SPEAKER_00: SpaceX is going to buy Cursor. Cursor's revenue soared to $4 billion on a run rate basis, giving it a 15x multiple. It feels incredibly cheap. Did SpaceX get away with murder here?

SPEAKER_02: They have essentially unlimited compute. Being able to control the IDE where all the developers are developing is an incredible spot to be.

David Friedberg: We are living in the age of M&A. Venture capital's back

SPEAKER_05: because M&A is back on the menu. Hello and welcome back to Twist. My name is Alex.

SPEAKER_06: It is Wednesday, June 17th, 2026. And that means it's time for yet another venture capital roundtable. We grab this brightest lights in the world of venture, bring them on down and ask them a thousand questions. It's always a good time. This week is a little bit special though, because we have Turner Novak with us. You may know him from Banana Capital or the Peel Pod. Turner is an investor in companies, including Bun, Be Real, Chain Guard, and his absolute favorite, Hanover Park. Turner, welcome back to the show.

SPEAKER_08: Thanks for having me.

SPEAKER_06: We also have Ben Ling from Bling Capital here. His fund for is worth $270 million split between seed and growth. He's put money into Gusto, Palantir, Lyft, Airtable, Rippling, and Spellbook, which means I'm sure, Ben, you have a lot of thoughts about California's 5% billionaire tax. Welcome back to the show.

SPEAKER_11: Hey guys, good to see you again.

SPEAKER_06: And then of course, we have Justin Calacanis. You may have heard of him. He's an investor in a company called Uber, Robinhood, Micro One, Thumb Tech, Athena, Calm.com. Jason, welcome back to your own show.

SPEAKER_13: Oh, thank you for having me here. I'm on the show. It's great to see Ben and Turner.

SPEAKER_16: And I've been on the Peel Pod. I think a couple of our clips went viral, yeah, Turner?

SPEAKER_17: Yeah, they did really well. We had one that I think got a million views. I think that's the only one I've ever had that got a million, which is pretty good.

SPEAKER_16: I don't know what I said, but I don't know. Maybe you revealed I was the third or fourth investor in Uber. I think it was like a breaking news story.

SPEAKER_18: It might've been. It was huge news on the timeline.

SPEAKER_19: Nobody knows. One of the better kept secrets in Silicon Valley investing lore. Okay, look, we're not going to go back over the whole anthropic fable thing because there's nothing new in the last two days. So if you're here for that, we're going to talk about everything else that's going on in tech. Just want to say that up front in case that's what you're hoping for, you out there in the audience. We're going to start with the news that SpaceX is going to buy Cursor. Now, if you recall, this was a deal that was put together before SpaceX went public. Everyone thought they were going to pull the trigger and buy Cursor for $60 billion. They did immediately after going public. Cursor's revenue soared to $4 billion

SPEAKER_00: on a run rate basis, giving it a 15x multiple. Jason, I'm confused by this deal. It feels incredibly cheap. Did SpaceX get away with murder here?

SPEAKER_03: I think Cursor is a fantastic company.

SPEAKER_22: They had a couple of challenges. If you look at the history of the firm, they were built off of Claude. Claude and Anthropic then built

SPEAKER_23: an internal coding project, probably because they saw Cursor's token use. And some large percentage of Anthropic's usage was coming from Cursor.

SPEAKER_16: And they told their partner, Cursor, hey, we're going to just use this internally. And of course, that's not true. They then released Claude Code. And so they found themselves as Cursor now having no compute, having no foundation model, and having their platform that enabled them essentially shivving them, like in the middle of the night, stabbing them in the back. And so this happens in the history of Silicon Valley very consistently. Microsoft did it to Lotus 1-2-3, right? Microsoft would have Lotus 1-2-3 and Mitch Kapoor at their events, and then eventually they launched Excel. It is all's fair in love and war. Platforms steal the application layer if they see enough there. So Cursor then had a problem. They called a red alert, a code red, and started building their own models, but they didn't have compute.

SPEAKER_23: Somehow Elon and Cursor got together, Elon being a little bit behind with his LLM being in third or fourth place.

SPEAKER_22: And they decided, hey, we have all this Colossus sitting here, peanut butter, chocolate. They were going to raise, I heard on the street, at $40 billion.

SPEAKER_25: So I think Elon gave them a 50% premium. So Cursor was at the time, I think when they did this deal, at $2 billion run rate. Now that they have Colossus behind them, and they have essentially unlimited compute, and when compute goes to space, they'll have extra unlimited compute, it's just an amazing exit.

SPEAKER_22: And to own SpaceX stock, pretty great deal.

SPEAKER_16: If we look at the history, recent history of both Tesla and of SpaceX, most people don't know that Elon has bought a decent number of companies, about a dozen at Tesla around batteries, and then at SpaceX famously Swarm, which made satellites for Starlink that go direct to phones and some technology there. Obviously, XAI was built on top of or merged with Twitter. So you have this series of acquisitions, and if we look at the $2 trillion market cap of SpaceX, I think what we're going to see is Elon might, and I don't have any inside information here, but Elon, if he merges with Tesla, has those two, and it's worth $4 trillion, $5 trillion, he's going to go on a buying spree, I would guess. What could he buy with that kind of market cap?

SPEAKER_27: Uber's worth $150 billion right now. If I'm Elon, the first thing on my list is buying Uber,

SPEAKER_22: because then I have a global footprint, and all I have to do is put the taxis into them, and it's Tesla's Uber.

David Friedberg: I mean, no-brainer acquisition, right? And we are living in the age of M&A, the wrath of Lena Kahn's over. Trump is basically giving everybody

SPEAKER_27: the, what's the starter's pistol? Go ahead, buy, merge, whatever you want. And so here we are in the golden era, and this is one of the reasons I believe venture capital's back

SPEAKER_22: is because M&A is back on the menu. Great acquisition for everybody. We're going to get back to M&A

SPEAKER_34: and the stock market really quickly. Ben, I'm curious, though, about if you agree with Jason on the price here being good, because it's running effectively a 15x multiple. I just, I feel like everything's a lot more costly than that. It's incredible. Yeah.

SPEAKER_38: I agree with Jason. I think it's an incredible acquisition. Number one, it changes the narrative. It augments the narrative of SpaceX being an AI-native platform. And then number two,

SPEAKER_41: being able to control the IDE where all the developers are developing is an incredible spot to be. So yeah, I think ultimately you're going to see it's a really, really good deal over time.

SPEAKER_19: You think the cursor would worth less if it stayed independent then, essentially? That this exit's better than its terminal outcome if it had stayed indie?

SPEAKER_38: In terms of its terminal outcome, in terms of its reach,

SPEAKER_43: almost certainly.

SPEAKER_44: Interesting.

SPEAKER_43: Okay. When you're in a parent company, it's the same. If you play Instagram out, you play YouTube out. It's the same. Like, I was there, you know, on Instagram. I was there on YouTube. So you just watch how these companies

SPEAKER_45: became much, much even larger than anybody expected.

SPEAKER_19: The YouTube point's really interesting. Jason, we've talked about how YouTube was like running out of money as it scaled, essentially. And we also read recently that cursor had, I think, negative 23% gross margins.

SPEAKER_43: When YouTube was acquired in 2008 by Google, it was negative gross margin by a lot. By a lot. Yeah, but we lost money on every single view, right? Because most of the views were not monetizable at the time. Like, we had to create the content ID system in order to be able to make sure that the content was owned by the copyright, was owned by the content uploader, right? In order to be monetized. And so in order to do that, there was a whole lot of other things. And then also at the time,

SPEAKER_45: YouTube did not have the sort of brand presence that it has today. People thought of it as cats and skateboards. And if you're a brand advertiser, you didn't want your content on cats and skateboards and sort of the questionable content that was being shown on YouTube. But so that took a long time, but like YouTube is a juggernaut today.

SPEAKER_54: And the sort of Damocles

SPEAKER_23: was over YouTube's head with the lawsuits. And there were very few companies that could have, you know, very few companies that could have sustained that long of a Viacom lawsuit. You got to remember back in that day,

SPEAKER_56: Viacom was a very powerful, large company who was going to take that lawsuit to the map.

SPEAKER_57: And the price was not cheap. It was 1.6 billion at the time. So it wasn't a steal. It wasn't a steal. It was, you know,

SPEAKER_60: because there were multiple bidders for YouTube.

SPEAKER_19: Yeah. And that was, I mean, recall when Instagram sold for a billion dollars, it shook the world. People were surprised at how much money was being generated in these private markets. Now that's a seed round, but at the time it was quite a lot of money. Turner, you work with a lot of really early companies. I'm curious what is the split between Cursor, Cloud Code, and Codex usage amongst them. And if I think Cursor has more market share than we might've expected because I feel like the conversation in the last six months has been all about Cloud Code and Codex. And apparently Cursor

SPEAKER_34: has been growing very quickly. So I'm curious what the footprint is inside of the Peel portfolio, if you will.

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SPEAKER_70: I mean, I think it changes a lot. I think that's the thing about startups is you can just make a decision and start using a new tool. So you probably see, I don't think this is unique to any other investors, but you see cloud usage ramp up. Probably starting a year ago and then maybe like starting three months ago. Everyone's kind of using Codex now. I was just talking to a founder in the current YC batch right before this and he's like most of the batches using Codex. So I think it just pinballs a lot. He basically said people use Fable for a couple days again and then again switch back to Codex. So I think it's kind of crazy just switching your context and workstation like that all the time. It just seems a little bit wild to me. I'm also 35 and have kids and like don't work 20 hours a day. Like I do kind of, I'm getting in the zone. It's like, all right, using this stuff, I don't have an hour to like switch every week, right? Like my time is pretty valuable. But I think you know, a lot of founders that are working all day every day, they're very happy to like switch really quickly. So I think we see that with a lot of startups. I think a lot of cursors revenue is enterprise. Like you just signed a deal with Microsoft and you saw like a million seats or it's probably too big of a number. But I think I saw that they just crossed a 4 billion run rate. It's mostly enterprise. And back to SpaceX, I mean, I think it solves an interesting problem for Elon where, you know, you're building all these data centers in space. You have any customers. I mean, it doesn't matter. But I think that was one of the big problems that cursor had was just you had

SPEAKER_73: to pay all your revenue out to someone and now they're not paying the revenue out. So you just when they build

SPEAKER_23: their next model, you know, that's going to be built on the Colossus stack. So that is a huge advantage. The one thing I will warn Y Combinator founders, Sam Altman came and I think he offered them like a whatever, a million dollars in tokens each for X percent. Last person to do that, Mark Zuckerberg, who was like, I'm going to offer you a bunch of free stuff. We just gave the explicit example of cursor getting shivved by Anthropic. OpenAI is studying every one of those Y Combinator companies who are naive enough to take that deal. If you're a Y Combinator company, do not take that deal. Do not trust OpenAI.

SPEAKER_22: You need to start working on frontier model. You need to get off the frontier models and use open source ones and own your content and not educate them to the extent you can. And I believe that'll be the trend of 2027 is startups are already doing it. But if you give Sam Altman,

SPEAKER_23: who is a sharp elbow guy and he's got to figure out how to fill in a $1 trillion market cap, he's going to do exactly what Anthropic did

SPEAKER_22: or Microsoft or Facebook, which is he's going to look at the applications coming in. All of those Y Combinator companies who take that deal, they're studying every one of their token usage. They're studying what they're doing. And then they will pick the top five in terms of success and incorporate it as free product into their platform. This is your final warning. Don't trust the platforms. When somebody comes to you with free tokens, you know, free anything, there's no free in life. There's no free beer. There's no free pizza. There's always a price.

SPEAKER_59: All right. We're going to get to Composer 2.5,

SPEAKER_19: rolling your own model, how to do fine tuning and post training. But before we do that, Jason, I think we should take a quick pause and thank our dear friends over at Plod.

SPEAKER_14: I love Plod. I use it constantly.

SPEAKER_23: I have it on the back of my phone right here. Sometimes I use the pen. Sometimes I use this. You've got the pen on your watch. There's a little button. If I'm in a meeting, I'll just press the button. Incredible microphone array. Put it on the table. It takes notes. Then it automatically summarizes and makes a mind map, whatever I want to do, transcript. And then I share it with one click to the team. I'm done. That's it. It's an amazing product. It's super affordable. It's a game changer. You can also record phone calls with it. That's the other thing with the one that goes on the back and you don't have to do it on speakerphone. So just a native phone call you can record. Obviously, understand what the privacy concerns are in different states. It's different in the United States and different countries and it's different by each state. Two-party states versus one-party state but it's a great product. I highly, highly encourage you to get one.

SPEAKER_19: If your work relies on conversations, you need a Plaud notepin S. Check it out at plaud.ai slash twist plaud.ai slash twist use the code twist save 10% never forget things again. All right, Jason. So you're talking about companies rolling their own models. Before we dive into how they're doing that, I'm curious though. Do you think that the same concerns you have about open AIs and token usage and kind of stealing from customers applies as well to the Cursor Space X stack or are they far enough away from being a general purpose AI lab now with their coding focus that that's less of a risk? I'm just not quite sure where to put my axe. Yeah, I don't know

SPEAKER_83: where Grok is with providing tokens to startups but all the frontier models that are proprietary.

SPEAKER_23: So there's two options you have right now. Open source proprietary. Proprietaries, Gemini, Grok, Claude, et cetera. Anthropic obviously and OpenAI. So you have those big four and then on the other side you got DeepSeq and all the other ones. Kimmy, I'm seeing a lot of startups start to use those

SPEAKER_16: and it works and I think that's the future. In fact, I think desktop computing and workstations are coming back. AMD launched a workstation.

SPEAKER_89: You might have seen the CEO debut it yesterday and it's $1,500.

SPEAKER_90: I think it has 128 gigs of RAM

SPEAKER_89: which does not make sense to me. Lisa Su demoed it. Fits in the palm of her hand. Looks like maybe somewhere between a Mac Studio and a Mac Mini. The future of AI is all of your employees having a $10,000 workstation like that and that $10,000 workstation having a terabyte of RAM,

SPEAKER_16: a massive 10 terabyte hard drive and everything stored locally, everything processed locally and then all of your computers across your entire company

SPEAKER_22: in a networked super computer and that eliminates the need for a data center. You don't give any of your data to anyone.

SPEAKER_23: There's a startup called Exo Labs

SPEAKER_27: that lets you daisy chain Mac Studios and Mac Minis

SPEAKER_03: that all this hacker community are doing.

SPEAKER_22: So that's going to be the trend

SPEAKER_03: of 2027, I believe.

SPEAKER_19: A couple of notes on this. We're talking about the AMD Ryzen AI Halo developer platform running Linux. $4,000 is the base price. It has 120 gigs of RAM as Jason said, two terabytes of SSD and also a whole bunch of, of course, AMD GPUs built in there. NVIDIA has one of these as well. I really want both of them. Ben, Turner, have you guys sprung yet for a supercomputer for your desk or are you still renting cloud time like peons? Do you not have a supercomputer on my desk? I'm curious why. I feel like you guys are less price conscious and if I had, I don't know, I really want one of these. I think Jason makes a good point that having this kind of insane AI performance at your desk is just freeing in a way. You don't have to worry as much about

SPEAKER_102: what you're burning.

SPEAKER_45: You know, it's true though. I'm, you know, a long time Googler so I use Gemini just religiously.

SPEAKER_104: But Ben, you're, you're an IBM laptop using Gemini model using VC. That, you are the, that is a unique collection of tools that you're using.

SPEAKER_43: old school Lenovo. I had to get an exception when I was at Google to have the Lenovo but I also have an iPad. Basically, I only use the Lenovo right now because we're on this Zoom but otherwise, I'm, I'm a no laptop guy.

SPEAKER_45: I'm a device, I'm a iPad, iPhone guy. Okay.

SPEAKER_110: I think we're, the hardware in this case

SPEAKER_16: is ahead of the software. It's not easy to run local models. It's a hacker thing and to Turner's point earlier when you are a parent or you have time, like the big consideration for people who are, have limited time

SPEAKER_89: is like, should I upgrade my iPhone this year or next year? And it has nothing to do with the cost of the phone. It has to do with the time it takes to back up your phone and switch it over. That's what most people are thinking. It's going to be impossible

SPEAKER_23: to buy a non-AI computer and I think 2027 will be the year you'll see a lot of people in the developer and startup community using this.

SPEAKER_25: I'm seeing it with the hacker crowd and then 2028, Michael Dell, Lisa Su and the new CEO of Apple

SPEAKER_22: will be explaining to you why you should, instead of spending $2,000 on a laptop, you should spend $10,000

SPEAKER_86: or a desktop computer. And this is the AMD by the way

SPEAKER_22: and 128 gigs Windows or Linux 60 FP16 TFLOPs. It is just an extraordinary machine. And I think they're basically losing, I'm guessing they're losing money on this thing. And it's just to court developers to their platform.

SPEAKER_113: AMD Ryzen, R-Y-Z-E-N worth taking a look at.

SPEAKER_34: Turner, I'm curious about this rolling your own model thing. I know some companies do post-training,

SPEAKER_19: some people just do fine-tuning, some people are even extending the pre-training phase, which I believe is what Cursor did with Kimi K2.5 to build Composer 2.5. I'm curious how many startups in your portfolio are actually doing this. Because I think we talk about it and I think it's a good idea, quite powerful, but I'm curious just how widespread the activity is and if startups have the tools internally to go about essentially rolling

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SPEAKER_118: I'll be honest,

SPEAKER_17: I'm the wrong person to ask about this. I mean, I think

SPEAKER_70: most of the stuff I'm investing in, they're not like frontier labs, I would say. So, a lot of them, when they're building any kind of AI products, it's more about just like the workflow of the software. So, they're maybe using a little bit open source or maybe using some anthropic stuff, maybe some open AI, like doing some routing based on what's the cheapest or most effective at solving certain problems. I feel like if you just look at what's kind of happened over the past couple years, maybe Ben or Jason has seen something different, but I feel like training your own model in a lot of cases was a dead end. Like, I feel like sometimes maybe it worked out. Like, anthropic, obviously, it worked out for them. But even, I don't know, like one of Ben's portfolio companies, Spellbook, I talked to the founder, Scott, and he's like, it's like a legal AI company. And he's like, so I think it depends what you're building. And then, so I think in the types of companies I'm investing in, it's usually like a pre-seed or a seed round where you raise a couple million bucks. So there's not money to do that necessarily.

SPEAKER_17: So personally, I've not seen a ton of it, but I don't, maybe Ben or Jason have different things.

SPEAKER_59: Yeah, Ben,

SPEAKER_19: talk about Spellbook. I think it's a really interesting point about how the company is approaching this because some legal AI companies I think are rolling their own models and it sounds like Spellbook is moving kind of the other direction.

SPEAKER_43: Now, Spellbook has not rolled its own model and it uses the foundational models, but they're really focused on transactions and basically being the transactional partner. So instead of thinking about as a legal AI, it's essentially every business has contracts and negotiations and hiring and so on and so forth. And Spellbook basically is a facilitation layer that helps make that seamless. So if you think about, you know, in all our lives, we're negotiating or we're signing contracts or signing contracts with vendors, we're paying people, et cetera, et cetera, right? And you don't necessarily have time to ask and you don't have the money or the time to ensure everything is legal verified, like every single line in the contract. And so Spellbook helps accelerate all that.

SPEAKER_124: You know, there's the harness, the skills and all of this layer

SPEAKER_83: that goes around AI to make it work. And then you've got the foundational model where you'll send a job out to them.

SPEAKER_16: I think what you'll see over time is people are going to make these headless.

SPEAKER_23: So if you're a legal AI company, okay, you've got all of your proprietary data, your skills, all the fine tuning you've done.

SPEAKER_16: And then you're going to be like, hmm, Anthropic has their own legal model. Am I training it for it to do, for it to cursor me? Yes. Like I don't want to get cursors. So what they'll do is eventually they'll just swap out the frontier model because right now people used to say six months ahead

SPEAKER_23: for the frontier models. I kind of feel like Anthropic's more like nine to 12 months ahead. I think that they recently, yeah, I think it was like reasonable to say six. But then what you have to look at is the cost at which those tokens are combined with the getting cursored and you're going to say, hmm, maybe we will keep our harness and our data and then we'll stand up Kimmy, we'll stand up DeepSeq and we'll send our jobs there and we'll compare it and A-B test it versus the frontier models. And at some point this legal company will say, hey, drafting these 17 documents, the fidelity of these open source models is as good or better when fine-tuned. Therefore, those jobs go here. And then they might say, oh, this is a complex

SPEAKER_16: negotiation of an M&A transaction and the frontier models do it better. So my prediction is the jobs sent to frontier models are going to keep going down as they get better as the open source models get better.

SPEAKER_23: And that's where token costs really matters. If you're running your own Kimmy, if you're running your own DeepSeq, either on your computers or just standing it up, you know, at a cloud provider, your cost is going to essentially

David Friedberg: move to free.

SPEAKER_22: Just take the cost of your hardware and divide it over whatever the lifespan is, five years for that device,

SPEAKER_23: four years for that device, and that's going to become too appealing. Now, it's not easy to use. So right now, ease of use matters. It's really easy to use cloud code. It's really easy to use cloud co-work, but eventually people will want a headless product. Perplexity is a headless product. So I started giving jobs, you know, in my vibe coding and my agent jobs to both perplexity computer and cloud co-work. Perplexity computer is headless. I can pick Kimmy. I can pick DeepSeq. I can just pick the model.

SPEAKER_22: And what I'm finding is I'm not noticing the difference. So I may be the tip of the spear here, but it's pretty clear this is going to happen in the next year or two. So it's my best advice to founders is to start learning how to make your product headless and how to,

SPEAKER_135: what do they call those routers? Model routers? Model switchers?

David Friedberg: You need a switcher. It's like a switch. That's a good word for it. Like the hardware switches we used to have, you know, back in the day for networking, you need a switch and it just should switch.

SPEAKER_88: And then that means you need some kind of maestro. I don't know, like a conductor.

SPEAKER_23: Maybe the word is maestro or conductor. You need a maestro layer that just knows, hey, I sent this job previously to these four different models and here's the difference. And it's called model council on perplexity. Model council on perplexity will fire off three LLMs at once and then it asks, what's the difference between each one and where is the consensus and where do they diverge in their answers? And it takes a little while but model council, super powerful.

SPEAKER_31: So this is the model council page from perplexity. It came out in February. Even more recently, Jason, you've seen me something called,

SPEAKER_19: sorry, this tab, model fusion from Open Router and this is kind of a similar idea. It lets you kind of run and do taste tests and kind of pick and choose. Open Router is also good at kind of helping you use a cheaper model. They have a built-in auto routing function that I've used before. Pretty good. A lot of companies do that but also a lot of companies are helping startups fine-tune and post-train their own models. Companies like Fireworks.ai and a number of other ones, Together.ai, Thinking Machines Lab, Mistral, et cetera. So it does seem, isn't that it's getting easier to do this? So do you think startups should roll out Kimmy or DeepSick or whatever or go through the work of actually doing the hard labor to fine-tune these models? No, no, just use the open source models.

SPEAKER_140: Out of the box. Out of the box. Easy breezy,

SPEAKER_142: lemon squeezy. The meta principle Jason's talking about is the same as

SPEAKER_43: insourcing versus outsourcing. If you think about in the United States, we used to build companies and we'd hire people and hire people and hire people and they're like, wait, we can outsource and we can actually hire people elsewhere for a tenth of the cost with similar quality so let's just do that instead. It's the same principle which is that if you're going to have one of the foundational models or an open source model,

SPEAKER_36: if the open source model is a hundredth times cheaper and equally good, you'll use it for a major portion of your budget.

SPEAKER_19: Well, that's what I think but I've been surprised at how much demand there is for the absolute cutting edge. I mean, people are paying, what, 10x for open source?

SPEAKER_43: We're in the first innings, right? Does that make sense? We're not in the margin optimization stage of the industry. Correct. We're in the growth portion of the industry

SPEAKER_146: and it's more important to grow faster than it is to margin optimize.

SPEAKER_23: And just to show it to you guys if the audience hasn't seen it yet, I just asked, I have three days in Paris. Tell me the five most important things to put on my to-do list

SPEAKER_89: and here you see preparing concise Paris to-do list with five most important things. DPT 5.5, Quad Opus 4.8, Gemini 3.1. When it gives the answer, I'll show you the results but conceptually

SPEAKER_32: and I could have picked the open source model for that as well. Jason, while we're waiting for that, a question from the Nody gang.

SPEAKER_19: Hodges Channing says, Jason, you say not to trust SAM slash OpenAI's free credits for equity. What are your thoughts on NVIDIA Inception and other VC incubator free compute offerings? Similar risk or different?

SPEAKER_22: Founders scale faster on deal. That's the deal. You can grow your company without borders and you can set up payroll for any country in minutes. Hire anyone anywhere like a modern startup or large company does and deal is gonna get all the visas handled fast so you can get back to building. There's a great talent war that's going on right now and you need people with superpowers for your startup to be competitive, to beat your competitors, to get your products to market. But anytime you try to grow your team with overseas hires, oh my lord, you've got to reinvent the wheel and you gotta navigate a tangled web of international laws, regulations, and you can't get these things wrong, folks. You wanna onboard new staffers in other countries? You wanna get them set up on your network? Nice and secure? IT access, all that good stuff? You wanna manage

SPEAKER_64: their benefits? Trust me, this is all a nightmare unless you partner with Deo. They are the people stacked for startups. They're gonna take care of all the onboarding, payroll, HR, IT, benefits, everything you need quickly in one place done perfectly. So visit deal.com slash twist. That's D-E-E-L dot com slash twist. I don't mean to single out Sam.

SPEAKER_16: We're friendly and, but if you were to put the sharkiest of the, you know, the best deal maker of the group, the charitable way to say it, he's the best deal maker, but he's a student of the game. I've known Sam since looped. We were both

SPEAKER_89: in the first Sequoia Scouts. He is the deal maker's deal maker as you saw. He is the only person who ever got over

SPEAKER_23: on Elon Musk and they took 50 million from him. So if he can get over on Elon Musk, he's getting over on your startup. If he's got a way to outmaneuver you, that's all's fair and love and war. It has nothing to do

SPEAKER_94: with that. Now, if you look at the cloud providers, AWS, Google, Google Cloud, Azure,

SPEAKER_22: they're not in the business of studying the folks using their compute resources. It's just not what they do. To the people who are third-party sellers. If there's an opportunity, everybody gets to pursue it in capitalism. That's the way

SPEAKER_23: capitalism works. You just don't want to give a free education to someone. Again, it's not personal with Sam. I like Sam

SPEAKER_137: individually. We're friendly. It's just very important for founders who are naive to just understand.

SPEAKER_23: Don't explain. Don't give a roadmap. Don't brag about your secrets. Keep those close to the vest. Talk about your customers. Talk about your products. Sure. But don't give your secrets away. And when you give your secrets in terms of tokens, that's giving the perfect roadmap.

David Friedberg: It's literally... You know who's the best company at not doing this, Turner? Is Apple.

SPEAKER_89: Every time Apple does their WWDC or they launch a couple of new apps,

SPEAKER_23: they're like, look, we have Notepad. And nobody who's using Evernote would say Notepad is an Evernote killer. It was like, they make Notepad from mom and dad, your cousin, your brother. It's the most basic thing ever. But if you look at Notepad today, 10 years in,

SPEAKER_22: a lot of the key features feel like Evernote. I believe Apple purposely ankles their products to not interfere with the App Store ecosystem. They're the most generous with this. If you give... I'll give you another example. If you look at like sleep.

SPEAKER_23: I've had the Apple Watch for six or seven years. I just want When you try to look at a sleep score in your health, what do they do? They say, pick one of these seven different sleep apps and go pay $49 for them. That's insane. They're so generous with the developer community that they ankle their own products to give shine to the developer community. They're the best at it. I would say

SPEAKER_156: Facebook and Microsoft are the most sharp elbowed. That's it. It's a range. Don't trust any platform.

SPEAKER_158: But it's essentially who has the strategic high ground. If you have strategic high ground and you have the platform, you can basically

SPEAKER_43: enter into a variety of the apps. And the thing with Apple, how they're really smart is that they don't need those specific functionalities

SPEAKER_158: to sell more iPhones. And so it's better to not disrupt the ecosystem.

SPEAKER_23: Right. If they disrupt their ecosystem, Turner, what happens? They lose their 30%. And then you have somebody like Epic Games say, hey, I'm going to file a lawsuit to try to open up the app system. The reason Apple's been able to

David Friedberg: get away with the Apple tax for so long is because they don't compete with the app level. They're just very, very, very generous. Can I disagree here slightly, Jason,

SPEAKER_34: with this? Because I don't disagree with the general point, but on the Apple being charitable front, we have a term called getting Sherlocked and it's because Apple once made an app called Sherlock entirely

SPEAKER_19: obsolete. I think also tape a call as well. So Apple has gone in there when they want to to push things out. I think the question is, do they consider it to be an OS level utility or an app that adds functionality on top of that?

SPEAKER_32: So I think if you're in that deck. Just look at the time. When did Sherlock kill

SPEAKER_16: that other startup?

SPEAKER_23: When did they do it? I'm guessing they probably gave them five years, six years, seven years. And I've heard Eddie Q or Steve Jobs even say this. Eventually we might add some features to the platform. We have to.

SPEAKER_89: They added the flashlight. But one of the first apps I remember buying was a 99 cent flashlight app. If that's your biggest skill as a startup is to turn on the

SPEAKER_23: flash and use it as a flashlight, you've got to ask yourself, well, it's not a unique innovation in the world.

SPEAKER_32: Right. So as long as you're at the OS functionality

SPEAKER_19: tool level, you're going to be fine. All right, guys, let's keep it moving here. I want to talk about OpenAI's financials. These got leaked this week, and amidst all the chaos, it almost seemed like nobody cared. But what I did is I took all the data and I made you guys a very beautiful SEC filing style table. You can all take a look at what OpenAI did in 2024 and 2025. I have a lot of thoughts about this, but Ben, starting with you, when you read these numbers about OpenAI's last couple years, did anything surprise you? Were you kind of shocked by

SPEAKER_122: any of the individual points? I don't think the revenue growth is surprising. I think everyone understands

SPEAKER_43: how fast it's growing, but I think they've done a tremendous job on the gross margin. I think the massive improvement in gross margin is

SPEAKER_169: notable.

SPEAKER_168: Turner, I'm curious what you saw from all these numbers.

SPEAKER_17: I think one of the things people don't really, if you just come into this cold and look at this, a lot of this is

SPEAKER_70: free cloud stuff from Microsoft. They invest $10 billion and OpenAI gets free Azure credits. I don't know exactly how that translates into GAAP financials, but there's a lot of people that are like, OpenAI burned whatever tens of billions of dollars. I don't actually know if they technically burned that much. That's a question for you need to actually see what's going on versus you can't just take these headline numbers. I think that obscures us a little bit. Obviously, they're spending a shitload of money, but it's how this works. You try to get market share, you're doing R&D, they're inventing intelligence. That's what they will say. They're trying to create AGI,

Chamath Palihapitiya: it costs money. It kind of makes sense.

SPEAKER_06: Also, all these numbers are at least

SPEAKER_19: six months old. We're now basically midway through 2026. What we know is they've grown a lot since then. Jason, I'm curious, do you think that the gross margin improvements and the operating margin improvements we've seen from this AI lab will persist, or are they going to maybe cut costs or cut prices and return more to growth at the expense of profitability?

SPEAKER_14: The way to look at this is the classic J-curve

SPEAKER_23: and how much do you invest before you're able to either raise prices or stop discounting. I learned this up close and personal, being the third or fourth investor

SPEAKER_89: in Uber famously, because I was on CNBC and they're like, Uber's the money losing blah, blah, blah, blah. It's losing money. It's losing money. At one point of exacerbation, I just stopped the panel. I said, okay, let me stop you all. If Uber did it, and at that time, I think they were doing a billion rides a quarter. I said, okay, they did a billion rides this quarter. They lost $2 billion. That means $2 per ride. End of the day, just do the math on the loss

SPEAKER_22: divided by the number of rides. Okay, if they raised the cost per Uber by $3, how many customers would they lose? I asked them this on the thing. Deirdre Bosa was like, oh, well,

SPEAKER_23: they lose a lot of customers. I was like, would you stop using it if it was $3 more? Nope, because everybody had become addicted to it. The J-curve on tokens is a trillion dollars. Let me state that again. There's going to be at least a trillion dollars invested by the Frontier Labs, possibly to a $3 trillion. Will they be able to make tokens profitable enough to make their businesses work? I actually think they will not be able to do it. I think it's going to become a commoditized business like bandwidth and hard drives. Tokens are going to be looked at like hard drives and bandwidth. There was a time, and Ben probably saw this up close and personal with YouTube, where they were in the J-curve for YouTube and Sergey

SPEAKER_89: and Larry, I'm guessing it was Larry because he's got a big vision for these kind of things. He said, yeah, just lose money for five years, six years. Then if we have a billion people using YouTube, then we'll turn on advertising. It's exactly what they did, right, Ben? There must have been some and who knows when they flipped that J-curve. Tesla also had a J-curve with their cars. That was a business that would never make money, and then suddenly they tipped over into making money.

SPEAKER_19: Is the point that eventually companies that invest heavily at the cost of profitability early on make a lot of money later on, or that what OpenAI is making is essentially a commodity that won't retain value? I think

SPEAKER_32: we're saying two different things at once. I believe they think

SPEAKER_23: they can make money off tokens, but I do think the workstations and 90 plus percent of jobs will be able to be done by open source for free on

SPEAKER_89: your local computer. That's where I think Apple is the dark horse in this race. There's a moment in time where 128 gigs will be the standard lowest amount you can buy on an Apple desktop computer.

SPEAKER_174: Let that sink in. Right now I think the lowest you can buy is 16 gig. Might be 8.

SPEAKER_43: I totally see that world, Jason, but I also see a world where we cannot imagine all the things we're going to do with AI and who captures that value and who corners a specific functionality that we all really need. I think 20 years ago I don't think any of us would be thinking we would be talking to an AI on a mobile phone that we carry in our pocket. There's certainly people that believe that, but it wasn't mass market. We all know the cases where some famous person says why would you ever need more than 24- 46 kilobytes of RAM. Why would you ever need more than 2400 baud, et cetera, et cetera. We've figured out a way to use them in ways we've never previously imagined. I definitely hear Jason's point and I can see the point which is that if it becomes commoditized, they're not going to make money. The question I have is will we discover new use cases that are highly valuable that people are willing to pay for at scale and they can corner it? I don't know the answer to that question. When you think about the entire stack of the LLMs versus the hardware versus the energy, it's a little unclear who's going to capture all the value at the end. To me, that's still an open question. I think we're still in the first, second inning.

SPEAKER_137: It is the pressing question. Where will value accumulate?

SPEAKER_156: The NVIDIA card, the Frontier model, or the app layer? I'm going to say the app layer.

SPEAKER_178: That's just my gut. I always like the app layer too, but I also think the hardware folks are going to have pretty good ones.

SPEAKER_17: I think another way to think about this is with most new technologies, it's basically you build a good product and

SPEAKER_70: then essentially it gets commoditized. It always gets commoditized and it's just who has the distribution and the sales force. I think if you pull back up those open AI financials, I think their sales and marketing grew by 4 or 5x. Basically, what they're doing right now is they're going to Walmart and saying, hey, we'll help Walmart use AI. That's almost what some of these conversations are. It's some executives who are at the boardroom, they're getting pressured. Walmart needs to be an AI native company. I don't think it's going to be a VP of engineering at Walmart that uses some open source models and fixes this. It's almost like a consulting relationship where if you're going to Wall Street, your investors, and saying, hey, Walmart's trying to become AI native and we're working with OpenAI to make us an AI native retailer. We can all laugh at what does that even mean, but I'm sure they'll do some stuff and they'll probably make some products for them and they'll build some workflows around it and I'm sure things will improve and the stock price will go up. That's ultimately the goal of a lot of these buyers who are buying this stuff. I almost think it doesn't really matter with the open source stuff. Maybe OpenAI builds in routers into the products to help you save money or something, but at the end of the day, as a CEO of a public company, you could even go a little bit deeper on this. The open source, you don't know who has access to this and you want your secure US domiciled provider helping you do this. I don't know. I don't think it's that big of a deal. I think OpenAI will be fine. I think really when you look at the cost, they're just scaling up and they're basically building a sales force and a lot of people are going to spend a lot of money on this stuff. I think the headline wasn't it that Uber spent a billion dollars on Claude in a quarter or whatever the number was. That's the tip of the spear. Maybe that's the max. Someone could spend $4 billion in a year on AI, but that's like

SPEAKER_181: 0.001% of the market. It's just a lot of money that's going to get spent on this stuff.

SPEAKER_19: The headline that Turner is referring to is Uber burned through its entire 2026 AI budget in four months, which is also known as

SPEAKER_185: six queries in Opus 4.8, I think, Turner.

SPEAKER_184: I think the Uber example is, again, to your point, turn

SPEAKER_156: a tip of the spear kind of moment. If you're the CFO of Uber right now,

SPEAKER_186: or pick your company that's burning through a lot of tokens, you're saying, is there a cheaper way to do this?

SPEAKER_89: So, as it gets incorporated, then some pencil pusher starts doing the math, and they say, you know what? It turns out Kimmy or DeepSeek's coding model is good enough. Everybody can use that, and back to that maestro or the switch, as you called it, that switcher is going to say, okay, if you're writing a login page or

SPEAKER_27: you're making a landing page or you're doing

SPEAKER_113: some analytics project or some intranet functionality, do it for free.

SPEAKER_22: If you're doing something complex, you want to write an algorithm to route DoorDash rides, yeah, use the best one. And one cost will justify it, but when a new tool comes out, everybody just goes YOLO, and then eventually CFO comes in and says, why are we using an Oracle database for this when we could do MySQL? Can somebody here run a Skunkworks project and put the database? Ben, you certainly remember this, when Twitter and some other folks were doing these really big database queries and having to put together live searches

SPEAKER_23: and live feeds, that was just a very complicated process, and it was too expensive to use something like Oracle. It would bankrupt a company like Twitter, so of course, they went Hadoop, MySQL, et cetera. We were sitting here 20 years ago, the debate was, would anybody use an open

SPEAKER_89: source database? And now, that's not a question, it's an explanation point. Everybody uses an open source database. For some rare things, like your

SPEAKER_156: visa, and you don't want to get fired, yeah, you go with the Oracle solution for your transactions, right?

SPEAKER_70: I think one more thing on this Open AI, I think B2B is a lot more profitable than consumer, and Open AI was primarily consumer. You just think about the average person that's using ChatGPT is probably using it as a better Google, maybe a therapist, and they're not really spending anything on it, versus in B2B. It's literally like we signed a million-dollar deal to ingest PDFs and make a bunch of business decisions with it. That's super easy to do and not that intensive, and you make a shitload of money. So I think that's also kind of going on. With all of my B2B AI application companies I'm invested in, they'll make quite a bit of money, and to Ben's point, they're not even optimizing it that much yet. So for one of my portfolio companies, Hanover Park, it's basically like an AI native fund admin provider. So it's kind of like an accounting

SPEAKER_181: firm for investment firms, and it's literally like we ingest all your stuff, and we just make it all automated for you.

SPEAKER_19: Producer Salal has to take a shot every time you say Hanover, and if you keep bringing it up, it's going to get really, really tough on the edit later today. All right, we're going to come back and talk about seed stage startups, and if they're actually in decline as an asset class. But before we do that, we're going to take a little break to talk about our friends over at Crowd Health. Now, if you're running a company, if you're taking care of your family, you understand that health insurance is incredibly expensive. The American health care system, I think, everyone has a unique and perfect grievance with, but if you want to possibly save a little money and take care of your loved ones or your staffers, well, CrowdHealth might be something worth looking at. It's not insurance. It is a crowdfunded model to pay for health care costs. And if you want to go ahead and get more transparency, more control, and someone on your side to negotiate with health care providers, we recommend that you take a look. You can choose all your doctors and specialists, and their built negotiating team may get you 70% to 90% discounts. So if you're an entrepreneur, an independent creator, or just a family person, take a look. You can go to join crowdhealth.com slash twist. Use the code twist to get started today for $99 a month for your first crowdfunding.com slash twist.

SPEAKER_191: And they're doing some webinars. Go ahead and check it out and report back on

SPEAKER_156: the product. It's a very innovative, disruptive product, and go do the webinar that they're offering because that'll give you some great education on their model.

SPEAKER_16: I love webinars. I'm getting into webinars now. I'm starting to do webinars, Ben. Well, I'm going to build a network of family offices for the syndicate, and so I'm

SPEAKER_88: like, how do I, you know, connect with family offices, and I have my team identifying them, Ben, and I'm going to do a webinar on how to get access to and get directly on the cap table, and then maybe QSBS, and there's all these kind of things, and a quick webinar is just such a secret weapon that a lot of startups and founders don't leverage. They do ads. They do all kinds of

SPEAKER_89: promotions. They do social media. Getting like 50 people or 15 people to show up for a webinar where they get massive content value is a really great

SPEAKER_16: way. It's like an unlock for startups, so make sure you dial in in your tactical go-to-market strategies, webinars with potential customers.

SPEAKER_59: Can I add to that? Because I host some of these for money, and let me tell

SPEAKER_19: you, if you bring something boring, there's nothing you can do to save that webinar, so please don't do them until you have something interesting to share. I've been on some really

SPEAKER_32: great ones and some ones that left me a little bit perplexed. If they're sales calls, they don't work. If they're thinking about

SPEAKER_22: the guest and how you can educate them or provide value and do it in under 45 minutes, they work. Pretty

SPEAKER_23: straightforward. Just put yourself in the audience shoes. Is this giving me massive value for free and is worth my 45 minutes? It's a good webinar.

SPEAKER_19: Next up, we're going to talk about seed stage startups and if they are a quote, dying breed. Now, we're looking at some charts that were made by Lightspeed partner, I meant to pronounce that before the show. Sorry, guys. Don't worry about it. He ran a fascinating analysis of live seed stage companies in and around the world. Found some stuff that I want to bounce off you guys. First of all, the graduation rate for seed stage startups here in the U.S. is in decline but has very recently stabilized. If you take a look here at the chart on the left, we have graduation rate over time. As you can see, in the post-ZERP post-bubble era, we saw a dramatic decrease in the number of seed stage companies that are making it to Series A. I'm curious, Jason, if you expected this. This is worse than I thought. This data actually scared me a little bit.

SPEAKER_16: Okay, so the term of art is pull-through. When Ben and Turner and I do a pre-seed

SPEAKER_89: or a seed investment, when RLPs examine our performance early on as venture capitalists, they'll look and say, how many of your startups pulled through? The earlier you invest, the lower the chance. The later you invest, the greater the chance. Many people had a great strategy for AngelList. I remember a very famous angel investor,

SPEAKER_88: seed investor, who's like, I've got 27 unicorns.

SPEAKER_23: I said, that's incredible. How did you do that? I have nine. He said, I go on AngelList. I join a syndicate.

SPEAKER_22: When they're $3 billion, I invest, and then I put it on my logo page. I'm like,

SPEAKER_43: incredible. You know, firms do that too, Jason. They buy the logos so they can put them on the page. Ben,

SPEAKER_215: can you explain why we all laughed at that to people out there who are

SPEAKER_217: less up to their neck in venture humor?

SPEAKER_43: Well, because usually you want to be the first investor, like Jason, or the third investor, before, and the proposed money is $3, $4, $5, $10, $20 million versus, and when it becomes a unicorn, it's a billion-dollar valuation, and you invest at a $3 billion-dollar valuation, it's already a unicorn, so obviously you invested in a unicorn.

SPEAKER_59: Turner, you do the opposite of this, right? You invest essentially as a first check investor, so you actually get the plot. Does this annoy you? Do you see VCs actually do this?

SPEAKER_181: I don't know. I mean, it is what it is. I just kind of, I feel like you

SPEAKER_70: can kind of tell. I actually, probably one of my favorite stats, I invested in a company pre-revenue that got acquired by Anthropic, and I got

SPEAKER_17: equity in Anthropic, so I'm technically a pre-revenue investor in Anthropic, technically, so I'm going to carry that to my claim to fame.

SPEAKER_16: It's logo hunting. You'll have startups do this as well. Startups will give their product for free to some giant company, Google,

SPEAKER_89: Microsoft. They get a friend of theirs working somewhere to open an account. Now they have the logo there.

SPEAKER_82: Okay, fine. It's posturing, it's peacocking,

SPEAKER_23: it's a thin veneer. It's social proof. Yes, social proof. And the problem with social proof is when you actually work with

SPEAKER_89: sophisticated people, then they ask you what round were you in. And there's all these data sources that

SPEAKER_22: then LPs look at and they know who was in the early anthropic

SPEAKER_25: rounds and they even know which partner at a firm was in that round. So if you're a partner at a firm and you go start your own venture firm and you're like, yeah, I was early in Uber

SPEAKER_89: play these games with your logo page then they're going to ask you what are they paying? How many seats do

SPEAKER_16: they have? So you can play these games, I think Nival says it like play stupid games, win stupid prizes. The prize you win is you lose credibility. So you

SPEAKER_85: gain credibility when you're peacocking

SPEAKER_14: and then you lose it when it comes down to brass If you have an

SPEAKER_32: MOU you're about to sign,

SPEAKER_228: you shouldn't report that to your board as a completed deal. The joke

SPEAKER_89: I have when I'm mentoring founders at Founder University and Accelerator is when they say we have a letter of intent, I say what a VC here is letter of nothing. You called it a letter of intent and

SPEAKER_03: LOI, we

SPEAKER_19: down from about 50

SPEAKER_32: to about 25 in the last couple years. Yeah, these numbers are extremely hard to track.

SPEAKER_27: There's no perfect source of data for them. Everybody tries to

SPEAKER_22: do this. Here's all you need to know. In a hot

SPEAKER_198: of you saw his viral speech. The hype video.

SPEAKER_235: He's like, let's get that money.

SPEAKER_23: It has less to do with the startups and more to do with the conditions in the field. During peak ZERP,

SPEAKER_22: everybody had TVPI that was through the moon. I had one person tell me they sell all of your shares and be a legend. I know you're Chris Saka and you hit Twitter and Uber and the same $8 million fund.

SPEAKER_25: You'll be guaranteed that same fund.

SPEAKER_89: That company became worth 95% less. They were like a 1.5 fund now. Your obligation as a GP is to get liquidity and to hit three or four X for your fund. Ben has to return 500 million to a billion in order to stay in business. Pull through is one of the things people look at. Again, sophisticated people know in a hot market pull through becomes unnaturally large. In a down market pull through is unnaturally depressed. That's where the real investors make their money. In a down market being able to pick which company

SPEAKER_16: capital is about deal flow, decision making, doubling down, and distributions. The four D's is what I always tell folks. That ability to double down correctly and to

SPEAKER_89: distribute. Those two D's are so hard to get right. I have spent the last five years trying to get better at those two.

SPEAKER_49: Ben, I'm curious if you

SPEAKER_228: are we now back to normal if you will.

SPEAKER_38: You're looking at percentages and not at numbers. To Jason's point, the macro in 2021, there's tons of new funds, tons of flush money.

SPEAKER_43: The graduation rate and companies being funded, there was a lot more companies being funded in that period than in the prior period. As soon as in 2021, there was a retraction in terms of the number of dollars flowing into venture, the graduation rates then dropped. I think all we're seeing is less money flowing into venture firms across the last five years, which is slightly turning right now. I think we're going to talk about that in a second. I think that's a reflection of the reduction in the number of seed So therefore you see fewer seed companies.

SPEAKER_17: I think there's also an element of you had probably like if you just look at this chart that you pulled

SPEAKER_70: up, it's like 10 years of more and more seed stage companies, lots of software. You hit a wall in the past couple years where if you are not an AI company, you're not raising a series A. So if you didn't make that

SPEAKER_198: interesting observation Ben, it could be and I have seen this before,

SPEAKER_89: founders graduate from our accelerator and if we have 10 companies in it, we'll see five or six pull through. And then I always tell me about the other five that didn't pull through. Increasingly I'm seeing two of them just opt to not raise money because they don't need it.

SPEAKER_251: So

SPEAKER_89: that's another weird trend occurring which

SPEAKER_22: did in most cases but how they operate their business they're like I don't have the time to hire two more people I'm just automating all that with AI and that is the real trend the founders owning more of the cap table raising less money to go further I invested in note at 20 but they didn't actually raise that round it was just they wanted to reward some friends I guess

SPEAKER_16: and then Alex came to me and said we're raising at 250 million and I was like great and they're like do you want to sell any

SPEAKER_89: shares and I table you know at that series A and B is going to become more and more expensive and if the entry price becomes higher then the exit has to be higher and what we've all learned over these years is TVP easy DPI hard DPI very hard especially with the SaaS markups so many of these firms are zombie firms now they raised one fund maybe they got to their second and all of a sudden they couldn't bridge the gap between the paper gains and the distributions and that is the art of venture

SPEAKER_253: capital there is distributions and knowing when to sell and I see and Ben shaking their heads

SPEAKER_255: because I'm guessing y'all have something in your portfolio that

SPEAKER_23: you were like if I could sell this whole thing I'd sell it have a 3x fund already with some other optionality to hit 4 and then I would be able to raise my next fund that much easier and it's really hard right now for venture capital because if you had put your money into the mag 7 you would have been liquid and you would have beat venture capital the last decade the

SPEAKER_22: conversation amongst LPs is why be in venture why should I bother with venture and I was talking to one of the largest sovereigns in the world when I was and we get it every year and

David Friedberg: it's more liquid why would I ever do venture and we really have to justify why venture exists again

SPEAKER_41: because the vast majority of LPs are looking for predictable performance predictable reliable

SPEAKER_43: performance I mean it's obviously they don't mind if you return 100x fund but if you reliably return 4 to 5x in every fund that's great for them because they can put the dollars to your fund and make sure they get 4 to 5x back every single time this is a known reliable quantity and allocating that is much easier

SPEAKER_219: than the 0.9x and 17x Ben

SPEAKER_19: how many firms can hit a 4 or 5x DPI across let's say a 5 fund run that seems to be a

SPEAKER_43: what are the numbers Jason do you know the numbers I think it's like 95 90% the

SPEAKER_45: 90th percentile I think is 2.x yeah yeah to be a

SPEAKER_261: 3x or 4x fund put you in the top 5 or 10% yeah yeah yeah

SPEAKER_181: and I think they know the words too like 5 funds in a

SPEAKER_70: row like not possible USV has barely even done that founders fund has like I don't think they've done 5x 5 funds in a row like yeah right DPI maybe TVPI like actually returning the capital like you need a pretty long period of time too so I feel like the industry hasn't been around a period I think where they like famously they were able to return capital to investors but it was like a huge deal that they like gridded it out and like willed this fund into

SPEAKER_181: actually returning money that probably should have lost capital so it's just like very very

SPEAKER_16: into the one or two winners in that fund just to get that fund to like 1.5

SPEAKER_89: X or 2 X that's how desperate they were to save the reputation of the firm during the down market and

SPEAKER_22: so it's one of the hardest businesses to be in a lot of the reason people are in it is to get early signaling

SPEAKER_89: so if you're running a family office having some 10% in venture means you know what companies to double down on in the pre IPO market so there is a reason to put 10% of a family office or an endowment into venture is just to know what's coming around the corner that is one of the hardest industries I suggest nobody do a seed fund I suggest nobody do an incubator leave it to the professionals on this program we don't need any more competition down here let us do all the said I have a piece of advice for you why don't we take the 250 why don't you put 75k in you know or 100 and do my next three funds and I saw him at liquidity the other week he said you're the only venture capitals who didn't take all the money and told me to do that so I just I'm putting it into your next two funds as well and I

David Friedberg: said yeah because time dispersion as well what if you deploy all your capital in peak zerg those returns will be muted you've got it at a high price and you can't exit where you exit at

SPEAKER_25: a low price then when I invest in Uber Twitter we were passing the hat just desperately trying to get Travis you know or Evan Williams you know 500k a

SPEAKER_22: million five like we were desperate to find somebody to put that money in because VCs were like too young too crazy you know I'm a pass on this one but let me know when they get there when they hit profitability or a million in revenue and then

SPEAKER_19: become as big as those companies Jason mentioned did because I feel like with larger funds going earlier seed prices going up it feels like those like passing the hat moments just don't seem to happen as often I

SPEAKER_70: you if you just read Tech Crunch or the information you think all these companies you started you left open AI and you raised $100 million to start a new AI lab those happen but that's not everything that's going on there's a lot of people they raised $2 million have a hypothesis like we're going build talk about Hanover Park again they raised $2.2 million and they're building like fund today you go to Sequoia

SPEAKER_181: website and I think the head blog post is AI native services companies

SPEAKER_70: that's literally what they are so I think it's a lot of being a little bit willing to make a good team and the way the market is moving you're solving a specific problem that's probably going to be a lot bigger you have this hypothesis around this customer that's going to be super valuable that you can generate a lot of cash flow from in the future and you can build products to help them whether it's AI whether it's hardware whether it's a CPG company I don't know I

SPEAKER_43: we call undiscovered gems because they have to be undiscovered and they got to be gems if they're discovered gems then you're paying 50 100 million posts 200 million posts a billion posts they're all known quantities so typically the undiscovered gems get one of two categories one is the first time founder where people don't have a ton of signal so you just have some spidey sense and a mixed reputation because they had previously left their company in a way that people didn't like right so you see this like Parker for example he's killing it with rippling and people are thrilled to be investors in rippling but at the time when he was first raising his first round he wanted all of the original Zenefits investors to reinvest and he said Ben I want you reinvest because it's clear that my investors still support me so we invested in rippling but at the time to me it was obvious that Parker was incredible was incredible now but there was a moment in time when all our reputations have ups and downs and ups and downs and sometimes when a founder has a really can get really great prices but they have to be undiscovered gems

SPEAKER_19: Jason do you think that if you were going back now and starting your investing career it would be easier or harder to find those

SPEAKER_284: undiscovered gems you

SPEAKER_82: know the entire corpus of startups when I started 12 13 years ago

SPEAKER_16: you got seven

SPEAKER_22: associates in training at our firm and we're having five more start next week those 12 people working at our firm out of school in training from researcher to associate to analyst to associate is our training program I had them doing 140 meetings per week first calls at the peak and then we invested in 100 companies so we were tracking towards

SPEAKER_25: 7,000 first meetings called from call it a run rate of maybe 20,000 applications

SPEAKER_16: and I don't think we had more than a third of the startups that were being formed so there was a Cambrian explosion if I'm using that word correctly

SPEAKER_22: of startups over the last decade because it's so much cheaper and I 100,000 startups are going to in the English language in the West I'm not counting China and India and some of those other great markets just in English based going through an incubator etc launching a product getting it to market I think it's going 1020x from here therefore it's really a sorting problem

SPEAKER_89: and a deal flow problem and just I said before the four D's

SPEAKER_16: your deal flow is

SPEAKER_89: do you know any startups you know any founders please introduce me jason is my email for life please the second you meet a founder tell them you know me and email me I

SPEAKER_16: contact you a week now Turner and how many did that before you mastered social media and podcasting

SPEAKER_70: I average like 20 a day I mean there's a caveat though to this where like some of them might not be that good quality right like you might go from getting one inbound a day to 10 or 100 and with all of those rungs of the ladder 90% are not very good like there's just there you shouldn't invest in them or shouldn't even take a meeting not going to make it yeah but if you say you get one a day and 10% of those is worth taking a meeting you maybe do one meeting every two weeks if you thing that looks the most interesting to me I'll meet Alex and I won't meet Ben and Jason and maybe Ben actually built the unicorn and Alex failed spectacularly and Jason also was super successful

SPEAKER_181: and you just messed up because you got it wrong so it's I mean it's challenging I think that's the hardest part of it I

SPEAKER_59: don't envy you guys because I think every time you pick you making

SPEAKER_228: several anti choices and that would haunt me forever if I didn't pick the one that ended up being worth a trillion dollars

SPEAKER_43: Alex one of have hundreds million or hundreds of millions of dollars in revenue that did not exit and then now have this trouble this problem of like okay we have hundreds of millions of dollars in revenue we are not we're now not growing fast enough to go public and we have to figure out how exactly to justify the last run valuation if we can even have half of that and how will exit so there's a ton of the trapped TVPI that did not become DPI which became a problem for the entire industry for the LPs and the GPs alike right there's a whole group there's a whole like I don't know how much it's like hundreds of billions for sure that are trapped there yeah I was

SPEAKER_82: talking to a venture capitalist who had one of the hottest SaaS companies I think it was

SPEAKER_89: Airtable and this is an incredible company and you know that is like 5x or 10x is one of his funds Airtable is doing great great company but I'm sure there's a hundred you know Airtable killers that are AI first now and this is why M&A is so Biden was you know specifically picked Lena Khan because she was

SPEAKER_22: anti corporate America anti M&A and man that put a chilling effect on our industry and it's nothing to do with Democrat versus Republican it just has to do with the stupid decision what they didn't realize about M&A is that

SPEAKER_89: if those companies can't exit then that money can't get recycled to the next series of founders and then people and it just basically threw a case of wrenches into the machine they didn't throw a wrench in the machine they threw a box of wrenches into the machine and listen I've got plenty of criticism of the current administration you can listen to all in when we talk about politics but the one thing they got right was they said hey M&A is on the table go ahead and go for it we're going to properly address if it's a monopoly or not and I told the administration I told the previous administration the current administration and everybody on my podcast who would listen anything under $250 billion can buy any other company what you want to do

SPEAKER_64: and what we want is for America and as an industry is by letting Airbnb and Uber and DoorDash merge let Coinbase buy you know Solana or Solana buy Coinbase I don't know whose valuations let it rip let there be another Google but because they blocked everything you couldn't have Figma join Adobe it was the stupidest blockage ever who cares if Figma got bought by Adobe who cares if Amazon a couple of robotics companies it's so de minimis it's so irrelevant in terms of competitive landscape and all it does is make products cheaper for consumers which is what we're all concerned about choice and price can consumers get what they need for the right price there is no world

David Friedberg: in which Figma getting bought by Adobe was not accretive to consumers and obviously that all would have been recycled you're telling

SPEAKER_64: me that like if Figma got bought by Adobe they were going to raise the price of Figma 10x because there was

SPEAKER_228: Airtable point in particular Jason brought it up Ben

SPEAKER_19: so I want you to be able to defend your port co here they launched super agent in January of this

SPEAKER_43: across the entire company and the second is being the plumbing and infrastructure layer rather than being an LLM or being just in the app layer so I think the jury is still out we mentioned many times we're in the first second innings of this

SPEAKER_125: thing so I think there's still a lot of time to watch how it plays out over time

SPEAKER_284: another one of your port

SPEAKER_19: codes Gusto earlier this month announced a thing called co founder which is kind

SPEAKER_43: about the platform play and essentially eating all the apps if you have a strategic high ground in a specific area how do you use that strategic high ground to build more surface area so the Amazon basics the Google and all sorts of one box and search and AI answers the Microsoft and the Lotus 123 to Excel et cetera et cetera so I think it's exactly the same thing for every single company and you have to always think through so this is one thing that we think through when we're investing in a company is what is strategic high ground that this company is going to occupy and what monopoly will it have over time because if it doesn't have strategic high money but it's otherwise commodity

SPEAKER_19: yeah I agree with that Turner your portfolio question is very simple it's just this what is your favorite startup you've ever backed and why is it Hanover Park okay

SPEAKER_17: well I mean I think anyone who's a venture investor has used a fund admin if you're an LP

SPEAKER_70: you've used a fund admin you've interface with them and I mean on average they were started before the internet they're basically accounting firms and they don't really make software their engineering teams they don't even call them engineering teams they're the IT department they're on average they're using QuickBooks Excel you may be using ramp bill.com they're manually sending you PDFs and emails it's just like it's kind of one of those businesses that just has not really updated to modern times and for good reason it was hard it didn't really work but with LLMs you're just able to automate a lot of this stuff and it's pretty simple it's like literally reading PDFs making it digitized and making it data and then you automate it like we were seeing with cloud co-work so that's essentially what they are they're kind of that really big contract sizes that they get with their customers they're winning a lot of deals head to head in the market so yeah it's a fun one if you're a VC you should consider I

SPEAKER_322: this

SPEAKER_82: is child they're all I mean it's you

SPEAKER_89: one of the great arts I think of being a great early stage investor is your whisper network and we actually call it the whisper network internally and to this day when something's breaking out of my portfolio I will just I will not even tell the founder check out micro one check out abacus check out auto lane those are the three I've been sending and

SPEAKER_16: it's not if they're raising money whatever I just send them because I think they're doing something super interesting and I say hey I think one of these will be the next uber or Robinhood I

SPEAKER_22: people on the investment team now we're adding these five so 15 16 people and then in the whisper network we have every investor and then the founders can go in there click who they want an introduction do and then we process the introduction they put in what their collateral they want to send is and then we forward it they share that with their founders hey here's all the things we did for you we

SPEAKER_198: retweeted this we introduced you to this person we recommended these three people for this job

SPEAKER_22: and now we're keeping track of it so we can say to a founder hey we introduce you to 127 investors how else can we be helpful and man that has really helped our relationship with founders as well because sometimes the founder would be like oh my god you know what have you done for me lately kind of thing they're they're in a

SPEAKER_25: stressful moment and they're like you're not you're not investing in our new company and

SPEAKER_89: I'm like you know in our new round and I'm like well we're early stage we can't be your permanent source of capital but we can introduce you to people we've introduced you to 127 people and I got into it with one founder who's like so it's my fault I didn't raise I said and I have a little text expander on my computers and it's QC and when I type QC into a message quick call if you have a moment please with my phone number and he called me and I said listen you asked me a question is it my fault I didn't raise my next round and the answer to that question is yes that's your job you have to close these deals I can get you any meeting I can get your deck in front of anybody but it is your fault if you didn't close around it however many hours it takes to fix those problems but it is your response I literally and it was contentious and the founder was like well this doesn't seem very founder friendly I'm like let me tell you something

SPEAKER_328: you can do I said

SPEAKER_89: you're going to email me in five years if this company succeeds or fails and you're going to say to me thank you for being candid with you and it might be hard to hear it from me that you failed at your fundraising but I'm telling you because I care about you and listen we have LP money in this we want to see you succeed you've got to step up your game you've got to get better performance all you need to do is put together 12 weeks of 5% growth week after week it was like you know a product that you could show that for it was a consumer product and he's like you know he was not happy in that phone call couple of months later he did it he closed his round here we are you know it's just hard to be a VC because you know what and a lot of VCs are sugar coating all this stuff and I think the tension of investor

SPEAKER_22: to founder is very real and it's not talked about enough and it's very easy for founders to get frustrated with their investors and it's very easy to dunk on VCs remember we had this like three weeks ago when everybody's dunking on Vinod Kosla dedicated his life to he's like one of the goats of the industry you should be thankful that he took the meeting

SPEAKER_115: with you what do you think Ben of that whole thing

SPEAKER_43: oh I agree I think that it's tricky to be VC in today's environment one of the things that we do though is we tell our founders during the pitch meeting before we invest all the good things and bad things that we hear about us so you know including like the good things like being having a very we give them the feedback like it's the unvarnished feedback just like for example the feedback you gave there how I said it's the best thing you can do for founder that's the most founder friendly thing you can do and so we tell them that we have that matching algorithm before we get matched of can you handle the tough feedback are you open to the tough feedback because if you what to do with it we trust you to figure out what to do with it but we are not going to hide the feedback because I think in today's society you get torched for saying something that people disagree with you and we can't have that we need to be able to say here's a perspective etc

SPEAKER_38: and then consider the various points of view and the founder can decide which direction they want to

SPEAKER_147: take how many years have been investing I

SPEAKER_72: raised my fund at the end of 2020 beginning of 2021 so my objective decade one possible time

SPEAKER_16: well I mean or maybe the best because you're going have to coddle founders you have to you know are you at a point in your career where you feel comfortable giving you know the hard hard having the hard conversations have you had to have hard conversations and how do you manage that aspect of the job Ben and I are old school OGs we've been around the block we're not afraid of having that conversation or I think I can see this in Ben like he'll take the short term reputation damage or the relationship damage in order to have the long term respect and outcome how are you managing it as a decade one investor and do you think about it

SPEAKER_70: raise a series a and I I'll be honest this seems like a pretty hard setup because of these reasons you probably need to have these other things going on and I'll just kind of be pretty transparent like this is just my opinion and then they raised like a crazy series and like holy congrats like what did I know so that's probably been the thing is doing really well too now so again it's like what do I

SPEAKER_289: know I'm just some random

SPEAKER_83: Ben how do you handle the same situation you got a founder trying to do something completely delusional you got to give them advice but

SPEAKER_156: you know there's a 5% chance 10% chance 20% chance they might pull a rabbit out of a hat so how would you advise Turner to handle those situations how would you

SPEAKER_43: frame the discussion what we do is we outline the options we see there's option A option B option C you think it's option A we can have a conversation around it and we say at the end right path we as a company need to know how to turn around or turn different direction right

SPEAKER_45: so it's but we have that honest open debate and allow it to happen but we let the founders decide

SPEAKER_127: see I think this is the perfect framing Ben

SPEAKER_89: is you're telling them like hey here's the decision tree this is where I stand on it this is where you stand disagree and commit with whatever you choose I think it's beautifully stated and that's what founders need they don't need sycophants if you've seen the movie before and you've if you know you're the person working in F1 and you know this turn on this

David Friedberg: track is where people spin out it's your obligation to tell them hey you're going very fast the people I've seen take that turn that fast flip the car you might be the person who figures out how to take that turn at speed but the other three people I've seen take the turn at that speed flip the car is there anything we can

SPEAKER_16: only request my only request in fact it's a demand is that when you have your next idea you come to me first because you're a great founder and we'll back your next company just do as good a job as you can on

SPEAKER_83: this one you know

SPEAKER_34: I don't know if they put together

SPEAKER_339: oh dramatic

SPEAKER_32: camera okay all this costello glasses

SPEAKER_19: yeah so there's a phrase in the army called BCGs because they give you glasses that are kind of standard issue and BCG stands for birth control glasses because they're so thick and attractive that no one's going to touch you that's the impression that I got from these now I Miami wardrobe I

SPEAKER_43: have not put in this in my preorder and it is not going to be in Miami wardrobe

SPEAKER_80: okay that's pretty affirmative Turner you're more of a dork like

SPEAKER_43: ever going to put this thing on their face I'm like people pay a thousand dollars or more to get lasers shown in their eyes and risk blindness with LASIK so they don't have to wear glasses and you ask people to put this thing on your face and so I but yeah BCG I'm not sure that they are the I mean technically I mean they may be an excellent prototype or excellent technological feat but it's unclear whether it's going to be a fashionable choice I don't

SPEAKER_276: think it's going to be high fashion but I do like that they've made it with no puck or tether

SPEAKER_19: so it's not like a device that plugs into your at least it's self contained I'm skeptical at the price point I

SPEAKER_32: don't think they're going to have a lot of takers here but Jason I'm curious take us out with your view here a

SPEAKER_16: I mean I think three people have been murdered in that shower in that hotel room I mean look at the I mean just really really hard to look at here's what I'll say I think AR is a winning model I think that is the

SPEAKER_89: I feel like he's mismanaged snap as a publicly

SPEAKER_22: traded company with super voting shares and they've their stock based competition their stock based comp has been crazy I think he's one generation away

SPEAKER_88: from making these work I think this is a way point

SPEAKER_23: yeah so I think he's one generation away I give him credit for being bold enough to release

SPEAKER_22: the product to release it at the price it one I think he needs to run that company for profitability and keep pulling the string if he thinks this is the future get rid of all the stock based comp I know he downsized the company a little bit the company could be managed as a public company better I'll put that

SPEAKER_89: he seems to be laser focused on this so I give him the benefit of the doubt I think he's one generation away I'm tempted to buy them because I do think that he like I said one it our stocks at five bucks we've

SPEAKER_16: got cash we've got smart people go for it let's see if it works throw the Hail Mary or you

SPEAKER_193: know whatever it might be it's more like a half court shot than a Hail Mary but you

SPEAKER_43: form factor has to get small enough to not be BCG as you call it and the price has to be low under a thousand well actually I mean the counter argument to that is the iPhones cost a thousand dollars right so yeah that's why I picked a thousand but it took

SPEAKER_365: us a while to get to they boiled the frog exactly

SPEAKER_24: with a three year lifespan a buck a day if this thing lasts for three

SPEAKER_82: years or if you sell it for a third of the price every two years

SPEAKER_156: I think a buck a day is the right price if you were to

SPEAKER_19: shows this is from a video I took a still from it this shows essentially someone using the glasses with a projected display in front of them and in this example they're using their hands to expand and contract the map which is mildly more useful than holding my phone up in front of my face but not too much so I'm not quite sure why this is the killer use case but I will say I agree with everyone here that AR in general is a really magical thing to use I'm just not quite sure this is

SPEAKER_88: and he said if it wasn't for the weight he would use it

SPEAKER_89: instead of having a desktop computer because the fidelity is so great and you can

SPEAKER_16: whenever you're ready this is a prompt here we go we've learned that Ben hasn't upgraded system since the Mac versus PCR there's Ben with his

SPEAKER_89: and yeah we got this photo of you well we went on your Flickr account these are old photos we learned that Sam is listening

SPEAKER_379: I know

SPEAKER_380: it's deep people like what's Flickr what's Flickr yeah I mean just look up the Wikipedia page

SPEAKER_89: here the lives of others Sam Altman always listening Apple sometimes kneecaps their own apps on purpose there's your guy Tim Cook angling himself I guess I would have gone with the misery you know AI slot for that one if you didn't know I was an early investor in Uber cab we learned that today tokens are the new hard drives that's something we might have learned Walmart doesn't need AI to be native that's a deep hole very well done peacocking it makes you look less serious and remember the four D's deal flow decision making doubling down distributions don't start a seed fund and you need to discover gems there's Turner Raiders of the lost seed round and finally snap might way to make specs happen hey as we end the program we

SPEAKER_22: had another guest on the panel good friend of mine joshua bear he died yesterday in a tragic flight i found out before the show josh bear was one of the great supporters of startups in the history of the technology industry he was a dear friend of mine i'm kind of in shock right now i'm still when i was thinking about moving to austin during the pandemic he was so excited and i just found like some dms and it was during covid to date this and we were going back and forth talking about when i could come for a visit and he was going to help me find a

SPEAKER_89: this is the mens of all mens i said i can afford to pay rent he refused he said having you in the building is an incredible draw he was texting with me yesterday so excited to come on the pod and talk about the startups and one of my team members showed me this tweet from 2017 this is

SPEAKER_186: september 12 2017 from austin texas

SPEAKER_191: the town he championed joshua bayer my life strategy number one plant lots of seeds two

SPEAKER_89: water everyone's three repeat if that doesn't encapsulate the spirit of silicon valley and the way we help each other way we support each other I don't

SPEAKER_279: josh's family all of our love yes and thanks to our guests ben and turner you guys were fantastic we'll see you all next time thank you