centric, where you can make real money. So you probably at the margin cut off Sora, on a standalone basis, if you were charging, you’re right. So that’s one comment. I can see if I have a finite number of GPUs and I’m falling behind on coding, there’s more money in coding than consumer video. Separate comment. If all I have is a consumer video business and I can validate with a charging model that allows me to make money, then that’s great. mean, I saw an estimate as well, Justin for kind of a 30 second video generation.

It’s about a buck 30 to $2 in GPU generation costs. It’s kind of a rough, very rough, estimate. So provided you can get some kind of money from it, there’s a business there, different business than enterprise coding, where those GPUs from OpenAI presumably ended up. But nonetheless, you’re right. Kling has proven that there is a business there and people will pay for it.

But you’re right. I mean, million to OpenAI Anthropic today is nothing. Not only did you lose your capacity to Rory’s point, which was the biggest issue, right? It’s just not it’s not only was it under-monetized, even if they were able to monetize it at the Kling or better level, it’s a distraction. It’s below the materiality line and a lot of a lot of capacity use. But for Kling, it’s not a distraction.

Exactly. It’s a wonderful business.

This is why we get to invest in startups, because distractions can become very large businesses. Yeah. That might be a lot of great investments. Right? That’s just a distraction for for us.

First of all, the top social network sharing short video was obviously Chinese. It was TikTok and it got adopted here. They just, you know, competed in the same rough market as InstaReels and all the others and what? So that’s kind of on the pre pre-gen AI video business. On the gen AI video business, you’re right. Kling is the top model. Sora decided they got better things to do. Right. We just had that discussion. On the big market, which is obviously, you know, LLM for compute, LLM for coding, look, the US is clearly running away from it in terms of frontier models.

And the Chinese counterstrike has been open source models. Yeah. distilled in some part, reasonable people might differ how much off OpenAI and Anthropic, but yeah, they are clearly numbers one to six in terms of the non closed source financial model. So So that market, they’re running away with it.

You know, just one thought I didn’t fully appreciate. I just got back from two weeks in China and Hong Kong, which I didn’t appreciate being till I was on the other side of the great firewall is that now I think Jensen was right about about this because when you’re in China, OpenAI and Claude will not, Anthropic will not serve you. It’s not just a question of being blocked. You cannot access it. Now you can get around it, right? There are ways, but they try to block VPN access.

So you kind of got a side by tokens or side sellers things. What do you expect is to do the second largest economy in the world? Of course, they’re going build things that are as competitive or better than we are because you can’t even use Claude in China. If for some reason we don’t like what’s happening in China, we created it by not allowing China. And Jensen’s point was you better let the GPUs go over there, right? Or they’re going to just do it themselves. And, you know, literally the fact that even in Hong Kong, which is much more open than China, I just couldn’t use ChatGPT or Claude or the APIs.

What do you expect? To Rory’s point, probably videos. They’re going go with it because they have, they have so much strength there already, so much domain expertise, but of course they’re to build it all. You can’t even use ours. And of course they’re going to be pretty good. There’s some pretty damn good engineers in China. They’ve been working on the internet and software and and AI for a while. And you know, this is a if we don’t like what’s happening in China, having just gotten back from two weeks there, what do you expect when you can’t access the leaders, when you simply can’t access them?

They’re to build something as good or better if they can, and they can They can come close. At least we know they can come close.

Jason, you’re right and it’s well expressed. And the only nuance I’d say would be Jensen was right that this is the consequences of us not allowing access to a front, you know, kind of state of the art chips and then state of the art frontier models. Now you can decide as a country, going back to the government thing where we started, that that’s an acceptable price to pay because you believe the national security issues are significant enough that you want to do that. And I’m deliberately saying that.

I’m not saying they are not, I’m not frankly equipped to assess that. But your actions have consequences. And it goes back to when we talked about that famous Jensen podcast with Dorkish, where they were kind of talking past each other. If you believe there’s a national security concern on these models and these chips and it’s legitimate and real, and you’ve made that decision soberly as a government and responsibly, then you can choose to block access to these technologies. But you’re right. You can’t expect the other side to say, okay, you caught us.

We give up. We won’t have this stuff. We’ll build our own. And there will be a commercial consequence to that. And that’s what you’re seeing here. You’re right, Jason. They didn’t say, okay, we can’t have cool LLMs from Silicon Valley. We’ll just give up. They said, no, we’ll build our own. Thank you very much. And they’ve done a pretty good job. And now it’s interesting, Harry, you just I haven’t even seen this, so I hate talking about things I haven’t seen.

But Harry mentioned just as we came on the set here that there’s information out from China that they’re starting to say, the Chinese government is saying maybe we’ll deny access to overseas users to some of the Chinese open source models, which is kind of hilarious in one respect, because we’re nervous about using them because we think using them is dangerous. And they’re worried about letting us use them because they think letting us using them is dangerous, which is kind of just a zany thing because both of those things arguably can’t be true at the same time, but that’s where we are. it would be very significant in terms of competition, the competitive environment, if Chinese open source models were removed as an alternative going forward.

I think that would be obviously pretty excellent if you are a, a US frontier model. See prior conversation, Jason, you might be right. They might be getting something for their 5%. Or B, you’re a US open source model provider like Reflection or Poolside. This would be best thing that could happen. We’ll see.

Yeah, I mean, everyone’s trying to do that because of the expense.

If there wasn’t a more cost effect, we wouldn’t be building chips either. It’s the same thing. Right? The margins, it’s just that the we’re now graduated from the experimentation phase, right? And now that, you know, we have to deal with managing costs. That’s what CIOs and companies do weirdly, but reasonably well, net net, right? And it’s just going accelerate. But it’s, you know, it’s funny. I’m trying to build this project right now and launch it. And it’s got a sufficiently complex algorithm that I can’t understand it.

I’m not smart enough, right? Folks can fry me in the comments. I just don’t, it’s an application. I cannot fully understand how it works. And I’m using the mix of the models in Replit, which it’s Sonnet plus open source. Okay. Is basically what I’m using. You can use Fable and Opus, but I’m basically using it can’t quite get it right. So I’ve got, I’m passing it to Fable and Opus. and then I’m running both side by side Claude running Fable and Opus with Replit. And my point is after spending about 10 hours in Replit, couldn’t solve this big algo problem I solved in about 20 minutes in Fable and Opus.

Right? So there’s going to be, even for me, there’s going to be this grade of problems where I lost so much time and money using the N minus one step down model. I lost a day. Endless cycles, forget about the money, $500, whatever. I lost a day. I got stuff to do. I got portfolio companies to rescue with my grand insights. I got, I got stuff to do. And by using Fable plus Opus, and I’m not sure which combination really did it, I was able to get to the heart of the problem in an algorithm I could not understand.

So that’s why I’m just saying, I don’t know how this all plays out over the coming years, but as the problems we solve get bigger and more complicated, I’m not sure I to waste a day on a mediocre answer that doesn’t work.

I think you’re right, Jason. And actually Jesse Zhang, the Decagon founder, did a nice post on that just now. It was good. basically, he said, look, when you’re trying new stuff or you don’t know the problem, or you can’t bound the problem, you’re to use frontier models because they’re smart and they’ll figure out the unknown unknowns. The more it becomes a commoditized answer where you know the answer you want give, the more you’re to push it to open source. Right. It was good paper, totally made sense.

And his comment was, we’re at the explosions of usage now. So you’re seeing a lot of, you know, frontier model usage. It may well be in two years time that, you know, you didn’t need to pay that tax. But right now, if, if the only way to solve the problem is with the frontier model and the problems worth solving, you’re to pay for it. Which is why the open router, you know, all the tokens with, you know, with open source is a little misleading because all the tokens can be in one place, but all the dollars can be in the other place.

To your point, Jason, you know, you at the end of the day, you’re glad you spent that thousand dollars to give me the answer on Fable. I don’t to be dicking to

It was actually cheaper because I needed cents, minutes. Exactly. It wasn’t just more expensive, it was cheaper. And soft and hard cost I’m instead of eight hours and $500. It was a minutes and actually zero because I get it in my $200 max account. Right. So it’s free. It’s subsidized, but,

no it’s no more than any advice business. There’s a reason sometimes you go to the nurse practitioner and then sometimes you go to the heart specialist.

And we may end up blowing it. Listen, we need help. And there’s there’s vendors that do this, that are on fire. But we’re going need help making sure that when we use cheaper models that we’re actually it’s actually worth it. And I think even in I’m bored of talking about the subject, but you brought up Decagon. If you really go deep on a lot of the data today and a lot of folks doing next generation AI AICX. there is some plateauing. And the reason there is some plateauing is this, some of this pressure to have reasonable costs per resolution.

Okay. We’re kind of standardizing this industry around like 50¢ per resolution. Okay. In CX, right? That’s sort of the cost, right? It’s gone down from a dollar to So how, assuming you’re not just burning venture dollars, if you can charge 50 for resolution, what your LLM costs have to be? 25¢? Maybe less, right? So everyone going to I didn’t read the point, but I’m sure they’re doing it. So they’re all rushing to say, okay, I got to push this, right? And just got bought for billion, right?

I got to push the open source thing. I’ve seen a lot of data. I’m seeing a lot of plateauing. and that may push people back to a limited more high end models so that you can get to the next level. so that you can get to 95% true resolution of complex problems instead of no matter what the internet says, 40% resolution of sort of not that hard problems to solve. Right? So, so we’ll see, we’ll see how, whether this open source stuff over the next six, now that we’ve all internalized it, we may not get we may not get all the benefits out of it that everyone thinks we are.

Two comments on that though. One is yes, but I I think the point that Decagon CEO was making is it’s not just a pricing, it’s also a latency, it’s a response time. There’s a bunch of reasons, but I think the meta point is this I’m going make on the CX space. Everything you said is correct. What I love about it is if you think about the chasm concept, this is a market that’s the other side, the positive side of the chasm, because implicit in everything you said, Jason, was a recognition that there is an ROI there and the shit works.

One of the reasons I like this space is a lot of these other apps companies are wrestling with how do I price per outcome? This market has already gotten to the point where the customer, it’s I get it. I can increase my resolution rate from 30% to 65%. I get it. I spend bucks an email to answer a query. So a buck or even 50¢ on customer support is well worth it. In other words, it’s moving from, mean experimental side. there’s a lot of talk about 95%, whatever bullshit, AI ROI is not there.

This is a category where everyone can articulate the 30% where it is there. And then to your point, they can go, oh, the next 10% is going to cost more. That’s a high class problem. Maybe what you’re saying is you go from 30% resolution to 65% resolution at a buck a pop and maybe from 65 to 75, it’s bucks a pop. You’ll still happily pay it if you’re the customer.

Probably it’s just it’s just going to be another another stage in the evolution of AI, right? Where you can either say, listen, I got 20¢ of that 50¢ to provide the best resolution I can, right? And that’s that’s a great answer today. But as your competition gets smarter about this and blows by you, it’s going to create an amount of competitive pressure that it’ll just be interesting because it will all have to get much better at this stuff.

I think it’s going to fail.

Ooh, good take.

I’ll tell you why. Because we have a lot of FTEs at SaaS, because we have so many agents, right? We have like the best FD at Salesforce, the best FD at all these folks. Not the best, but we have some of the best at all these companies. And they’re effing great. Literally. The FDEs we work with at these leaders, okay, are better than anyone I’ve ever worked at. and customer successors support my entire career with maybe one or two exceptions. They are so good, the best FTEs at this company, okay?

And then one leader, not Salesforce, another leader. Our FD went on paternity leave for three months and the new one told us they couldn’t fix our bug for three months until the first guy got back. This was a leader. So my point is, I think this is going to fail because I don’t think there is enough talent to do what we want to do in the enterprise. The idea makes sense. Spreadsheet, it makes sense. Saad is smarter than me. But today, my experience is it’s going to fail with all the companies we work with because there’s not enough depth to do it.

Literally, this is a public company said, you’re to have to wait three weeks to fix a fact that your AI is still talking about SaaStr 2026, which already happened. It happened in May. It’s now July. We are have to wait until August to fix that bug until our better FDA comes back from paternity leave. Think about, this is not someone and this is not someone that hired last week. How the hell are you to scale this? Wait three months to fix the fact that you’re talking about an event that already occurred days ago?

That’s an F, isn’t it? I’m going throw 10,000 people that were terrible at customer success into solving massive enterprise problems? Good luck with that one.

I I disagree. I think it will work in a limited but interesting sense. I mean, stepping back, I don’t buy for the record that 95% MITs. There was a lot of kind You don’t buy the

story I literally just told this public company leader where we were told it take would take three

buy that I’m the I’m 95%. I’m saying, I don’t think 95% of these things fail, but I do buy your story, Jason, which is even a smart company like you, and you’re way more technically adept than 90% of corporate America needs assistance to make this shit work. And it’s obviously very bad that they couldn’t answer that in three weeks, but the solution is not don’t get that support. The solution is someone has to build a business whereby they have shock horror, two people capable of answering your questions.

And the big zoom out question, because I actually didn’t see this until I thought about it, but I’m now clear on it, is who’s to meet that need? If corporate America is going adopt all this stuff and they’re who they are, they’re an oil and gas company, they’re a banking company. And then on the other side of the table, you have Entropic and OpenAI who are product companies to their core. You’re going to need something in the middle who are services companies to help them adopt.

And what’s interesting that’s happening to Microsoft and oh my God, every technology company either goes bust or lives long enough to become next generation’s IBM. IBM was the enabler to the PC and to some extent the cloud helping corporate America. When you don’t have an amazing product yourself, but you do have large enterprise trusted relations, what you do is you sell to those relations the ability to adopt new technology from other people. And to some extent, that’s what IBM’s been doing for the last 30 years.

IBM Global Services has been all about, you know, we don’t build e commerce. we don’t build any of these cool things, but we’ll help you adopt.

Yeah. And, and we’ll launch your product in 2030, but that doesn’t work today.

Jason, to be clear, I’m not saying IBM is amazing. and I’m not saying Microsoft would be amazing at this. I’m saying that, and this is a harsh comment from Microsoft wrapped in a positive one. They used to be the company with the new technology and other people built consulting services to help adopt Microsoft 30 years ago. Now OpenAI and Anthropic are the companies with the new incredible product. And Microsoft is the more mature company with the enterprise relationships who is going to build a large services businesses just like HP did, just like IBM did.

If you went back and read those press releases from 20 years ago, HP, your trusted partner in global services, IBM, same thing. It would read exactly like this. And the summary is, Mr. Corporate America, you need to adopt this new technology. Those dudes in Silicon Valley are pretty scary. You’ve never met them before, they talk about crazy shit like the end of the world. We have been selling stuff to you for 20 years. You trust us. We trust you. We’re going to make this work. And to your point, Jason, you’re right.

They might make it work great, but it will be better than the enterprise trying to do it on its own. So summary, I think Microsoft will build a huge services business here if they want to, which also speaks to it won’t be nearly as profitable as selling operating systems.

I actually think they’re both right, stepping back from it. think I because literally we work with the top one or two or three FDEs at so many vendors. And I can tell you the depth, even at the hot some of the best companies, the depth is not there. It does not go. And these are not old companies. There is no depth to the FDE chart. So I know that these, this is going to fail. But Rory is also right. It is better than doing it yourself.

And so just like a lot of things, how this plays out when it doesn’t really work because the FDS have no idea how to actually develop this business process change rather than run the same goddamn Salesforce deployment playbook. It’s going to lead to a lot of tears, but it doesn’t mean it’s still not better than trying yourself, which is often hopeless. Right? But I am right that the depth today just doesn’t exist. So a lot of board members and folks not close are going to say, let’s go do this.

A lot of VCs are trying to invest in AI enabling old businesses, right? And I believe if you could attract the talent, this would be great. I just don’t, there’s not a couple thousand people that want these jobs that are off the charts smart. They just, you’re lucky. We’re in some ways we’re back to the early days of B2B software where you’d have a couple folks that kind of understood how it all works and no one else could solve the problems on your tool. We’re back, that We’re way with a lot of these agentic products, I think.

Which what it means, by the way, is for the model companies, the rate of adoption of their technology is to some extent a little bit outside their control, which is why they are doing these services business. The biggest problem when I’m picking Exxon or Bank of America rolling out Gen AI is not their ability to buy from Anthropic, it’s the ability to do change management and application building in the enterprise. That’s going to be solved by large trusted partners who deliver the services and the expertise. it’s going to, for the record, I think the interesting point on this circling back to demand is if Jason is right and the quality isn’t there, that means the adoption cycle will be longer.

And the biggest single question on all of this is what’s the rate of the fusion of this technology? For the last three years, it’s been way faster than the diffusion of any other technology in history. The rate at which OpenAI and Anthropic got to respectively, 4 in GAAP revenue never before seen. If the next 10x takes three times longer because corporate America can’t adopt, that’s going to have consequences. And I think it’s the big question. How quickly can that spend from Anthropic go from 4.5 to billion to billion?

I don’t know how much it’ll impact the top line, but I definitely think you’re right in my It’s just this, this type of rollout is going to be slower than folks hope, right? There’s just not enough talent to do it. Whether that really stops Anthropic in the aggregate is a different, it’s a different question.

Nothing stops, slows down. It’s not a stop. It’s a slowdown. You’re Jason. It’s a slowdown. It’s a question of how fast.

I’ll tell you what, just as an aside, one thing I learned that was really interesting, it’s at our SaaStr AI annual this year, had a CPO panel. We had the CPO of Harvey there who came from Rippling. You guys might know this, but I I learned something, Right? Every deployment they do at Harvey has an FD and a lawyer. Every single deployment has a lawyer. Right?

And so to the extent Harvey can bring in, and I’m sure they do, I want to go deeper on this. to the extent they can bring in consulting firms and Microsoft to deploy them and maintain that, That’ll work if they’re like a three way team, but it just it’s just interesting if you have a lawyer and a very experienced technical resource deploying Harvey, which has a high price point, right? You can You can afford it. That might be what you need to have a successful deployment there.

Rolling this out to generic B tier or C tier people today may not just be successful, but that clearly works. It’s captain obvious, but I don’t think most of the companies we work with deploy a deep subject matter expert and an FDE at the same time together as a team.

It’s a good point. it makes sense because if you think about it, when all you’re buying from the vendor is a database, all you need is a database expert. But when you’re buying from the vendor, intelligent answers about your own business. And if you I’m going back to, if you’re running Exxon, you better be damn sure that those answers are grounded in oil and gas facts. And right. Actually, it’s interesting. Probably everyone will be some combo of tech expert and domain expert. And that’s why these services companies will be tricky to build to your point.

Yeah. They go in, they learn about how your entire law firm’s business process works and they map it against Harvey. Right? That’d be great if these services companies can do it. I just, I’m skeppy, but maybe. You’re naturally skeppy.

You know the gossip. I need to know what really happened. I mean, on its surface, it’s just crazy to leave your own firm, right? Like this. It’s one thing if you’re managed out, right? Or something like that. That can’t be the case here, right? I mean, this is the guy from that 70s show. I mean, we need him in fund, right? Maybe he was managed out. I find that unbelievable, right? Unbelievable, right? To leave it behind like this, it’s interesting, right? It’s like in a way, it kind of reminded me of Jack Altman raising a massive amount for a solo GP fund and joining Benchmark.

Like, these are counter, these are things that make sense today, but just when when we almost even when we started this podcast, they wouldn’t even make sense. Like, Jack, why and I and I love Jack, but why would you raise a half billion dollars and have LPs dying to fund you and go join Benchmark, Right? Because it makes sense in 2026.

Yeah. Billion dollars. They’re in some good names, right? I’m being facetious.

No, No, I mean, yes, they’re in some excellent names And, you know, frankly, we’ve co invested with them in some deals. They’ve been wonderful to deal with. I actually think it’s simpler than this. I don’t think there’s a And I could be wrong, and I’m usually a cynic in venture, but I actually don’t think there’s a deep dark story here of bad, of, you know, I don’t think any of that applies. I think this guy is so successful. Like, why do venture firms hang together and paper over the story?

Because, you know, the asset is the firm and the name. And even if you hate each other, you want to manage the process well so you can keep the thing going because the firm has a brand and a reference. therefore, you know, I know many situations where effectively partners look at you the other eye and say, I’m mad at you, you’re mad at me, but we’re to hold this thing together. None of that applies here. He’s Ashton Kutcher. He doesn’t need I mean, I I knew who Ashton Kutcher before I knew Sound Ventures.

If he wants to do something else, it’s just cleaner to say, now I’m Ashton Kutcher doing this. I’m doing I think it’s very much seed, pre seed, deep tech. It’s a new thing. I mean, I think very few people are in the position whereby the name is such that don’t have to worry about the firm brand. They just say, I’m a famous person who’s for the record, I’m sure most people when you started investing would have had a little sneer and he’s killed it. I’ve been, I’m a famous person who’s now been a brilliant investor and now a famous person doing deep tech seed.

So I actually get the impression from the vibe from the folks I’ve talked to at ateneer near the firm that there’s much less of this angst than you think, just two people wanting to do different things. Because look, a lot of the OpenAI and Anthropic’s brilliant investments were late stage, obviously multibillion billion dollar pre monies which is very different than tech. So I think the beauty about being a famous rich person in America is you can pretty much do whatever you want. if you’re TV famous and movie famous, you don’t have to worry about the firm’s brand name.

There are very few investors where I know the name of the investor and it took me months later before I figured out the name of the firm. This is one of the few investors on the planet where it’s the investor name. I mean, to this day, if you said to a bunch of people who’s on your cap table and Don was an investor, they’d probably say Ashton Kutcher is on my cap table. So the name doesn’t matter.

Yeah, but there’s only like six brands in venture anyway. Let’s not exaggerate how many brands there are.

And it’s not one. And Ashton Kutcher is more famous than all of us. move on. I’m willing to bet there are more. If you check Google trends, he gets more searches than Sequoia without even blinking because 330,000,000 people have some sense of who he is and maybe million know Sequoia.

I’m with you. Listen, we can move on. I just even for me and listen, listen, I’m a solo GP who would not deal with any of this crap today. I would if I had a CFO that was working, if I had investor relations working, if I could stand my partner, if I liked my partners, if I liked coming to work, I would stick even if I had to get get some of them out, I would stick with my entity if I liked all the stuff around it.

It’s just not that you can’t rebuild everything, right? It’s not that there’s no I don’t think there’s any equity in the brand. But if the engine is working, I’d rather just stay. I’d rather just stay.

Well, look, I think you hit a lot of good stuff. The The one that maybe we’ve discussed before, but I still think is a a topic that resonates, right, is the 11 Lab. I added this one, the 11 Lab secondary at billion, right? I don’t think like it’s a high valuation. Maybe that’s interesting, but I think the growth in today’s world, it’s consistent with other rounds, I don’t think the price is actually that interesting. I do think, even though it’s not a new topic, one I said is interesting.

It’s like, as an employee today, why would you join something that you don’t believe will have secondary options? I really think this is a big issue. Like one issue is why would I join you rather than Anthropic, right? Where I can make so much money or AI. But there’s plenty of reasons to not join Anthropic and OpenAI. We could talk about that, right? They’re pretty big companies. Your role is going to be very narrow, right? It may not be the job you want. Eleven Labs probably is more agile than Anthropic or AI. right?

Your job is probably a little bit more interesting some for some folks. But Jesus, if I was a hypertalented employee, I would not want go summer without liquidity. It It just doesn’t seem worth it today. It’s just question. Do you have to create this as founders? What do you do if you’re close to this level? Because the liquidity is thin. There’s always so many 11 labs that can pull off a tender offer at billion, right? They’re there. And then But if you’re not quite at that level, they go away.

Yeah, that’s the minimum. Like, I’m not saying there’s some line where you can pull it off, but maybe, and I’m not saying this literally with Clay, but sometimes with something like Clay, even next year, you might not be able to pull it off, right? What if it’s a little bit soft, right? There’s only a handful of companies that can always pull it off like clockwork, There’s only so many data bricks and AIs. But that’s why would I join anything sub Clay? Because even if the nominal valuation’s three instead of five or two, if there’s no regular liquidity program, why- why would I join it?

Why would I join the startup? Life’s too short, man.

No, I disagree because it’s it’s incorrect framing, Jason. Because the point is, if you join something that’s already doing tender offers, then you’ll get an equity grant reflective of the fact that we’re already doing tender offers. So it’ll be slower. If you join something that never does a tender offer ever, then you then you lost. The whole trick for employees, just like it is for VCs is to join something that isn’t doing a tender offer today, get a healthy grant and join a company that within a year or two, when you vested 60% of your thing starts doing tender offers.

So I’m just, it’s a slight nuance. You said don’t join anything that isn’t doing a tender offer. but but I just

misspoke. I meant to make the exact point you’re making. Why would you join anything that you don’t have high certainty? Is not just they’re gonna be unicorn because it’s not good enough, that they’re going to have tender offers, right, in the next How 24

I mean, two years is hard, but I think in the end, look, it doesn’t actually change things all that much. It’s the same as whenever you join a startup. You to join startups that have the potential for big upside. 20 years ago, it would go public. Now that window takes 12 years in some cases. So you got to have something else and tender offers the proxy for public. Anyone who joins a startup does it for two reasons. And I think you have to start with mission.

Second one definitely is chance of a payday. I tell everyone, and it’s funny, I say this to them, I tell everyone that I operate on the operational side, hey, you’re a single shot VC. You gotta pick only one deal and get it right. And I always say to them, look, when you come to choose a couple companies, if you want any random VC input, feel free to ring me and maybe I can give you a perspective. Very few people do.

It’s just funny that way, I think actually one of the things I often look at is how operators make decisions and there’s a lot of things that get fed into it and maybe they’re perfectly good other reasons you like the people you’re working with, the market, it has a mission. But from a pure stock picking perspective, Jason is right. The mission, the job at hand is to pick a company that within one to three years will be a unicorn, be tender worthy and you make out like a bandit.

It’s a hard thing to do. We get 20 shots and I mean, I feel guilty almost. We get 20 shots and goal and they get one.

Well, if you’re leaving every year, you might get 20 depending on That’s true. I’m not quite sure. It’s it’s just they’re sequential employees are sequential venture capitalists. Right? They’re just sequential rather than parallel.

Well, now that there now that there aren’t even vesting schedules at OpenAI and Anthropic, those issues have been solved. Right? A lot of startups don’t have vesting schedules for top employees. right? It doesn’t mean you vest into all your stock. Right? Sorry, they don’t have cliffs. The have venture You don’t have a cliff. Right? That problem has been solved by eliminating cliffs.

Yeah, they need that profound those profound insights on, Sora they

Have you have you looked at Have you guys looked at open source? Have you thought about managing your token spend a little bit better?

I’ve long since internalized and tell my CEO, I’m actually not here to give you insights. I’m simply here that if we’re driving the thing off the clarify scream stop. That’s probably the value add. Other than that, you guys are to figure it out. That’s the way it works.