20VC: OpenAI Cuts Valuation to $1.25TRN | Public Market Meltdown: GOOG Loses $500BN in 12 Hours | DoorDash Buys Instacart for $17BN | Kalshi Raises $1BN and Cognition Eyes $80BN Valuation

Harry Stebbings: Agents are an existential risk to DoorDash because their number three competitor is nobody. All these app platforms have a risk of slight disruption from agents. Kalshi is a money deal. If you want revenue velocity right now, nothing gives you revenue velocity like inference. Physical intelligence, a company with relatively little revenue, is worth 20 billion. Dropbox, a company with billions of revenue, ain't worth a lot. It just shows revenue multiples don't get you anywhere. This is 20VC with me, Harry Stebbings. It's the best show of the week. It's Rory O'Driscoll. It's Jason Lemkin coming together to discuss the biggest news in tech.

Harry Stebbings: Today, we have OpenAI's big fundraise: $1.25 trillion price, down from $1.4 trillion. Apparently, only $11 billion committed. Sad face. Then we have the AI trade hitting a wall. Alphabet, $500 billion off the market cap overnight. Intel falling 29%. Then we have DoorDash buying Instacart for $17 billion. Base10's new round. We have Physical Intelligence's new round. We have Serval's new round. God, the show just keeps on coming in terms of these venture financings. This and so much more in the show today.

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Harry Stebbings: Boys, we are back. Luckily, there has been a huge amount happening in the last seven days. So let's start with OpenAI. Its valuation got cut from $1.4 trillion to $1.25 trillion, and the round reduced from $30 billion to $20 billion, with only about $11 billion committed. As a result, everyone is going, "Oh no, this is further examples of the AI wave cracking." How do we think about that?

Rory O'Driscoll: I would dispense with the whole "AI wave cracking" narrative. I think people are trying to extrapolate their desires, wishes, prejudices, and biases onto the story. It's as simple as this: the other company is bigger, growing faster, profitable, and about to go public so you can buy it liquid at 1.5 to 2 trillion. What would you pay for the smaller company, growing less quickly, still losing money, that's illiquid? Less than 1.5 trillion. How much less? Well, that's what they're figuring out. So it's utterly not surprising. It is as simple as that. No projection about AI, positively or negatively. It's just two securities that are going to be sold in the next two months. Which one do you want to buy?

Harry Stebbings: But Jason told me last week that it was the most underappreciated.

Jason Lemkin: I think it is. It just may need to drop a little more.

Rory O'Driscoll: Well, don't forget, listen, there are going to be bumps, right? Broadly, what we call AI stocks fell 5 trillion last week. Now, maybe this AI round was the week or two before that. There's obviously a temporal gap, but when we're seeing this level of volatility... And listen, I'm surprised that folks didn't talk more about it. I mean, Anthropic had a down quarter from net new revenue. It was down in this last quarter in terms of net new bookings over Q2. There should be some nervousness. Maybe it will fill up at a trillion. Maybe I'm glad we didn't put in our bid until the end, Harry. The second tranche will be lower than the first. It makes sense there should be a little bit of wobbling at the moment. The stock market's down. We could argue, maybe Rory will challenge me, that Anthropic's last quarter wasn't quite as crazy as some folks thought. There should be wobbliness, and maybe it doesn't matter. It matters where it will be in 12 to 18 months, but it makes sense. There's wobbliness.

Jason Lemkin: There's wobbliness in the debt markets. CoreWeave debt is paying 15%. That's wobbliness. There's Broadcom having—I know Rory took me to task on this last week—but Broadcom having to guarantee Anthropic's debt is a little wobbly. It's just wobbly. And IPOs are always thin and wobbly. No matter how many times we say they get oversubscribed 20x, so many of them are just a little wobbly going into it.

Rory O'Driscoll: Yeah, again, I didn't take you to task. I think all those things are true. The way I think of it, there's a lot of pushing and shoving. There's a lot of price discovery, risk discovery going on on the supply side of the AI trade. What price do you need to be paid to lend money to CoreWeave? What price do you need to pay to buy OpenAI in the private markets when you get into the public markets? All that stuff is going on. When you go from assumed euphoria, regardless, to tempered euphoria, there's this kind of price discovery process on the way. So I think those things are all true. As I say, my point is merely that if the other side of the equation, the demand side, holds up, all these things will be forgotten in six months. And if there's a problem on the demand side, on the growth side, then all these things will be straws in the wind of a very significant change. That's my point.

Harry Stebbings: So when you zoom out to what matters, if the demand for AI is anything like some of the bulls would say, then let's talk about the CoreWeave bonds because everyone's like, "Oh my God, the bonds are going to go." If the demand for AI is as strong as people think, then everyone's going to need every damn computer, GPU, and data center they want. And those bonds will be money good because someone will buy the damn company. There's just no risk of that. If the demand is not there, then the first person who's going to suffer when the demand is not there is not going to be Google or Amazon, who have a big-ass balance sheet. It's going to be the guys like CoreWeave. And that's where the problem will come. And that's why there's some risk in it. So that's all that's going on.

Harry Stebbings: You mentioned price discovery. It was a tough week for Alphabet or Google, falling about 12%, the most significant drop in a decade. Google Cloud doubled to an insane number. It doubled to like 130 billion, growing 103%. But search did slow to 12%. Free cash flow was negative. Unusual when looking at Google. Is this just another element of price discovery?

Jason Lemkin: Again, on the search side, it's been true for two or three years that there's probably going to be some element of cannibalization of search. And it still grew pretty nicely. I think it grew 12% or so on search. But I think it was a combination of search angst and general angst, right? And CapEx angst. So nothing more than that. But it's been so funny to watch the last two or three years. We've gone from "Google is dumb as rocks and Satya is a genius" to "Oh my God, Google is the most amazing company ever. Poor dumb Satya. He missed the boat." And now this is a switch back to, "Oh, maybe the things that we'll worry about Google are still true," which is search cannibalization.

Rory O'Driscoll: Exactly. But to be fair, to your point, the growth is there. These guys are saying they can sell compute as fast as they can make it. And that's the number one thing. And that's where the growth is coming from. I just think we're in it.

Jason Lemkin: Listen, I think we are understandably just in a nervous period.

Rory O'Driscoll: Yeah.

Jason Lemkin: I mean, it's at a $120 billion run rate growing to 100%, right? That's about as good as it gets for the folks in the cloud. The cloud group should feel pretty proud of themselves. I just think when any metric comes up short... I mean, Shopify just fell 15% as we're discussing this, right? Because they came up a smidge short, even though they raised guidance for the next quarter. Everyone's just nervous AF. They're just nervous AF. And I think it's appropriate. I actually think the Anthropic IPO is going to suffer for it. I think there's evidence of substantial pricing pressure. There's evidence that, as dominant as they are, it might not be quite as dominant as it seems. And I just think it's OK. There are going to be these squiggles going here as most things still hopefully go up and to the right until we can distribute out to our LPs.

Harry Stebbings: What do you think Anthropic is going to suffer for? You mean that the consumer excitement won't be there? You think that they won't have the pop that they could have? What does that mean?

Jason Lemkin: I think folks are just going to be nervous about a deceleration in quarter-over-quarter growth. And I think they're going to be nervous over pricing pressure. Look, it's hard to process everything out of the S1A, the quarterly amendment. But it sure appears that OpenAI is basically running around selling somewhat equivalent products for 30% off. We can discuss how much CISOs want China-based open weight models, but they're putting pricing pressure. Jev's putting pricing pressure, and the latest models are effectively cheaper. You just have to have so much momentum to overcome a certain amount of pricing pressure and deflation. I just think the numbers suggest some nervousness in it, right? That quarter-over-quarter growth is slowing. And what does that mean? And how much nervousness does it create?

Rory O'Driscoll: And it's worth pointing out the numbers in very precise terms. Because the funny thing is, even after we point them out, people can still disagree about what it means. But at least let's get the numbers right. Roughly, in Q1, and I'm using GAAP numbers here, not run rate, because GAAP numbers are audited and the CFO will go to prison if they're wrong, so I always assume they're correct: roughly $5 billion in Q1, roughly $11 billion in Q2, roughly $17 billion in Q3. Those are the numbers, objective fact. What it means from Q1 to Q2, you can look at it as an absolute number. They went up $6 billion, and they went up probably a little under that, about $5 billion from Q2 to Q3. So on an absolute number basis, that's one perspective. You can also look at it as a percentage. They were at $5 or $6 billion in Q1, they went to $11. They doubled. So their Q1Q growth rate was 100%, which is an astronomical year-on-year growth rate. Then they added exactly the same number in Q3, but by definition, because they're starting at $11 billion, now you're adding the same absolute number of ARR, but on double the revenue size. So the growth rate naturally, the Q1Q growth rate has, quote unquote, "plummeted" to a roughly 50% Q1Q growth rate, because you started at $11 billion and you add roughly $6 billion. It's roughly growing 50% Q1Q, which is still 5x year-on-year if you compound it.

Rory O'Driscoll: So if you buy into percentage-based growth, you could say, "Hey, they grew 100% in Q1 Q1Q. They grew 50% Q2 to Q3." If they stick at 50%, that's still a 5x year-on-year growth rate. That's the positive spin. The negative spin is, "Oh, they were growing at 100%, and only a quarter later, they're growing at 50%." Those are equally true statements of the same facts. And as Jason said, another way to think of it is just at the margin, they added a little high fives, early sixes, I can't remember which Q1 to Q2, and the absolute number that they added Q2 to Q3 was slightly less than that on a GAAP basis. So the most negative interpretation, which I'm not saying I agree with, by the way, to be clear, is that you're adding roughly $20 billion a quarter of revenue, in which case you're slowing out pretty quickly. And as I said, you can throw out those numbers. You can squint one way and say, "They're still going at 50% Q1Q, which is 5x year-on-year. That's freaking amazing." You can squint another way and say, "Oh my God, it's decelerating from 100% Q1Q to 50% Q1Q. Does it go to 25 next quarter?" And all the money is in that bet. That's the only discussion.

Jason Lemkin: Listen, Anthropic obviously isn't a startup at this point, right? It's not even a scale-up. But I, as a startup, saw someone that did $6 million last quarter and only did $5.4 million this quarter, I would not invest.

Rory O'Driscoll: But hang on, let's be clear. I understand. I'm just going to be very clear. It's not that they did $6 million and then less. They added new ARR. Their bookings maybe decelerated. Yes, the rate of bookings growth decelerated. The absolute number of bookings went up. I mean, they sold more shit in Q3 than Q2 by about $5 billion.

Harry Stebbings: But what's actually interesting, though, is given the bookings decelerated, one thing is like, "Oh, reaching TAM limits in enterprise, they're 0.1% of Fortune 500 spend." And so actually there is so much more budget for them to consume and the booking still decelerated.

Jason Lemkin: Yeah, that's why I think the only... Listen, I mean, there's not enough data in here for me, or maybe I'm not smart enough to parse it. That's why to me, the answer is simply pricing pressure. It's that simple. The demand is there. The market—you should look at OpenRouter and others—the demand does not appear to have declined. I don't see any metrics that say penetration of the Fortune 500 has reached 100%. But you've just got a lot of pricing pressure everywhere. So whether it's a combination of folks buying from other vendors because it's cheaper or implicit discounts that they've added in Haiku 5.5 and others, maybe we've reached the point where Anthropic's ability to command a price premium has hit a local maximum. That's one potential thesis.

Rory O'Driscoll: It is open. I mean, I'm sure if we saw OpenAI's numbers, they'd look much worse if they're literally offering a 30% discount on Astra with essentially what appears to be a higher cost basis. And they're offering a 30% discount. So lucky they're going public second, right? But it appears to be working. It appears to be working. 30% off is a big deal. It approaches the 40% that we target for open weight models. And this is my thesis: pricing pressure hit them in Q3. It's just... I just think that's the only thing I can point to because everything else is going pretty darn up and to the right.

Rory O'Driscoll: Probably true. You're right. I mean, it's got to be something like that, Jason. It is just worth stepping back and reminding ourselves, again, on a GAAP basis: $4.5 billion in GAAP revenue last year, full year, exiting a run rate of $9 billion, and they're probably going to do $56 billion in GAAP revenue this year. So year on year, their growth rate is 12x, right? That's just an objective fact at this point. But then the interesting thing, to your point, is you look at the same kind of growth rates and you come up with roughly $120 billion of GAAP revenue next year. So they're probably going to go from a 12x growth rate to a 2x growth rate in a year, right? So to your point, a pretty sustained slowdown to still magnificent numbers. It really is glass half full, glass half empty. You squint one way and you say, "Oh my God, this is a company doing $56 billion in revenues that can still roughly double next year. That's freaking amazing." And you squint the other way and you go, "Oh my God, it went from 12x growth to 2x growth. Is it going to go to 50% growth or 10% growth in the following year?"

Jason Lemkin: Do you remember when we had Stewart Butterfield and Slack, and zero to $10 million in 18 months was like the gold standard? The gold standard. It's just a little bit interesting. I know it's just an anecdote and people will make fun of me, but I'm trying to launch this app, Saster Connect. Hopefully it goes out in the next couple of weeks. But I'm working on it for a while, this AI matching recruiting app. And when I switched it myself to Haiku 5.5 and Jev, total costs went down about 70%, 72%. Now there are some costs that are going to keep going up. We're all going to run five agents a day, 10 agents a day. We're going to run them on multiple platforms. I just upgraded to MusePaid yesterday, right? So there are trends going the other way, right? As we see in the Anthropic report. But again, 70% for a lot of mature applications can see that kind of deflation from improved quality of tokens and pricing pressure. That's a lot. Even though everyone is going to be coding 72 hours a day with 20 agents, a 72% decrease in effective price is material. And it's faster and 72% cheaper and better. So that hadn't happened yet, at least in my personal agentic experience since the beginning of 2015. On an as-used basis, nothing got cheaper. No matter what anybody said on evals and token price, nothing got cheaper until Haiku 5.5 plus Jev. Then I saw a 72% decline for a B2B workflow running constantly. For the same task.

Harry Stebbings: Yeah, for the same task and higher quality.

Jason Lemkin: So it's just one, and people can make fun of me, but it is interesting for me. It is interesting for that to actually happen in the real world for the first time.

Rory O'Driscoll: Agreed. It just makes it hard to predict for me. It just makes it hard to predict how it's all going to play out. I mean, 12 months ago, none of these models barely worked. Today, they're epic. In Black October, they've become weapons to destroy Binance and everybody else. It's hard to know in 12 months how these submetrics are going to play out.

Jason Lemkin: I think it's almost unpredictable.

Rory O'Driscoll: But I think that exact statement, Jason, is why we have the unpredictability or the binary nature in venture markets. It's why we have the volatility in public markets, which I think is just a lack of certainty around what the five-year looks like. I think the whole world does not know what five years out looks like in a way that we generally have for the last 30, 40 years.

Harry Stebbings: I'll tell you, not to share too many other personal stories, but just comparing the show. This morning, I finally churned off Canva after 12 years. Took 12 years. Don't need it. And I just think at the start of this year, Canva was still accelerating. There were some rough reports this week about its current growth, right? They kind of varied. I don't know what's true. One of them said growth was zero. Others said they're preparing layoffs. Who knows what it was? It at least seems to have decelerated 20%. It's just that predictability, right? You just don't need it. The agents don't need it. So it's hard to predict one year out, let alone five. So Jason, what happens to Canva? Does it go out?

Jason Lemkin: I don't want to be a Debbie Downer, right? The Debbie Downer case is obvious. They missed their window. But then what? They missed their window and they're just like a private company that grows slow. Is that it?

Harry Stebbings: I don't know. I mean, it seems to be working for Automattic outside of a few CEO turnovers and temper tantrums.

Jason Lemkin: I want to be clear. Was that humor?

Harry Stebbings: I don't think it's humor. What I mean is I think Automattic will stay private forever. I don't think it will. It has raised its billion, right, as 40% of the web. I don't think Automattic will become an agentic company. And I think Matt is fine with it. And I think it will stay private. I genuinely think it'll stay private forever. I don't know what the VCs do with it, right? But I don't think it'll ever go public. And I don't think it'll ever get acquired.

Rory O'Driscoll: The only comment I'll make is software companies in particular, they're not moving forward. It's like the shark. You're moving or you're going down, right? And over an extent, I mean, it might take an extended period of time. I remember these three mainframe companies in the 90s and early 2000s that were still living off their 20-year-old contracts, but the asset just becomes very terminal valued. So yes, you can stay private and kind of continually cut costs and live off your install base or do your own little bending spoons on your own. But it's just a tough place to be and it's hard to get value from it as an investor. It will be interesting to see what many of these companies decide to do. Can you clamber aboard, even if it's a little late, the AI train and get enough traction to maybe not be the winner, but grow 5, 10, 20 percent? I don't know. But I think if you don't do that, if you decide to just not play that game, I think over the medium term you're just heading to quiet obsolescence.

Harry Stebbings: I'm so picking a fight here because Cliff always matches me. Cliff loves the show and he always matches me. You guys are harsh on me and I'm like, "Rory and Jason, I never say anything."

Rory O'Driscoll: I didn't say that harsh.

Jason Lemkin: You know what the surprising thing from all of this is? Where I've gotten surprised. Going to this point, listen, obviously if you're doing what we're doing, you have 21 agents running and they're running agentically and they're using Higgs Field and Opus and other things, it makes sense you turn off Canva, right? Because your agents don't log into it, right? And it's really not useful for agents. The surprising thing from all of this is that the real world isn't buying much of this crap anymore, right? If I would have thought that a Canva, a Squarespace which just launched 20% layoffs, a Wix which is going to be bailed out by Base44, others... I would have thought like Shopify, they'd be doing fine because most of the world isn't running 21 agents and Higgs Field and Musifying and everything. We're not all tech nerds. But it isn't really playing out that way. And obviously some of this is because ChatGPT is so good for images, right? There are things that are so good. Grok is great for images. But I'm just surprised that a lot of these core businesses are being so severely impacted. Maybe it's the limit of my knowledge. And it worries me.

Rory O'Driscoll: Instinct is amazing for images. Instinct is great.

Jason Lemkin: But in your news, Elon just had to cut back GrokBot use because it's too expensive. He can't afford it. I think I underestimated what the costs of Instinct were because I didn't understand how persistent the VMs can be.

Rory O'Driscoll: Yeah, I think Instinct could cost as much as $20 a month per user to service Instinct the way it's supposed to work today.

Jason Lemkin: Way more. More than $20?

Rory O'Driscoll: Yeah.

Jason Lemkin: Then it's a moronic business model at $40 or $50 per user per month. I got it wrong because the Lovable Replit thing, right, which is a highly tuned on-off VM, is about $4 to $5 a month. They have large teams tuning that so that you can have a little bit of AI. But the VM spools up and down very carefully. They've gotten it down to $4 to $5 a month. So I assumed that Muse and friends were like... Muse could even be cheaper, I assumed, right? And Instinct might be twice that because they don't have the resources, but it's much higher. It's much higher to have these persistent agents running. You think it's more than $20 a month?

Harry Stebbings: I know you wanted to do it at $30, Harry, but how does this math pencil out at $30 or $40 a month per user? All these tokens we're going to buy?

Harry Stebbings: Well, I admit that seems relatively paradoxical to believe that it's more than $20 a month and to want to do it. It's a very good argument from you there. But I think for the power users, it's very significant. And I think for people that use it once or twice a day with limited automations, it's very, very cheap. And so I think your blended is probably much cheaper. But for me, I will be terrible as an economic profile for them. I mean, the worst.

Rory O'Driscoll: Look, I think the real truth is just like every digital product, it always takes off at a point in time when the economics don't quite work. I remember when Facebook was ramping early on and people were like, "Oh my God, the server bill." It was using SCADs as servers, and it was maybe going to have CapEx of $100 million, and people were like, "That's the end of the world." And the bet you take over and over again is digital goods get reduced in price 50%, 60% year on year. If people like the shit and they get hooked on it, over two or three years, the math gets better. And that's really what's going on here. YouTube, one of the best businesses in the world.

Jason Lemkin: Or maybe we're going to see these waves where for all but a handful of folks, the subsidies just can't last. We've also seen this in AI. The subsidies just can't last. It's too expensive, right? And I don't know whether Instinct is on that side or not, right? I mean, Cursor barely pulled it out. The Cursor V2 would have died, right? Reselling Anthropic tokens, right?

Rory O'Driscoll: If you're going to regard Cursor as a failure, then yeah, you can win the argument. I mean, I'd take the $60 billion and call it a win myself.

Jason Lemkin: I said the V2 version of Cursor would have died. Just selling Anthropic tokens at a loss perpetually. If that's all they were able to do, they would have died. Great teams figure it out. I get the venture thing. I wouldn't mind being Sarah Gwau and investing in Instinct at 50 or 100. Like, it wouldn't bother me. I wouldn't be too bent out of shape about the business model if I invested at 50 post. Don't get me wrong, OK? Wouldn't bother me a lick. But I just don't know which side. I mean, Amjad from Replit said yesterday, the era of these free subsidies for the agents are coming to an end. If Elon can't afford it, Muse can afford it for now. But what's the scale of the Muse subsidy, right? This is the second fastest growing product that they've ever had. If it's $10 or $15 a month for them, who knows? Maybe Amjad's right. Maybe it will come before they can raise that $6 billion at $30.

Rory O'Driscoll: Just for context here, if it's $10 a month from using a subsidy, call it $100 a year, right? For every million users, that's $100 million. This is a guy who's spending $70 billion on CapEx. He ain't going to blink because the compute bill goes up by a couple of billion dollars, right?

Jason Lemkin: Yes, Meta can afford it. Meta can afford it, right?

Harry Stebbings: I want to go back to your comment because it is interesting. Look, I tend to be the boring guy who says that the numbers have to work in the end. And yeah, gross margin, cursor, blah, blah, blah. But when things are moving so quickly, you can't wait until the economics work perfectly to launch a product. Because someone else armed with venture dollars will launch that product 12 months earlier when the economics don't quite work, grab all the mind share. And then they'll basically lean into the cost curve and hope that the improvement economics bails them out. And that's the bet you're taking.

Rory O'Driscoll: And to take the cursor example, I mean, they're doing some version of, "Hey, look, if you don't get a big acquisition for 60 billion, well, if what you said earlier, if I can get my own model and my costs come down, I make out like a bandit. If I'm still stopping on Tropic in 2027, I'll probably get fucked over." But it's still a better bet than waiting until 2027 and saying, "Oh, now that there are lots of open source alternatives for state-of-the-art coding models, I should launch a coding company," because it doesn't matter. It's done, right? The truth is the capital markets and the venture markets are just so aggressive that waiting until everything makes sense is not an option. So what that means is, by the reciprocal property, almost everything that's new and digital will look crazy for a while in terms of economics. And the only question is, can the economics get better before the money runs out?

Jason Lemkin: Look, no question. And we can move on. But it's interesting that Elon had to cap it.

Harry Stebbings: It is. They have resources. They had a pretty good IPO. He's going long. He has bet his company on AI and subsidizing this thing. He subsidizes everything round trip, right? And even with his personal fortune, he subsidizes everything. This is a man that would not want to cap Grok bot if he did not have to.

Rory O'Driscoll: He's also the man who's getting so many dollars per unit of compute from Anthropic that he's like, "Yeah, I could do some free Grok bots and these people could make cute cartoons and send pictures of sexy anime girls to each other. On the other hand, I could get like 50 bucks an hour from Anthropic. Screw it. I'll do that."

Jason Lemkin: Well, they're not doing that. They're building applications, they're building code. Grok is fairly technical, unlike the instinct it uses, right?

Harry Stebbings: Okay, boys, we had another pretty big transaction which went down that in a normal world would have dominated news. In today's news, it kind of lasts for a couple of hours, but DoorDash buys Instacart for $17 billion. Under half its 2021 private price. D1 still owns 9.7%. Sequoia owns 8.1%. Before we talk about agents, which was a disclosure. And the thing of note here, an inevitable ending to a clear second place provider to DoorDash.

Jason Lemkin: I mean, inevitable is a bit strong, but yes, they clearly tried to do it before. It clearly makes sense. There's also probably an element of do it now while you can, if you're DoorDash. All makes sense.

Rory O'Driscoll: Listen, some of this is not my strength, but the fact that the Postmates acquisition worked was a surprise for me, right? I assume you buy, when Uber Eats bought Postmate, I assume you get a little bit of a brand and a list and you basically shut the thing down and that I didn't really believe these deals would be accretive. Right. But they appear to be right. So if Instacart's got 20% of the market and DoorDash has 60 of the delivery market and you can get through antitrust, which you probably shouldn't, if you think about the numbers that I just said.

Jason Lemkin: Of course.

Rory O'Driscoll: And you can get to 80% market share. This is how you dominate networks. Right. You dominate every part of it by having 80% market share. And I'm surprised that you can combine these networks and they don't end one plus one doesn't end up equaling 1.1 a couple of years later. Like that's my experience. But it doesn't appear to be true. Does these deals, if well architected, appear to work? And so it should be accretive. It should make sense.

Jason Lemkin: And I think also like you noted it's half its 21 private price or whatever. Right. I think like the Braze deal at Salesforce, you may say, what's the similarity? A lot of times folks have been circling each other for years. Tony said they've been talking for years. Right. with this. So there are deals that don't make sense, even if they're cheaper. And then there are deals where like Salesforce brought Braze. Salesforce was losing to Braze in marketing for years. And that when it got super cheap, when it got to 3X AR, now they had to pay a big premium. They just buy the assets they want when they become cheap. And it may be that simple. And so if they're creative, buy them. This may be just simple things that the corp dev is supposed to do.

Harry Stebbings: One that I found fascinating was actually relating to a conversation we've had before. And it was agentic usage of these platforms and DoorDash saying that AI agents have sent only several hundred orders against three million deliveries a day. Were you shocked by how surprisingly low that was, or do you think it's symbolic of the fact that people will always want to choose food and have that discovery process?

Rory O'Driscoll: I think in a sense it was a dumb comment for what it's worth. Reminds me a little bit when Brian Chesky like a year and a half ago said there's no need for AI for rentals and housing, or when Parker Conrad, another generational CEO, said there's no need for AI and B2B 18 months ago. Yet today, only several hundred orders, but these platforms, like all these app platforms, have a risk of slight disruption from agents. They all have a risk of slight disruption. Which is why I think it's so self-serving. I would be pushing this. Whether you're Uber, and when I had a Mac, the president of Uber on, he very clearly was most worried about agentic usage of these platforms because it would disintermediate Uber. And you could get a free now, you could get a Lyft, you get price optimized, time optimized, and who gives a shit about the platform provider? You have it for Vinted, you have it for Uber, you have it for DoorDash. I think it's very specifically well done because it made headlines and news in a way that actually he wants. No, humans are here and we will continue to be here.

Jason Lemkin: Maybe the better way to say it is, let's assume they're telling the truth. That's the objective fact about what's going on now. And the million dollar question is, do you see that behavior happen more and more? And then how does DoorDash respond to it? You know, they're all doing versions of the same thing, which I mean, I could totally see for some of your standard food orders, just it's not that much easier for the record. I mean, telling your agent to order your dinner, it's just as easy as to just go click on the DoorDash app.

Rory O'Driscoll: Well, but there's a thing. DoorDash has two big competitors. It has Uber Eats, right? And it has the restaurant. The restaurants don't want to use DoorDash or Uber. So most restaurants have self-pickup. At least they have to-go pickup or they can avoid most of the fees, right? Or self-delivery. An agent can figure that out for you. Hey, Harry, did you know that Lemkin's Curry down the street, actually it will deliver for $2 and you don't need to go through DoorDash or whatever they have in London? I did not know. Thank you, Muse. Thank you, Instinct. I'll take that. That'll save me $14 on my order.

Jason Lemkin: What's the pub right behind your office that I really like, Harry?

Harry Stebbings: The Grazing Goat.

Jason Lemkin: Love that place. Five out of five, okay? Maybe they could just drop it off next time we do the pod for free. I don't have to pay 20% plus tip, plus this. You think I'm kidding. I think agents are an existential risk to DoorDash because their number three competitor is nobody.

Rory O'Driscoll: Can I put out a cultural difference between us? You guys pay 15 bucks a burger and it gets delivered at 50. And there's like federal charge, state charge, delivery charge, service charge. It's ridiculous. In London, it's kind of like 15 quid is 15 quid. It's fascinating to see the difference in like what you pay and what you get.

Harry Stebbings: Yes, and that's why these businesses are wildly profitable. They figured out exactly how to extract every dollar of rent from the person who wants to sit on their couch, press a button and get the meal an hour later. It works. It's been a brutal business since the old Grubhub days. It's just evolved with the internet and agents will evolve it again.

Jason Lemkin: It's been brutal. It's been brutal. The idea is take as much margin out of the customers or the restaurants as humanly possible. I'm with Bill Ackman. I think Uber's a banger of a buy right now though. I mean, it's so cheap.

Rory O'Driscoll: I broadly agree and I haven't spent a lot of time on this, but the two worries you have are way more disruption and agentic disruption. And what you're implicitly saying is border fine.

Jason Lemkin: Yeah. Agentic disruption is bizarre in taxi hailing. You're going to go to your WhatsApp and say, "I would like to get an..." I agree. I don't think that's... It's a worse user experience. "I would like to get an Uber. I am at this position on the map." Yeah. Agreed. And then the other issue is people love food. They love looking at it. They love pictures. They love scrolling. They love discovery. The only thing that makes sense for us is automation and scheduling. Every day, drop it off at Scales office in San Francisco. That's it.

Harry Stebbings: Okay, boys, we have two big rounds in Kalshi and Cohere. Kalshi, a billion at 40 billion, one of Jason's favorites, a low dilution round there with a two and a half percent dilution, but still raising a billion dollars and a 40 billion price a day after Utah charges founders of Kalshi. And then we have Cohere. I think it's the largest private raise for a Canadian company at this point, with actually the Canadian government, I believe, or Canada itself, investing up to 1.14 billion. Which one's more interesting?

Jason Lemkin: Kalshi is a money deal. Let's be really clear here. The thing is working. It's growing like a weed. Deep in their heart, everyone knows that we started off thinking we were doing prediction markets, which had some social utility. And we've long since converted into sports gambling markets to feed people's addiction for gambling. So we're all over the doing good. We're all over the higher purpose. We're pushing through a whole bunch of local regulation, which is why Utah is suing them because sports betting is regulated on a state-by-state basis, and these guys are planning on a national basis. So there's nothing to see in this other than VCs will put a lot of money into shit that's working. That's the takeaway, right? And if it's at $40 billion, it's had momentum. It raised like three or four months ago at $22 billion. So this is one of those classic momentum plays, right?

Rory O'Driscoll: I mean, contrast, it's very different. I mean, it's almost not a momentum play. It's a, we need our sovereign AI play in Canada because you are nasty people and you've threatened to invade us multiple times. And we've got this product and it's one of the original four or five LLMs to be fair. I mean, back in 2023, you had Cohere, obviously OpenAI and Anthropic, and then all the other ones like the one that Microsoft bought, Adept, that Amazon bought all the others folded. So give Cohere a huge credit. They are one of the survivors of that first group of LLMs before Neolabs was even a thing. And now they didn release revenue numbers but you can see how you can make a sovereign AI story. It's almost the exact opposite. In the case of Kalshi, the government is saying, "I want to stop you now and put you in prison." In the case of Cohere, the government is saying, "I'm going to make this work no matter what, even if the economics don't work." So they're almost like the yin and yang of investments in terms of their relationship with the government.

Harry Stebbings: Does that work? Can the government just do that?

Jason Lemkin: Do what?

Harry Stebbings: Well, hey, we want to make you work and so we're going to inject you with 1.164 billion.

Rory O'Driscoll: Isn't that what our governments do all the time? They subsidize everything. Yeah, you can do it once, you can do it twice, but ultimately if enterprise adoption isn't there, it doesn't work.

Jason Lemkin: Sometimes it's worth just being in the game. So it's like putting a few chips into Anthropic in the D round. Sometimes it's worth just being in the game and sometimes it bounces your way.

Harry Stebbings: And you've always got the lick prep, Jason. The D round was 16 billion, so I'd take the D round.

Jason Lemkin: Yeah. In all seriousness, I don't know how like Canadian, like national governments work. When you talk to folks that run at the top companies with large corp dev portfolios, public companies, really, they just want it not to go down in the aggregate. They'd love the gains, right? But you only get so many credits as a public company for the gains from your portfolio. And the losses really suck, right? Because they swing your EPS in really weird ways. And you have to put asterisks and daggers next to it. So as long as they don't lose too much money on the investment, I don't know that they care.

Rory O'Driscoll: I mean, but I think there's two separate things. You're right. The motivation for anyone doing this isn't purely financial gain if you're the government, right?

Jason Lemkin: Agreed.

Rory O'Driscoll: But Harry asks a separate question is, can it work? And I think the answer there is, you know, you can keep it. Governments can make things happen for a fair while, but what they can't do is make the private sector use the product. So, you know, you see it with Mistral, too. To the extent that there's a willingness to spend Canadian government tax dollars on a Canadian government AI solution, or maybe if Canada goes on with its kind of affiliating with the EU, these guys in Mistral may be the you're not America LLM options. And there probably is some spend in that. But do you think it'll be a compelling business that will go public at 3x this round? Not as obvious to me at all.

Jason Lemkin: Well, in today's world, today's day and age, Cohere and not disclosing revenue is hardly a flex.

Rory O'Driscoll: No.

Jason Lemkin: I mean, it's a pretty bad sign. I love it. It's like ARR grew more than 165%. You're like, since inception?

Harry Stebbings: Yeah, no. You know, one thing I was thinking on the Kalshi thing before we leave. So Sequoia led the last round, right? At a billion. They put in a billion right after felony charges were against the founders, right? And I get that it's just a state. And then we have Binance, right? 6.6 billion taken by apparently North Korea in a matter of hours. I had to wonder between Sequoia and Binance, if the ball had bounced just a little differently, would FTX still be around today? And would it still be a winner? Same VC, same risks.

Rory O'Driscoll: FTX got, listen, you obviously can't take money from one sister company and put it in another. But I think Binance barely survived this $6.6 billion. They don't have a transparent balance sheet. We don't know how much money they had. What if it was $13 billion? Where would they have repaid it? I think they were one step away from an FTX type situation. Luckily, he got pardoned, CZ, right? But I just wondered if it made me think if since you have the same investor and the felony, we've just all changed the way we take risks because it's game on, right?

Jason Lemkin: It just made me think about Apparel Universe, where FTX was a shining portfolio company today. I mean, the fascinating thing is FTX's $500 million position from Anthropic would be worth $39 billion at the $1.5 trillion. So timing is important as a takeaway, kids.

Rory O'Driscoll: The most compelling fact about the Binance thing was that they could pony up $6 billion to replace the money that was taken. What a good business. I mean, assuming that you're not doing an FTX and swiping it from someone else. As I understand it, and I did not spend a lot of time on this one, Binance were able to make good the crypto loss, which implicitly means Binance makes enough money to be able to make good the crypto loss, which means it's an amazing freaking business.

Jason Lemkin: I think so. I just think, and again, I'm not a crypto guy, but when CZ said they could cover it, but it would be tough, suggested to me they didn't have $13 billion. And what I really thought was ridiculous is how many folks said that their balance sheet was all the crypto they hold as a trustee, as a custodian. And that's not true. That's why Sam's in jail and CZ is out, right?

Rory O'Driscoll: Agreed. I don't think they had 13 billion. I think they got out in Black October.

Jason Lemkin: Yeah, you can't take my crypto dollars and give them to Harry and say, "Sorry, your stuff was stolen."

Rory O'Driscoll: Agreed. Okay. Yeah, their balance sheet. I mean, just think how much still happened in Black October, right?

Harry Stebbings: And then we have this, the one that I think is craziest, I don't mean to get off track is this, I know it sounds minor, but it's not this Ardex thing that breached WorkOS and a bunch of others. This is just since we did the last one. This one is insane, this Ardex thing. I saw that Michael Grinick post about this 16 hours ago, but tell everyone what this is. Ardex, we should be scared about.

Rory O'Driscoll: Ardex is initially well-regarded. It's only like a couple months old, a Chinese open source pen test solution to penetrate test applications. We all need pen testing. We always needed it before. We certainly needed it in an agentic area where everyone from Binance to the rest of the world is being breached, right? We're all being breached. All the refrigerators in Europe are going down because they've been breached. Black October was much blacker than we made it look. And so some really smart developers just a couple months ago in China built an open source thing. Great. So it's free and you could hook it up to your DeepSeek and your other LLMs and it will just try to hack you. And this is what you're supposed to do. You're supposed to hack yourself, but it became very easy to turn it around and just attack other folks with agents. It became, it was flipped around and it's become one of the greatest threats. And a lot of folks are saying, "Well, you could always do this, but now you can do it with LLMs at scale." You can just tune it against anybody you want.

Jason Lemkin: So they originally built it as defensive and basically, yes, everyone said, "Oh my God, this is a pen testing tool."

Rory O'Driscoll: Yeah, it makes total sense. It's that, I mean, basically, yeah, it's like the guns don't kill people, bad people with guns kill people. You built a gun and you hope it was in good people's hands, and now it's in bad people's hands and they're killing people. People, it seemed to work great at first, right? Until you turned the gunner out.

Jason Lemkin: It's probably hard to overstate the cyber dynamics of the next 12 months. I mean, you're right. It's one of those stories you never cover on a daily basis, but you're right. At some point something really weird is going to happen. You're going to go, "Come on, guys, we should have seen that." You know, the entire US Fed wire goes down for a day and we're like, "We can't move money."

Rory O'Driscoll: Yeah. And we joked about the refrigerators in Europe, which for people that don't know, there was a hack, which basically meant someone could turn up the temperature on refrigerators, and they did to 50 degrees. Now, it was luckily rectified and the frozen peas were saved, which is of great relief to everyone in Europe. But you could see this being much more mission critical things like traffic lights or like heating facilities or you name it. So it is quite alarming.

Harry Stebbings: Ding, ding, ding, Mr. Lemkin. We had quite a few rounds and it's your turn to bring something to the IC this week.

Jason Lemkin: Goodness. Can I take a break for the rest of the year? We've been busy. We've deployed so much. We've gone back for three funds this year.

Harry Stebbings: No, no, no. We're Andreessen. We just raised a big ass fund. And so we've got plenty more for you to go through. Jason, we're a deployment machine. Which company are you going to take to IC this week? Serval? Cognition? Base 10?

Jason Lemkin: Well, listen, I mean, Harry, as you know, much is in many ways the Windsurf team lamented having to sell out to Google for just a few billion. The cursor team is going to lament selling to SpaceX for only 60 billion, right? Cognition at 80 billion. It seems market correct. Now, to get to a 10x with dilution, a trillion dollar valuation, I start to get nervous with the latest round from OpenAI and Anthropic. I do get worried that fundamentally it only owns so much of its own IP, but geez, I don't know if you saw the last Q3 of Anthropic, like the one thing that is working that never stops working is coding agents. Incognition has a bunch of the field open to it. They made a lot of their own luck. I don't know if the original version of Devin, when I brought it to committee, you know, a year and a half ago, I don't know that that product worked. They lucked out buying the Windsurf team. They lucked out buying IP. They lucked out from open weights, but this is something with the kind of momentum that I think we can't sit out. And we have a little bit of money left in the fund, a couple billion, and we need to deploy the next one. I say we close out the last fund with 2 billion in cognition. We're already up 5x on paper. We can't lose. So we might as well put the last 2 billion in cognition. And I say if we get a little recycling before the round closes, we toss it in too.

Rory O'Driscoll: Interesting. Just for the people listening, because it wasn't obvious, that was a much better question than you normally ask, Harry, because normally you say, "Here's a deal, Jason, tell me why you should take it to committee." And respectfully, I said, it's kind of stupid because all you're just saying is give me a soundbite, right? The reason this was a good question, much more interesting, was because you have three deals in front of us. And it's worth pointing out to the listeners what they were. Three really amazing companies. You were basically asking Jason to pick between Base 10 at 30 billion, up to X from June, an inference company, Cognition at $70 to $80 billion, up from $48 billion in September, and Serval at $3 billion, up from $1 billion in December. Three different companies, very different businesses. One's an inference provider, one's a coding agent, and one's a very hot next-generation AI app in the ITSM space, right? So three different businesses, all of whom have had around and are getting a second re-up within this 12-month period. So as I say, because it forces Jason to choose, that's a much more interesting question, if you know what I mean, than just tell me nice things about this company.

Harry Stebbings: For editors, can we please cut that segment? That's the first time that Rory's actually congratulated me on a frame.

Rory O'Driscoll: It's OK, because I think it happened by accident.

Harry Stebbings: I'm going to play that to myself later just to give myself more confidence. But actually, genuinely, it really was a super interesting question. So would you like to do an inference provider at $30 billion, a coding agent at $80 billion, or an IT AI app in ITSM at $3 billion? I mean, good question. No shit. Which would you pick?

Rory O'Driscoll: Serval. Are you kidding me?

Harry Stebbings: Okay. So you think your upside in Serval at $3 billion is better than your upside of Cognition at $70 billion.

Rory O'Driscoll: Oh, my God. The tide is changing. ServiceNow is an old god. Bill McDermott's amazing, but he's like Slootman. He's a sales-led seed. We're in a product-led generation. Jake and Tatiana at Serval are incredible. The product's amazing. The enterprise adoption is better than I've ever seen. And the upside, just pure multiple on cash. Now, there's an addendum and a star, which we can go back to. Multiple, way better here. The chance of getting a 10x here, I think very likely. The chance of getting a 10x for Base 10 at 30 billion, God, you've got to squint. The chance to get a 10x at Cognition, to Jason's point, gosh, we're nearly hitting a trillion there. So yeah, I think the multiple is clearly much more evident there. Now, the challenge though that we have with Serval that we don't have with Cognition or Base 10 is if we're an AUM play, just putting cash out the door, they only raised 150 million. And if I'm Andreessen, I want to put 500 million, a billion out the door. And so, doth but no parsnips, as we say in the UK, I need to do cognition because I need to move money. But for the multiple, it's the easiest decision you made.

Jason Lemkin: Interesting. You know what the question about Serval, I don't know. I really don't know it at all. The founders don't know it. It's just my question to the IC. Does it expand the TAM? Am I bounded for real, right? Not for hand-waving. Am I, in essence, bounded by a subset of ServiceNow's TAM today, right? Now, every founder will expand the markets and add concentric circles. But is this really expanding the TAM here? I generally don't know, but I personally am not excited about disrupting existing players if you don't expand the TAM, because I think we don't get anywhere at the end of the day.

Rory O'Driscoll: And I think the argument they'd make would be some version of ServiceNow just is a list of things that IT has to do. And, you know, Serval is actually a product that does those things for you. So you can command more value from it. And, you know, the way you'd validate that is looking at their ACV on a like-with-like basis. In other words, there's a mid-market company that might spend 200 grand on ServiceNow. Would that same company be willing to spend 300 or 400 grand on ServiceNow? And that's what you'd need to see to get TAM expansion. Because, yeah, I mean, we think, I know one of my colleagues had talked to him in the past, there's an amazing company, amazing team, and a great market. I mean, it's always worth remembering. Until recently, ServiceNow was, I think, the second largest market cap SaaS company. You had Salesforce and then ServiceNow. ITSM is a much bigger market than you think because it kind of becomes the general corporate to-do list for service functions like legal, accounting. All the back office folks were using ServiceNow to keep track of their tasks. So it's been a way bigger business than I would have guessed when we saw it in, what was it, 2010 or so, right? So yeah, replacement for that is a big opportunity. But I hear you, Jason. It's the, can you expand the TAM? And are you just dealing with a 10-year grind service now down deal where you do it forever? Whereas, Harry, to take the other side of the argument on cognition, I mean, the beauty of the coding agents is, especially with cognition, they're coming into large enterprises and basically saying, "We will help you effectively rewrite your entire code base, enable your team to be a genetic coding," and getting huge dollars for that. So in terms of money velocity on the table right now, cognition has just an ability to command many more dollars. I think Serval probably have the compounding effect of there's probably 10 or 15 years of grinding down ServiceNow to a bigger outcome. So I don't know. It's kind of velocity, but capped versus long-term great mega trends, but is it going to take a while?

Jason Lemkin: Look, it may well resolve tickets that ServiceNow can only track. It may be an epic play. I'm just trying to, I think, serval aside, 2027 will be a year where we find out a lot of vertical AI plays are nifty little startups, but didn't, in the end, expand TAM enough. They didn't expand TAM. They're fighting for a slice of service now, a slight of Salesforce, a slice of Atlassian, but they're not expanding the TAM. And I just, personally, I don't want to invest in any of them because I just view it as tiers in five years.

Rory O'Driscoll: I don't think so. I don't think that's the case itself. I think they are expanding the TAM. And I don't think, I'm sure they'd push back very vigorously on the vertical description. I mean, I think it's very cross-functional and cross-vertical.

Jason Lemkin: No, no, I'm just, it's an adjacent point I was trying to make, but I hear you. Sorry, I'm not arguing. I think in vertical, we're going to see the biggest tiers because a lot of folks are going to make investments, assuming that especially for like an SMB or an Aerovara, you can charge three to four times the size. And we're going to find out, you know what, you can charge one X the size. And now there's five or eight times the competitors in the market. And the leader isn't dead, right? The leader is there's still a lot. They still have a pulse. They may not be growing at the rate before. And so you're just slicing up the same old F and Tam 11 times. I just don't want to personally make those bets because it's exhausting, right? It's exhausting.

Harry Stebbings: And then it's been funny. We've, As I said, that's why it's such an interesting, it's really genuinely interesting question. I'm like literally thinking of it as an investor here rather than just blathering on. We've kind of gone between the 80 billion one of cognition and servile and kind of base 10 in the middle. I mean, if you want revenue velocity right now, nothing gives you revenue velocity like inference. But from your little face, Harry, are you implying the angst there is just competition? There's five or six great companies in that space. And that's a worry.

Rory O'Driscoll: I would 100% invest in base 10 too, by the way. But the whole point is there is no two. You got to pick.

Harry Stebbings: But no, I would not choose it compared to Serval or Cognition. I think Modal's product suite is unbelievably strong. Eric is incredible for that. And Lynn and the team at Fireworks, by far, I think, have the best inference product. And so I would choose Modal and Fireworks. And so it's super clear for me on Serval. OK, that was a fun question. Rory, did I change your mind?

Rory O'Driscoll: You made me think. No, a genuine comment is just like, this made me think, right? These are three very different, interesting dynamics. I mean, it makes you think about, you know, what's your bet?

Rory O'Driscoll: Is it very horizontal inference, but lots of competition, risk of commoditization? Is it the last surviving standalone coding agent that's cracked the enterprise, but at a very hefty price? Or is it an app that I think will be the... If there is a next generation ServiceNow, the probability of it being Serval is probably 70% plus. And those are very different bets. I'm actually literally thinking they're all, for the record, pretty interesting bets.

The one nagging comment, and I don't know if this is correct, is the good thing about serverless, you can say, this is your point, Harry, is that the old school company is worth, I can't remember, I used to know the number, 40 or 50. It's worth 110 billion. So you can say, there's a thing that exists today that's 30 times the value of this. Therefore, I can have that money. Whereas for Baseten and for Cognition, you have to say, there's no standalone coding agent worth 80 billion. So it's good news. It's a new market. Bad news is, what are you mentally taking over? You know what I mean?

And the same is true of inference. No, the bad news is that you're fourth in the market. You've got Codex, you've got Clawcode, you've got Cursor, and then you've got them. Jeez, don't get me wrong. I'm all for independence. I'm an investor in Factory as well, and I totally buy that. But that versus Serval versus ServiceNow. Bit of an easier one.

Harry Stebbings: Okay. So wild. Rory, you'll be surprised here that my girlfriend is still with me. I know. My mother is shocked too. But in the legal world, whoa, mega news. One of the big law firms, the prestigious OG brands, Weil, shut down very quickly and weirdly because of partner dispute, whatever. AI law firm Crosby, who've raised 85 million bucks from Sequoia and the like, bid to take over its assets. And its brand. Anything to say here? I thought that was fascinating.

Rory O'Driscoll: I mean, two separate stories there. The wild God Show of crashing, which is American law. It's not a tech story. It's an American law story. You lose a couple of key partners. These firms are, even though they don't have a lot of liabilities other than leases, it's just a bunch of connected rainmakers.

Harry Stebbings: That's a flimsy, no offense, Rory. That's a very flimsy way of looking at it. A couple of partners leave does not mean a 90-year prestigious law firm.

Rory O'Driscoll: Yeah, but if you take enough of the book of business with you, it leaves. It's a small number of rainmakers. It's worse than if you leave a VC firm. The VC firm dies, but over 20 years. If the top rainmakers leave, there's nothing to pay out at the end of the year. I've read all the accounts. It's four or five key lawyers, each of whom ran a key part of the business. And it just seems to have been a clash on a couple of them. I think the guy who ran all the PE practice, which is probably 20 to 30% of a company like this, left, takes his book of business. And yeah, it can go wrong pretty quickly. But it doesn't matter because that's not a tech business. That's just a wow. That's interesting.

And then I did admire Crosby for just, hey, if there's some attention to be paid here, why don't I put in a bid for the business? That was a bit of a "fuck you," but I was impressively chutzpah, I think is the relevant word there. That was chutzpah. I loved it. Ryan just like, yeah, we'll take it. If you don't want this 100 year old franchise, we'll take it here.

I don't mean to be too negative on the Crosby thing, but ultimately, if you're providing slightly higher value services, it's going to have the same issues. People want to keep all the partners, the rainmakers want to keep all the money. Now, Crosby probably has no rainmakers, right? And it's doing transactional stuff. But I don't know that this idea that lawyers will give up a bunch of the profits they could make for shares in a company that hopefully will IPO. I don't know how sustainable the business model is.

Harry Stebbings: For the record, I don't know if I fully buy the model, but I disagree with you in the sense that I actually think it's the same story. What Weil Gottschall says is there are some parts of law where the partner that you are dealing with as a customer is so important because you value his or her personal advice that when that partner leaves Weil and goes to someone else, you take your business with them. And that's like, I'm doing a complex PE deal. I need this guy and pay him five grand an hour, some absurd sum, but he's my guy and I trust him and I'm running KKR and that's the guy I want.

And then what Crosby is saying is there's a whole bunch of other law where you really don't care the name behind the thing because it's pretty standard and transactional. And that business can be done with Crosby Law. I actually think they're a very nice counterpoint. If I'm doing an NDA or a Series B stock purchase agreement, I don't need the five grand an hour guy. I don't need to know the name of the guy doing it. It's just do the usual stuff, check the usual thing.

Rory O'Driscoll: Yes, but even at the low end, incompetence hurts you. It damages you. Have you ever done a routine transaction where some idiot lawyer costs you a lot of money? I have. I've been damaged seven figures by incompetent junior lawyers.

Harry Stebbings: But I think, I'm sorry, I'm just going to push again because I'm grumpy. That's exactly the Crosby argument, which is it's less likely to have that kind of mistake if it's automated, if you've got AI, for the standard stuff.

Rory O'Driscoll: Okay, well, let me flip it around. Let's imagine I go to Crosby and I make $170,000 a year and I get 0.01% of the company for the IPO that I'm not even sure is going to happen. And then I can go to Weil and make $250,000. And if I'm actually good, every great partner now makes $10 million. And the entry level ticket at Weil was over $200,000 for an associate for a soul crushing horrific job, mind you. I get the Crosby. My only point is, and I'm not being critical, I haven't talked to them. I'm not convinced this is as stable as a lot of VCs might hope it would be. It's too human based.

Harry Stebbings: I agree. There are issues with the kind of human plus AI delivery model. And I have questions on that, but I'm just going to push back on your comment on why would I go to Crosby? That's easy. Because for every lawyer who wants to be a rainmaker and work 24/7 and make $10 million, there's also lots of lawyers who are like, I want to do 40 hours of good law. I don't want to be a rainmaker. I don't like that. I'm just a good lawyer. And I want to go home. Maybe I'm dealing with kids. Maybe I'm dealing with a parent. Maybe I just want to take it easy. There are lots of people for whom being a lawyer, a well-compensated, nice upper middle-class salary, working for someone like Crosby, doing 40 hours a week with control of your own time is a perfectly good product. So they'll be able to get lawyers, right?

Rory O'Driscoll: I just don't know if I can see a $10 billion outcome here. Different question. I'm sorry. I don't think I can take this to IC. It's a lot that has to happen for the corporate company, its corporate affiliate, to be worth $10 billion because it has to suck so many billions of years of profits that the lawyers could otherwise take home as partners.

Harry Stebbings: That I agree with. I think that there will be a coterie of law firms five years from now that are focused on the Crosby kind of work. Crosby will obviously be one of them. They'll do really well. We like the space. But I agree. The question is, if you look at the billings of Weil Gottschall, as an example of American law, if 70% of the dollars come from the high rainmaker, irreplaceable by AI stuff, and all you've got left is a 30%, and then you have to have the value of that to get the business, then you're right. Then you're left with the low margin parts of the business. So I do agree. That's the question: how big can it be? But whether you can build a business there, absolutely. I think you can.

Rory O'Driscoll: Yeah, you can build a small business for sure. It's just for our IC, $10 billion is the lowest possible exit where we're allowed to bring it to IC.

Harry Stebbings: Agreed. As far as I can see, $10 billion. It's 2026, boys. Yeah. $10 billion? I thought, is $10 billion the round size? Look, Rory and I are a little more conservative. We're okay with a $10 billion exit as long as the entry is appropriate. We can't make the numbers for the whole fund work, but we can make our own little slice of the fund. We can hit our individual success goals with those exits.

Guys, what have I missed? Creandum, I think probably the most exciting fund that Europe's produced in the last three years, raises $750 million. Physical Intelligence in talks to raise at a $20 billion valuation. They've had rumored acquisition talks in the last six months as well. That's with Avenir and Lux. Dropbox cuts 9% of staff and CTO leaves.

Rory O'Driscoll: I want to think, first of all, unlike the last group of three, these things are literally a grab bag of shit. Physical Intelligence, company with relatively little revenue, was worth $20 billion. Dropbox, company with billions of revenue, ain't worth a lot. It just shows revenue multiples don't get you anywhere, right? It's all about the future. These are just non-comparable things.

On the Physical Intelligence thing, yeah, I think robotics is going through an amazing explosion. We have a small investment in Generalist. I think these next generation models are amazing when you see the demos. I've done a lot in robotics over 10 plus years. When you see what the new models can do, it is truly amazing. You go, wow, the level of dexterity, the old models just don't have that. And I think it's just a real breakthrough moment.

Two other comments though. I think deployment of robotics is just way longer than deployment of kind of classic LLMs. And people forget that. I saw someone, if somebody's coming and starting to price now on an hourly API basis, which makes sense. So you pay, maybe you pay three bucks an hour for access to the model. And then there's only 300,000 robots in the US. So to make the math work at $20 billion, which is where PI is, you got to have a shit ton more robots. So the technology is amazing. The business model's got a lot of developing to do.

But I think the last sentence you said is the real one. I think all the big foundation model companies buy one of these things. And I think the reason is, either they build one or buy one. I've said this before. The really simplistic reason they do it is this: I'm writing my prospectus. There are 81 million knowledge workers in the US. We have an LLM and we sell to them. It's a great business. There are 87 million physical workers in America, not knowledge workers, working in blue collar or physical world jobs. Now we have a robotic foundation model. We can address them. I've doubled my TAM. It's a bit simplistic, but I think the lure of robotics for the foundation model companies and the desire to say, "Oh, we do robotics too," I think means that there could well be some acquisitions in the space.

It's one of those markets, it goes back to something Jason said. It's one of those markets where you can kind of say to yourself, if you just try and be logical about the steps between here and deployment, you probably get caught up in the minutia. And I'm often guilty of that, where it's going to take a long time, customers are going to be slow, BMW is not going to roll out 100 humanoids in a week. But if you say to yourself, the technology capability is amazing, the teams are amazing, we love our position in Generalist, and you kind of go, this is going to change the world, somehow you'll make money out of it. And that's probably the investment thesis.

Harry Stebbings: Jason, any final thoughts to you on this?

Jason Lemkin: The only small, this one's really minor. It's almost not worth bringing up other than it's something I'm tracking. But a tiny amount of anxiety that Hugging Face has drawn some DOJ scrutiny. I don't think there's been a formal request for information or anything. And it just, as investors, it would be a bummer for us if M&A isn't really back. Right. As we discussed, we need $10 billion deals to even bring deals to the IC. And if this $12.9 billion deal for Hugging Face isn't going to sail through antitrust, it would just be a bummer.

Politics aside, it seemed like we were able to do normal M&A deals, right, with normal tax benefits and normal this and that. If it doesn't turn out to be the case, then we've got to go back to doing convoluted team and IP deals or slowdown deals. It'd be a bummer.

And look at the other. I mean, Salesforce is on an epic M&A roll. I mean, they've hoovered up everybody this year. And I don't know that they would do that if the antitrust environment was where it was 24 months ago. It's good for venture that they're just hoovering. I mean, who did they just buy this week? Cresta, right? They just bought Cresta for $2.7 billion. Spending off in friends, right? We need these deals. They happen every two weeks, right? And for venture to be de-stressed, in my opinion, we need M&A to work like clockwork. Otherwise we're just stressed over these goddamn IPOs.

So I just worry a little bit about this thing because we want the Salesforces and the ServiceNows and Microsofts, we just want them buying companies every couple of days for a billion and up. We need it to liquidate our portfolio. So this one, if something happened here, I'd be bummed, but it's just something to track if it gets anywhere.

Harry Stebbings: Salesforce says the opposite. They don't, they're game on for M&A, man.

Jason Lemkin: Dude, I agree. Bless the team there. It's smart too.

Harry Stebbings: You got it. He's buying his way into the future, into the present. There's some point where it's too much. Is he with Cresta?

Jason Lemkin: I think what's happening, if you just look at all the deals that have been bought, this, this, this, I'm dating myself back at Adobe, but obviously there's a little bit changing in the world with AI and B2B, right? So basically everybody's getting a punch card, right? They bought some defense startup, I don't even know, for a couple hundred million bucks, right? And what you do is you go around the table with all your SVPs and they get their best idea. And whoever was in service or support or whatever, Cresta was their best idea. And whoever was trying to get these sort of support and sales agents faster, Finn was their best idea, right? And you just keep, it's not that complicated. You go down to the best idea and then someone goes out and figures out if they'll actually sell, because some folks won't sell. And you just make this best idea and people know their jobs are on the line. And so none of these deals are Marc betting the future of the company. They're SVP chips. And I've been in the room when you went around the room, Rory, what's your best idea? Harry, what's your best idea? Come back next week. I want your top three ideas. And it costs you nothing in a sense because it's assumed some will fail, right?

But basically they're getting around the table and they're saying, we're going to spend this much of our market cap and cash to do these deals because we got to do something. And the interesting question is, do you do a Cresta, a more mature company that's using AI, but probably the original stack was pre-LLM and they've probably transposed their stack once the LLMs came out in the last four or five years. But in return for that, they have some scale, they have some kind of enterprise deployments. Or do you buy something new, bright and shiny, where it's all LLM first, it's two guys from YC and 24, and they've got to $10 million and they're exploding, right? That is the interesting thing.

Rory O'Driscoll: Well, the interesting thing for me is that you've got a relatively similar price being paid for them versus Listen. But you're going to have a 10x increase in revenue for Cresta versus Listen. Listen were $20 million, sold for $2 billion. Cresta are well over $200 million in ARR. And given that Sequoia is in boat, it's not like they missed the fact that they're getting a different revenue multiple. So yeah, on the other side of the table, you're right. The seller said, yeah, I get why I want a high revenue multiple for Listen because it's got growth and it's new. And I guess why I'm getting a still good, but not as stellar revenue multiple for Cresta because it's a more mature company. And yeah, no, you're right. It is interesting. It's the buyer deciding which bet do I want to take.

Jason Lemkin: And thank you for reminding me. Listen, that's a very good example. Do I want the ultra modern deal? But the problem is I'm going to have to pay a scary revenue multiple. When you're trading at 7x, to be fair, it's really hard to spend a lot of money at 40x. You can spend maybe a couple of billion, but it gets scary. I think the Cresta deal is actually pretty good. You're paying 10x.

Rory O'Driscoll: I agree. No, I agree. Exactly like, yeah, I think the Intercom deal, I think the smart deals for Salesforce, you get critical mass, you move the ball forward. Maybe it's not as bright and shiny as the newest bright and shiny thing, but your service cloud business is your second largest, I think largest business now, and you just make progress on that.

Jason Lemkin: What you'll find if you talk to a lot of the big, big players, what you'll find is if they want to do an M&A where they want to put their resources against it, their GTM machine, their platform, they'll all tell you this. They want at least $100 million of revenue. And they'll wait. And they'll take the meetings. And they'll get excited. And what's the one? Listen Labs, right? That's a tech bet. And most folks will tell you those are the dumbest bets, right? Either buy a small team and pay less or buy something with nine figures. You only do a Listen Labs deal in times of stress because they'll all tell you that's their lowest investment performance.

But it's a reason if you're confused as a founder why deals happen, a lot of them, they just decide if it's not $100 million, it doesn't have scale. Like, I can't put my guys on it. I can't put my team on it. I've heard this from a lot of teams. It just is what it is, right? Even with Finn, their core, their agentic business had to hit $100 million, right? The overall business was larger. It's the same story. And then all of a sudden, it's like, okay, now I can see how I can make this material in my $50 billion business.

Rory O'Driscoll: It's probably true. It's a shame, but it's probably true.

Jason Lemkin: I don't even think, it is a shame, but the Borg otherwise will just, they can't even assimilate you. You're too small.

Harry Stebbings: Oh, yeah. All right, boys, it's time to go make some money. Back to our day jobs.

Rory O'Driscoll: Oh, that's what I meant. Let's do this. Let's do that.

Jason Lemkin: Okay, Harry, thank you very much.

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