Stripe's $8B OpenRouter Bet | Anthropic's First Profit & The Math Behind Reaching $600B in Revenue? Transcript, AI Summary & Key Points

00:00 SpaceX closes the $60 billion all stock takeover of Curser. >> Your gross margin problem is my revenue opportunity for my Colossus cluster. Pessimus sounds smart. Optimus die rich. >> Open Rud $7 billion acquisition by the Irish Pollson Brothers. >> It'll be like the scale acquisition. It will be the start of something that gets bigger. I don't even think this product will exist in 5 years.

00:20 Anthropic turns its first profit on 11.5 billion of Q2 revenue. You can't add expenses below the line fast enough to stop yourself making money. The only thing that matters will be the growth rate in the 27 and 28 projected revenue. Someone who was hired with a million dollar package in 23 ended up making 51 million 4 years later. On the consumer application side, Higsfield raised at a $5.5 billion price.

00:47 And then you have Lovable raising at a $13.3 billion price. Guys, we've talked about these companies a lot. How do we think about them? Ready to go. Boys, we are back. We have some mega news this week. SpaceX closes the $60 billion all stock takeover of Cursor, minting, thousandx returns for the likes of Annie Partovia Neo. Open AAI's startup fund is a mega winner uh who invested six to eight million dollars very early which Rory I thought of you when you said before about Elon Musk giving Sam billions of dollars

01:32 through gritted teeth um and many others thrive and most importantly netting huge returns. >> What do we have to say on this one? It's the closing of an already announced deal. Thoughts? >> I just had three things of it. One is it's just super, you know, we've been doing this show about 70s something weeks, you know, or so on. So much has changed in the middle of it or maybe a third of the way in.

01:57 It almost seemed like Herser was dead. You know, no one's portfolio companies were using it. Um, I I don't even remember if Claude Code existed when we started the show or not, right? It might not have it. It sounds so crazy. I'm not sure it had launched, right? So, Cursor was super easy. LA rockets to half a million in revenue. Half a billion in revenue.

02:14 Cloud code comes out and all it seems like everybody's moved like cur cursor's dead, right? Cursor goes multimodel really early. It changes everything and rockets to a 60 billion outcome. I mean, forget about that. It started as an email client, right? That fun little thing from HackerNews. I mean, God, what a I can't imagine what a roller coaster it was on behind the scenes.

02:36 This was not actually 100% linear progress to 60 million. Um, pretty pretty crazy. I think the rate of the rate of change and the one thing I just kept thinking is um and it's tough it's how important it is to be beyond agile because I think so many teams would have given up on that journey right oh my god [ __ ] cloud code came out I got to build my old LLM I got to do like and it just I mean I I and it's just it's so hard to keep up with the rate of change and there's probably been three different cursors since we

03:08 started other than the email client that was my main thought the second someone is how how it ended up not even being that expensive by the time the deal closed. >> And you say that because it's going to be at 6 billion end of year and then you're paying 10x or you mean it because >> yeah paying 10x forward revenues if it you know and it went from something earlier in the show it looked like it would be gross margin negative right when we started the show be like well cursor is a joke because they're selling a dollar

03:34 worth of tokens for for 80 cents or 50 cents to to the world. Of course it works, right? This was the classic thing that VCs would mock when we started this show. Um, and it was true, right? Turn around everything from open weights and everything. Um, it's a pretty darn good uh business model selling at 10 times forward revenue. I mean, that's a Elon got a Elon was a shrewd buyer.

03:56 >> I'm intrigued why Zuck didn't buy it. He's building the model capabilities with Alex and Co. He's missing the enterprise capabilities. This would have solved that in a similar way that it solved it for Eon. >> Interesting tangent. And yes, if if the logic is, hey, you've got a whole bunch of compute but not an obvious business on top. The two people for whom that's true are Meta and SpaceX.

04:16 And you're right, SpaceX did it and Meta did not, right? So that's yeah, at a high level, it's a fair point. But one of the things we we pointed out in the agenda is SpaceX could move a little more exp. They didn't do one of these weird aqua hire things. They just bought it like a regular old corporation. They didn't have any antitrust. I mean, they actually filed for antitrust.

04:36 they got quick clearance. They didn't have any compelling issues with that. I don't know if the seller would have had the same confidence um that um the seller would have the same confidence that Neta would have gotten through, right? Just given their DOJ just they just probably are going to have the DOJ more kind of crawling through what they do. So that would be one argument.

04:58 It may also be to be very direct, no one else had the stomach for the bed on the way Elon does. And I mean yes meta is relevant here in terms of fitting the characteristics of lots of compute no compute business on top but Elon has the biggest advantage which is the stock is trading high they're doing what 20 I mean it's 8 billion last quarter in revenues call it 30 billion growing round up to 50 what the hell you know right it's still 40 times revenues right picking up a big asset as Jason says at you know 15 times

05:29 current revenues maybe less than 10 times year end revenues dirt cheap for him right a net a creed of day one in a way that probably wouldn't be as true for Matt I haven't thought about it all that much cuz frankly until you mentioned it I hadn't thought of that but it this was I mean one of the things for me is if you zoom out and just reflecting back on Jason's comment on the gross margin negativity right that's true that story was true when it happened and it's still true today there there are challenging margin

06:00 issues right and what you what you when you reflect on the journey, you kind of the things that the negatives that you can cite along the way tend to be true. They're correct. Those were real. And it's a question of the positives. And when you look at an investment, the positives in terms of market trajectory just outweigh the negatives. I mean, it's easy to sound very kind of financially smart and say, "Oh, in the end, everything has to generate free cash flow.

06:25 This doesn't have gross margins, so quote, "In the end, it's worthless." But it's wrong because along the way when you have a market that's exploding like coding that's a huge market remember this is the biggest market for AI like 70 80% of entropics trillion dollar market cap is predicated on this right if you have the if you have the number two player in that space and you're growing hyper fast then even though yeah you got gross margin challenges the buy especially in a kind of optimistic forward-looking market the

06:56 buyer's going to look past that and say there's only one or two ways to play in this space at a meaningful level and it was just a perfect fit. Right? In a very frankly in a very different capital markets, it could have been a very different story. You know, oh my god, there's no capital. Oh my god, the gross margins. Oh, no free cash flow. Maybe you have to slow down and do a very different trajectory as cursor.

07:14 But in this market, they were able to go balls out, for lack of a better word, have those tough gross margin stories, and then find a buyer who not only was willing to look through it, but actually had every incentive, every ability to solve it because he's like, "Your gross margin problem is my revenue opportunity for my colossus cluster." So, it just shows, yeah, the issues, the negative issues didn't go away.

07:40 They just got swamped by the optimistic take. And that's why, you know, it's the old cliche we talk about, you know, pessimists sound smart, optimist die rich, right? Those guys had Jason Jason said it. There was probably some very tough days, but they had the guts to keep moving forward. And because the market's huge and because frankly the environment is risk on, they've had an amazing result.

08:01 Good luck to them, you know. >> And on the meta thing, it's just a detail. I guess it's a it's a parallel universe question, but I mean Zuck would have had to pay 80 billion 70 billion in like a week to do the deal, right? That'd have to be very core because don't forget cursor what happened was Kurser was about to close around two billion at 50 billion right from Andre and friends and Elon Elon did what you have to do in that situation.

08:26 What does it take? So he bid 10 billion more, right? You've got a deal at 50. I mean, Zuck did Instagram and WhatsApp like in an hour on the back of a napkin and paid high, right? But, uh, I think Elon did even better. What's it going to take? They were already working together with Cursor, right? They're already working together. Um, we're going to do the round at 50.

08:46 Would How about 51? No. How about 50? 60. How about 60? Okay. And well, the deal might not happen. Well, what if we pay you 10 billion if it doesn't happen? Well, okay. I've removed all the objections from the deal and and I'll let you run the company the way you want. Right. I I think it was three points and they shook hands and did the deal. I mean, uh, Zuck can do the same thing.

09:06 He's done it at least twice, but you got to want it bad to do it, right, at 80 billion. And he would have had to got move even faster. I mean, Rory's, of course, right? Uh, uh, Elon had the ultimate stock and currency to do this deal, right? And the ultimate match. Um, but to do any of these deals, I think you got to be Elon or Zuck because you got to just strike this deal in a week at 60 billion.

09:26 I mean, it's only a handful of people can do this, right? I don't even know. Only a handful. >> Agreed. And you know, I I was reading, you know, Noah Smith, who's kind of a dem center but moderate centrist blogger who's not an Elon fan, just wrote a great piece about a year ago that says only a fool denies that Elon Musk is wildly effective. He is, you know, regardless of your opinion on the merits of it, he's one of possibly the most effective person on the planet at getting [ __ ] done when it comes to

09:56 industrialization, physical AI, and AI, right? And you know, from a standing start a year ago, he built the cluster and then he bought the product to still on top of it. And he took SpaceX from literally a year ago being a really amazing rocket and satellite con connectivity story to being as the S1 says at least in terms of the quote future prospects 89% an AI story.

10:19 I mean you saw his tweet you mentioned it a year ago you know I've underestimated some version of underestimate AI time to go. He went from a standing start to owning more compute than any pretty much anyone else and owning a product the most important product to fill that compute in less than a year just over a year. That's just wildly effective management just it's it's it's a world class in getting [ __ ] done.

10:44 The other the other small factor just thinking about it we can move on but imagine you are Michael Kurser right and things are going pretty well. You've got a you've got a term sheet from uh you're what 24 um you're a paper deca billionaire um and Andre wants and Nvidia and Thrive want to put in money at 50 right you're not that cash motivated you could take out a billion right or 500 million right things are going okay these are very rare deals but I I even though working with Elon in a year might turn out to be

11:15 terrible right I I would much rather initially work for Elon than for Zuck personally I would do it like I would be Elon is the guy I want. If I had to work for somebody, it'd be Elon. I mean, he is better than me. This guy is [ __ ] rockets. Uh, he does everything. And and Zuck's firing everybody and and going crazy because he doesn't have an LLM. Um, not that he isn't one of the greatest entrepreneurs, but I wouldn't want to work for Zuck, but I would want to work for Elon.

11:41 And and that actually matters. It may be a mistake in M&A as a target, as a CEO, because we've all when we've been founders on the other side, we've made mistakes here, right? I I tell ad founders to ignore it. Ignore the brand. Ignore what you think the job is today because you have no idea in 24 months what the hell you're going to be doing. But it is very it is incredibly emotionally important to founders to to land in something they want to land in, right?

12:05 And I would not want to land at Meta today. If I was Alex at scale and I got 24 billion and I I had a tough business maybe. But this one, man, I'll I'll take Elon over that one. >> Do you think Amazon or Meta go eh? will take cognition instead. Is there a knock on effect for the second player in market which I think arguably now would be cognition. >> There's actually a quality of absolute imperative to do something you know who has to and I think SpaceX had to because they had all this compute and it looked like they

12:35 had to fill it. Now subsequently they've also been able to rent that compute to Antropic and Google. I don't think it's nearly as existential for different reasons to the two you named and I'll name one for whom it is. um for Amazon, you know, they're in the AWS business. I mean, they got lots of contracts with entropic. They basically have the compute for claude code.

12:57 So, they're basically getting the inference side revenue for that. They don't own the model, but it's important, but not imperative. They've never done a $60 billion deal that they're starting now. Meta that to me is more a again unlikely. And the reason they didn't do it earlier is their core business is an ads business. It's freaking amazing. This is literally I have a wonderful ads business.

13:18 It kicks off north of 100 billion. I've chosen to do this new AI thing. We can pretend it's strategic, but it's really I just freaking really interested in it. I don't know if you have to do another 60 billion deal on top of that one. So, not as imperative. I think just to put it out there, I'm going to name the one the the company for whom this market matters is Microsoft because you remember he's now long since gone and owns a basketball team, but Steve Balmer would jump around the stage sweat, sweating, screaming

13:46 it's developers, developers, developers, right? And the fact that they've lost that connection with developers that GitHub is now a trailing edge product is to me over the medium-term pretty significant loss. I mean the operationally the numbers are fine. It's a well-run company. But if you wanted to name people who should want to own a leading state-of-the-art coding product in this brave new world, clearly the number one person is Microsoft.

14:13 Now the antitrust issues would be a longer discussion, but I don't think in other words I don't think owning the developer is existential for AWS. I definitely don't think it's existential for Meta. It's 100% existential over the medium term for Microsoft. either a fantastic tweet that said Satio should buy it and then make Scott or CEO of Microsoft.

14:30 Um I thought that would be a rather ridiculous thing to replace himself, but I actually thought Scott would be a rather brilliant CEO of Microsoft. >> My experience with big company M&A um is that the idea that Harry, what did you say that that you feel like you've got someone else feels like they have to do a deal? What was the term you use? Sorry.

14:51 >> You feel like they've got to folks have to jump in to respond to cursor that everyone else >> Yeah. Yeah, >> my experience is that doesn't happen. It doesn't actually get everybody else to say, "Hey, I've got to go buy Cognition." My experience is that usually the other thing happens. I wanted to buy Cursor. I lost Cursor or I didn't even know I lost Cursor because Elon swooped in.

15:09 Now it pushes it up my existing priority list. That's how number two and number three get bought. Not because there's a panic for land grab, but because I didn't get what I wanted, right? That that that's when you got to be really thoughtful as number two. Um uh because uh that that's when you get bought as number two and number three I really when just number one just gets taken off the table.

15:29 It's not so much a land rush. It's just I thought a lot of times acquirers are like I thought I had more time. Maybe Satcha is like I thought I had more time with cursor like Andre do it at 50. I could do it at 100 billion next year. I wanted to wait and see. Um and they thought I had more time you know and they and they didn't. So then they go buy number two.

15:47 A couple times I've said on the other side I don't know that it creates such a strategic arm race that everyone just gets picked off instantly. that that might be a VC partial myth. >> There's another mega acquisition that happened this week. It's not quite the $10 billion that was reported, but Open Rud $7 billion acquisition by the Irish Pollson Brothers Broy, your brethren.

16:07 Um, >> yeah, >> I mean, what an incredible journey. Alex Satala, CEO, who I just had on the show, he founded OpenC before. It's obviously the leading LLM rooting company. Uh, raised a series B. It was a $1.3 billion valuation just four months ago. So it's 5x that or capital G. It's a 12x for Menllo and and how do we think about this? It's widely reported.

16:34 Now it's confirmed. >> You can see intuitively how Stripe get there from here, right? is that you know when you look at their existing business it's kind of a they get paid a small percentage of the money flow to manage complexities in collecting cash via cards uh and also by a now and here they're going to get a small amount of the money flow to manage the complexities of picking models and running you know as an enterprise using a single API to run you know tens of maybe hundreds of different models so kind of I can

17:06 see at the conceptual level it it totally makes sense and a lot of lift recently has come from um even on their payments business has come from just their customer base being so AI forward that every time you spend money with open AI or Entropic on a credit card they get some of that money. So I I there you know I I can totally see how they get there and again it's the it's it's some version of the same thing as the cursor comment.

17:31 You can do the old intellectual oh what are the barriers to entry for this business? Oh, over the medium term there'll be lots of people and there's a ton of weenie router companies out there and everyone's building one. But it turns out in an early land grab when people are moving, you know, remember the meta market here is growing 10x year. If you take Anttopics's growth rate as the big picture comment here, right?

17:52 If you move early and you build a useful part of the infrastructure, right, you will probably find an acquisition at a price that doesn't make any sense on a DCF to you basis, but makes huge sense to the acquirer cuz open just like Elon will turn cursor into money cash flow far quicker than cursor could have turned cursor into cash flow. I'm willing to bet Stripe will turn open router into money probably quicker than open router could do on a standalone basis.

18:21 So these kind of this is what happens in a crazy market is that if things slow down a lot of these you the acquirer would run the buy versus build and say there's no hurry we've got 5 years when things are moving as fast as they are now you're going to see in my view until such time as you see the correction and the acquirer currency diminishes you're going to see a whole bunch of people like on shopping say screw it I want to be in world models I'm just going to buy the card I don't have time screw it I want to be in

18:49 you know stripe screw it I'm huge in payments. I want to be in the AI influence flow. Quickest thing I can do is spend $7 billion, some of it stock, get these guys and be rolling in a week. This is what you see. You saw it at early internet stage. You saw it back in times even before that. That would make you cry, Harry, if I even mention them, right?

19:09 When things are moving really quickly in a buildout, you just see these kind of amazing acquisitions where the value to the acquirer dictates a very healthy price. And it's one of the reasons why venture works. you go right out there in the risk continuum, but if you time it right, you know, you can get these kind of returns and you know, well done A16.

19:28 Well done, Menllo. Well, well done Capital G. It's a reminder, you know, one thing I have a couple thoughts if you want to get into, but it's a reminder, you know, how weird revenue is in M&A because if you're bought by PE, like revenue and and top and bottom line are incredibly important down to the significant digit down to cell G38. Okay. uh if workday goes private, exactly what its DCF will look like in 2032 is so important.

19:52 The weirdest thing about M&A with big companies is revenue is so important to argue over multiples and and the price. Like it's so important to price, but it's irrelevant because it's all about what Stripe can make out of open router, right? So it's just it's such a weird thing that your revenue going into big M&A actually doesn't matter at all even though it's probably the biggest input to price but then it's it's irre like stripe lit what's opener doing 70 million 80 million today stripe does not care like for that

20:21 money right and so you often see acquirers will abandon even the existing revenue right to to to do the revenue it's just it's such a weird paradigm but uh I would just two things Rory's righte actually appears to be very good at acquisitions it's how it accelerated into crypto and otherwise they're good at it. The flip side you could say is maybe they should be better at building these themselves, right?

20:43 That's the grouchy version. Why didn't you build it? But they're if you're good at M&A and this is 5% of your market cap plus cash, right? And you want it tomorrow, it makes sense. If you're good, you have to be good at M&A though, right? And then and then you do it. Um the counterpoint is I love open router. I talked about it on the show like six months ago.

21:02 I'm a customer. I'm a user. It was brilliant. It was one of these pieces of software like 11 Labs which is just instantly easier to deploy. It's just elegant. It was just a beautiful piece of software but it's pretty niche >> in what sense Jason just a genuine curiosity. >> So let's talk let let's let's break. So so open router as I understand it and I'll and I think it's right is really strong in sort of developer type tools where you want a simple way to pick a model.

21:26 Okay, because you can pick any model. You don't need to get on fireworks. You don't need to set up anything. And it's really really really strong with chat bots where uh where like they don't have to be perfect when you're talking with my my digital Harry or digital Rory. You don't need perfect outputs, right? A highly you can route between models based on availability and those are their two niches.

21:47 Now let's talk about workflows with a lot of reasoning for B&B when it has to be accurate. Like you're gonna you're gonna bounce back to one or two models because you can't have model drift. You can't be routing from Kimmy to Quen to 46 to Fable and all of a sudden your your your like B2B workflow that has to be perfect drifts from all of them. It drifts.

22:10 Even just going from like one opus model to another, you see drift. You have to QA it, re-qualify it, fix it, test it. So for for for high reasoning models, people do that that frontieresque outputs, right? People don't rotate through 11 models and I don't think open router is the right product for that. And that's fine. They don't they they get that too.

22:32 But I think Stripe is, hey, listen, any transaction on planet Earth, we can take 2 point something% fair. >> But it's not going to be true for open router. It's a niche. It's a wonderful niche product. But in the in the world of routing, which everybody does, data bricks does, Replet does it, lovable does it, Verscell does it. It's a niche product with two really good niches.

22:50 But this is the risk to Stripe is that they end up owning a niche, a successful niche product, and that's not their their DNA is not niche, right? It's just not the reason. >> First of all, I do think that's fair because, you know, we internally agonized about this space and that was exactly what we're angsty about. And you're right and it it it cuz and your framing is exactly correct.

23:10 Like the positive trend, let's spell out the the positive trend is as long as you have the frontier model is trying to extract 100 billion in revenue from you this year and you're an enterprise, you're going to want a plan B, right? At least to keep the thing honest. So, you are going to want some kind of running. It's it's what you said that resonated with me Jason a little bit which is remember when cloud was starting people like oh I want to be multiloud it's really hard to be multiloud here maybe I want to be

23:35 multimodel but maybe I only want two or three models and therefore I don't need this kind of routing functionality that that that is the risk if your enterprise customer decides I need to flip between three models but not 10 then you write your value here goes down right I would imagine the the the positive spin is your value here goes up to the enterprise if you can build on top of just picking a whole bunch of normalization of all those options and try and commodify the model.

24:04 So that that's the kind of tension point it the more you can do that and the more you can service the people who don't care all that much the better your business. But you're right if JP Morgan says I want more than just onropic but I'm not going to qualify 10 models. I'm just going to work with poolside as my plan B and then offload the rest to something else.

24:24 Then then you're right. Then you have niche and you don't get that revenue. >> Yeah. Like for example like like this week Ripling posted uh their view as a B2B player of what models they use. Right. And they they had it all and they said in in the world world across Rippling we looked at two things that were best for us. Opus 48. It's an N minus one model but it's well trained with their harness.

24:44 And then there's like there's price performance and speed. And then I think they picked whatever GPT5.5 medium or something. and they said the rest isn't worth it for rippling today. Now that could change in 60 90 days. So they downspec to two at a time and then they have to manage the outputs from these and you may tune one set of workflows here right that are long reason in another and even if you're rippling scale you managing 12 models is too much.

25:08 Um, if you're a dev tool and let people pick, so be it, right? That's great for open router, right? Um, or if you want to build into your own product a fallback, open router is a 10 out of 10 for this. Like, let's say something's down, right? Open router automatically falls back, but I think it's a niche product, but it could be a massive niche. >> Yeah, I'm I'm remembering the conversations now because you are right.

25:28 The great thing about the core stripe product is all payments are equal and all and Visa is the rails for everything. That might be the case. Duly noted. Keep going on. >> Yeah. Yeah. Rippling said GLM 5.2 because I mean one of the big questions will be how much pricing pressure enterprises can put on the foundation the the the closed foundational model companies and how do they put that pressure on because I think it impacts a lot.

25:54 Sorry Harry go on >> in 5 years time will this be considered a successful acquisition or not? Bats on prediction. >> I think it'll be like the scale acquisition. It will be the start of something that gets bigger. whether this brand exists or whether even this product exists five years. I don't even think this product will exist in five years. But I think it will be I think there's a high chance more than 51% chance it builds into a into a 20 or 30% revenue stream for Stripe and that's enough.

26:22 >> But does Open Router as part of Stripe exists in 5 years. I'll bet you dollars to donuts. Five years is so much time and it's such a niche product. This this product itself, if it does exist, it'll be deep in a drop-own menu on the top of Stripe like 11 11 layers down. um because it'll be subsumed into their whole the whole sort of uh uh token management uh uh platform, right?

26:42 Their TMP. >> I don't know. I think that's I think Jason's answer resonates with me is if it works, it'll be a it'll be seen as a TAM expansion play. What's fun about Stripe right now is they're doing that acquisition which is very much a hey, we don't play in this space. Let's put a stake in the new ground. And at the same time, they're talking about a PayPal acquisition, which is very much, we own the we own this space already.

27:05 Let's buy these guys, fold them into what we already have, and just make a [ __ ] ton of money consolidating, right? And actually, I think that's a clever strategy. I mean, I think they're actually playing a very clever hand. They're doing some things that, you know, there's probably a one in three chance that they have a massive AI routing business in five years, but if they do, that's a big second leg.

27:24 while at the same time if they get the PayPal deal done that's the kind of deal you have a high to Jason's point about if you're good at M&A and good at consolidation you probably have a high degree of visibility that you keep those revenues that you remove the entire GNA you get more of a two-sided network because you have consumer wallets which Stripe doesn't have and you know you've done core consolidation acquisitions doing them both together provided you can pull them off is yeah super interesting in terms of

27:52 building enterprise value and they're doing it all private. Again, back to the comment, doing what looked like public company size M&A and pulling it off while private. I know they got the um investors to take Stripe stock in the open router deal. I think some portion of it was stock and you know, the PayPal deal was more complex and probably requires more thought.

28:13 But again, being able to do a what is I think a 4050 billion deal and a $7 billion deal issuing paper while private is pretty impressive. Stripes Corp de Dev team need a bonus at Christmas time. They are busy this year. >> They are busy this year, but isn't everybody? >> We we mentioned margin pressure on Foundation models. Anthropic turns its first profit on 11.5 billion dollars of Q2 revenue.

28:41 The business is getting better for Dario. This was also in a week where Gavin Baker said about Dario saying he believes that they will be the final private company. Did you see this? >> We did. And again, let's let's separate the hyperbole in the future from the facts in the present, right? It's not surprising they're making money, right? If you just go back to last year, right?

29:07 They did 4 and a.5 billion last year and I think their operating margins, not operating margins, gross margins went from negative bl the year before to like positive 30 or something like that. Right on track, I think end of the year roughly 40, right? When you have decent operating margins like 40%. And you go from four and a half billion in a year to 10 billion in a quarter, right?

29:27 That and you have 40% that means you have 4 billion of gross margin, right? You can't add and that's literally in two quarters. You can't add expenses below the line fast enough to stop yourself making money, right? So it's inevitable. I mean, yeah, they 12xed growth, right? which means they probably 14xed gross margin if it continued to increase even slightly and the trajectory has been increasing.

29:53 You're not going to 14x headcount on below the line trading costs in 6 months. So yes, I'm totally not surprised that they are operating in composite. We had run numbers at the start of the year and it kind of came to that conclusion. I mean the interesting thing will be as they continue to grow as they buy that expensive compute from Elon if you remember that has a big price increase two quarters two months in I I'm willing I doubt they will forecast for their IPO a base case of continuing profitability I could be

30:23 wrong right but this profit didn't surprise me it I mean it's amazing performance it's amazing revenue I mean revenue with any kind of decent gross margin cures almost all ills >> the other I think the other question is as we gear up for an IPO which could be very imminent right is um h how what numbers does anthropic get away with right so for example you've got off you've got offbalance sheet liabilities right you've got massive commits you've got probably stockbased compensation like we've never seen in the history

30:51 of mankind right so if you get asterisk and daggers on your numbers they will be jaw-dropping right if they have to if they have to fully account for that and some of that's non-GAAP right these offbalance sheets if they have to fully account if if they're going to be hammered like uh like a poor Wix or someone for SBC or and and and everyone's going to write up the the the horrific downside, right?

31:13 Um but I I think they'll I think everyone's going to look through all the all all the nerdy negative things you could see in the numbers. They're just going to ignore it, right? But I do think it's important that it get ignored. I think it's important for entropy it get ignored. >> I think none of that [ __ ] will matter to use a technical term, right?

31:30 The only thing that matters will be the growth rate and the 27 and 28 projected revenue because it's a little I kind of weird analogy but it's a little like I mean provided we'll step back. Provided the revenue comes everything else will be fine because you play it if the revenue comes then you'll need the offbalance sheet stuff and you'll have the revenue to buy it.

31:51 In other words, all these offbalance sheet stuff are basically I promise to buy a whole [ __ ] ton of a whole load of compute from you in two years time because if my revenue grows 10x for two more years, I'm going to need all that compute. Well, if the revenue grows, you need the compute. You're happy to have it. In fact, you're insisting you get it, right?

32:06 If the revenue slows down, then you don't need the compute. It all gets hard, right? So, almost everything is going to boil down to what number do you want to write for the next two or three years, right? And then as you say the stockbased comp, no one's going to care because the reason you worry about stockbased comp, it's because in a steady state like workday, we can talk about that in a second.

32:26 If you're giving someone 500 grand every year to show up and be a middle manager, right, they're probably mentally putting those RSUs into their comp, and they think to themselves, I'm paid 400 in cash and 500 in RSUs. And if you stop giving them the RSUs, they're going to want cash. So it really is a cash number. So in a mature business, I really, you know, it's totally correct to worry about SBC, but the SBC numbers are here are going to be huge because all these people got grants and then it turned out to be worth

32:55 way more than they ever taught. Right? And yeah, the classic example, someone who was hired with a million dollar package in 23, ended up making 51 million four years later, right? That doesn't mean you'd have to pay the next guy 51 million. It means he just he would have signed up if that person had gotten the million they signed up for. That's all the real economic stockbased compet.

33:15 The other 50 billion is 50 million is just dumb luck. You got lucky it's not a run rate. So I I I actually think it is okay in a hyperrowth company to look back past a good slug of the SBC and normalize it out. And conversely it's not okay in a mature company that SBC stockbased comp in workday or Salesforce that's real money that people are spending.

33:38 though and it's a little bit unfair cuz you're kind of giving the hyperg company a free pass but they get a free pass. You get a free pass and it's like we it's the same thing we said about cursor. You get a free pass on margin. You get a free pass on offbalance sheet. You get a free pass on SBC. Provided revenue go up. Once revenue stop go up, all bets off.

33:55 Once revenue goes up, all bets are off. All stops going up. Yeah. >> Yeah. What would it take in usage for anthropic to hit the $200 billion in AR plan for 2028 and then 600 billion in, you know, the next year? The simple version is how many knowledge workers are in the world. All right? How many folks can take a subscription? Uh being generous, is it a billion human beings, right?

34:23 So, you know, if Anthropic has 100% market share at at 200 bucks, that's uh 200 billion. Um if Enthropic has uh 300% uh market share, that's 600 billion. Um I don't know Rory's thought more the 600 billion seems complicated but um you know our demand our demand for in for AI is only just begun. You can see 200 billion which is the number right once you start getting to the 600 billion number gets really hard because no one ever looks at the big number and I've just been doing some work on this right no one ever steps

34:56 back and looks at the big numbers total I mean you said a billion knowledge workers in the world absolute bollocks right there are 80 I mean hardnose comment here US is typically 50% of the world's software budget because we're 50% of the world's high-end knowledge workers you know we're 25% of the world's GDP so A minimum if spend tracks GDP, we're only we're it's only 4x the US.

35:19 But every software company is typically 2x US. Why? Because the rest of the world can't afford the same software we do cuz they're poorer and they have more people at lower wages and less software. That's why we have crappy internet when we go to Europe, right? So the truth is the hard-nose comment is this. You probably take the US knowledge worker spend and double it.

35:39 There are 83 million knowledge workers in the US, right? and let's and then roughly 86 physical labor workers. So that's what you start with and you start cutting it down and I I literally was doing the math this weekend thinking about it. You start cutting it down real quickly, right? The truth is, you know, knowledge workers includes everyone in healthcare.

35:57 I don't think we're going to, you know, we're not going to replace the nurses. It includes the teachers, right? The sweet spot, the sweet spot of the whole damn thing is there are Yeah. There's about 1.8 8 million people doing coding in the US including then QA and all the other there's around 5 million people that do software related [ __ ] systems admin stuff all the rest of that and they get paid in total grossing up about 600 billion a year right 200 billion means you're replacing a third of them that's a lot right

36:28 and remember we said this before the single most important ratio and I asked you about what you thought it was Jason is what's the ratio of software in in a steady state What's the ratio of salary dollars to AI dollars? Right? Cuz that's what's you know if it's 50% of salary dollars, you can easily get to 200 billion. 600 billion is hard in coding. Well, you can't get there.

36:53 If it's 10%, then it's hard to get 200 billion across the whole thing. So it it really boils down to in the steady state how much revenue how much of the how much software because if software is the tip of the spear in terms of max adoption what do you think for every $100,000 you spend on an engineer or $200,000 you spend on an engineer are you going to be spending 100k on software 50k sorry on AI 50k on AI or 200k on AI that's the number >> yeah we're testing it >> we are no you're right because the last 60 days are

37:29 every single scale up is is capping their AI budget for real. It's not just it's not just Ubers of the world. Everyone's capping it because it's it's grown truly exponentially, right? Everyone's capping it. It's 6 million a year, 8 million a year, right? >> Um I I think it'll land at 100 grand per engineer equivalent. I think that's what we'll I think we'll give each of our best engineers $100,000 of tokens and in return we'll cut the size of our dev teams 30 40% effectively.

37:56 It won't exactly work out that way but close enough is how it's going to work out. So there there's a hundred grand here for running inference 24/7 with 10 agents in parallel. >> For what it's worth, I actually agree with that's that's what was my mental model too and that points to a total and let's assume it's not just dev engine. Let's give the CIS admins the QA guys.

38:18 This will do the same thing for everybody. Same thing for everybody. You are you get 200 grand of wages fully loaded including all the benefits and 100 grand worth of AI but we cut 30% of you. That turns out to be terrifyingly about a 200 billion plus or minus market in the US and no ever ever. >> Well yeah I mean that's anthrop sorry that's anthropic estimate for next year%.

38:39 But my point is this. If you count all the heads and apply the Jason mat, you get 200 billion in the US, which probably means you struggle to get 350 million billion worldwide. That's the town. And then you've got to go beyond software. And there is obviously revenue beyond software, but it's nowhere near as fertile. And the percentage isn't going to be anywhere near as high.

39:00 But it's funny, it's exactly the number I come out with because you see the ramp data that says, you know, the top 1% of their sample, which in turn obviously is a biased sample of tech forward people are spending 7K and then the median is spending like 100. It's amazing the dispersion and 7K * 12 is only 84K. So the top 1% of the most curated group in you can imagine in terms of tech spend is spending and know that's 1% for all employees.

39:29 So you you you're right that that's the pointy edge of the most optimistic spend is 50 cents of salary dollar. >> I think we're going to get to 100,000 in the investments I've made that are the best ones, the ones growing faster, but that are pre like especially ones that are pre2023. So they have a frame of reference, right? They literally are shipping two to three times faster.

39:51 Only recently o only recently. That was kind of [ __ ] last year, right? People would say that, but it was all performative like token maxing, right? I had two board meetings in the last week where they finished the road map for the year. They're into 2027. Okay, these are my fastest growing two fastest growing, but not brand new companies. They finished the road map.

40:11 They're well into the 2027 road map. So, you're going to spend a hundred grand on your team to do that, but it's adding up to so many millions, it's overwhelming. So, I I do really think there's some this 100,000 makes a lot of sense. you could justify more or less people will ratchet it, but I think it'll be it'll be the new normal and you'll cap your team and it'll all be that's just what the CFOs will do, right?

40:30 100 grand of inference and you get to hire this many engineers. Um, but the idea that they're pulling their 2027 road maps in, it's not just performative. It's not just uh PRs like you want to invest in that up until the maximum where it works, right? But the absolute numbers are just getting getting really big. I I gotta say, man, if you're not that way, you you're you're losing today.

40:53 If no, if you're not into your 2027 roadmap, deep into it by August of 2026 in the agentic world, your team is not good enough to survive today. You got to make this is your last chance to make changes. You should be deep into your 27. I'm not saying listen, if you're if you're open router, you didn't even have a 27 road map. It didn't even mean it because you're just remaking it day by day.

41:13 But if you're running the classic playbooks of these I can get this much done each quarter, this much done each month, and you're not into 2027, you're going to lose to to to the competition. You got to be be honest. How deep into 27 are you? Not deep enough. >> Yeah. Jason always gives me these terrifying sound bites that I go back and think about because I'm, you know, we did this survey, you know, we tend to be fact-based people.

41:36 We did the survey of all our companies and we saw similar to the ramp dispersion which is some companies all in some companies yeah adopting but still you know dramatically less spend per head I can't I can't remember the average but it was dramatically less and you know what I didn't do and actually now that I think about it I should do and I will do is go back and say you if you can touch a strong correlation which you believe you should be able to between output and sp you can you justify the spend then you're right

42:03 then you should be saying to the lagards you're just going to fall behind If it goes out at 2 to 2 and a half trillion, would you be a buyer? >> And first of all, I want to be clear. I don't think the software market is definitionally the end of the TAM. I think the average knowledge worker won't have 50% of salary and thing, but they'll have a meaningful percentage.

42:22 So the TAM is, you know, significantly bigger than just um developers because you have lawyers, but I think lawyers won't look the K& guy who's pulling 2 million a year as a partner isn't going to be doing 200k's worth of tokens, right? He's definitely not going to be doing a million dollars worth of tokens. A lawyer would die before they gave a million dollars of tokens instead of a million dollars of take-home pay, right?

42:46 So the market is bigger than software, but there's nowhere else that's such a sweet spot as software. So, I I don't want to be limited to 200, but I'm going to answer your question. I think the really challenging thing I'm I'm going to jump around it a little is I definitely want to be first out rather than second out in terms of going public, especially if you have a some kind of near profitability story or bouncing around profitability.

43:07 I think it's a far more attractive strategic position to be going out as entropic in the fall um with a we've been profitable okay we're on profitable again but we're the winner in the enterprise than going out next year where maybe the growth rates have started to slow both for entropic and the public markets and if you open AI trying to access the markets then I definitely think they're in a strategically more challenging situation.

43:31 I >> I think they've just capitulated to it. I my guess is like you of course you want to be first to your point right I think open AAI has had to get their house together more executive turmoil apparently a great last 30 days right but but first half of the year slower than its than its previously junior competitor right they've had to do so much say listen we're going to go public second and then we're going to have a comp out there and the comp is what it is and we may not trade with the hype that SpaceX and

43:57 Anthropic did and the world will not end like we will trade at a a very precise number we will know what we're going to go out at it and the world will not end if we trade at 1.3 trillion. I I just think that they've uh they've given up on worrying about that. Um because ultimately Rory's right, it's much better to be first. But in the long run, it doesn't matter, right?

44:14 You're just go if you don't need the capital. It just is what it is. But Jason, that's the my I'm going to push a little. That is the sentence. There are no two companies on the planet that need more capital than these guys. In a world where you do need the capital being second sucks because I agree in general, you are correct, right? It doesn't matter, you know, two companies go public plus or minus a year and a decade later, no one cares, right?

44:36 We've definitely seen that over the years. The thing that's challenging in this particular case is both companies still have enormous many hundred million billion dollar capital needs. In that situation, I would much prefer to be I do >> I think you're right. But as you fear there, >> but the thing is let's say whatever, pick your number. Let's say Anthropic is public at two trillion.

44:54 It really doesn't matter, right? Openi is going to be able to sell stock at a discount to its implicit valuation before it goes public. There's there's some there's still enough capital. Let's say they're both worth two trillion, right? Implicitly and OpenAI is going to be able to sell stock next year at 1.8. >> Agreed. >> People will do it. And I and I I I especially if you have no stock as CEO in your own company, it's okay to sell at a small discount.

45:17 >> Yes. Agreed. And look, I'm not catastrophizing here more than any. But I think the interesting thing is if you're the smaller market cap company and you have the bigger capital need which right now OpenAI does because they have a more ambitious capital need target. Now would you prefer to be the guy trading at one a half trillion who only needs to raise 100 billion or the guy trading at a trillion who needs to raise 300 trillion.

45:37 At some point these things become troubling and yeah price clears all markets. This is the best new technology market we've seen in deck ever perhaps and if you are the founder in that market and even now the number two you're going to be attract capital but you just don't know the terms under which it happens and I and going back to my comment I think you will regret not being able to access the capital markets this year who knows >> I it's not that I of course I agree and I don't want to spend too much my only point

46:06 is the media and social media make a big deal out of this right who goes public first and who does better I just think Sam in the I team have said this is this is our fate. Like we've we've we've talked we they could go public tomorrow, right? There's no there is enough people to buy these shares to go public. They've decided that while this isn't perfect, right?

46:23 This is this is the best uh uh on the on the board and we're going to live with the down like it's not the end of the world. Like you can't solve every problem tonight. They got to solve bigger problems, right? Than than the the cards are the way they are, right? >> Jason, you said about management team churn. The churn for those that don't know most recently was Denise Dresser who was the CRO who left and Dali Rajic has replaced her.

46:46 For those that don't know Dali, he's one of the most respected CRO. He was a freaking master at whiz and I think the best CRO or sales leader in the business who's Chad Pet says he's the best of the best. So, I'm feeling a little bit more confident for their codeex in enterprise division. >> Yes. >> Yeah. It's just a lot of change. Listen, all I don't know anything inside.

47:10 I just think Greg Brockman took over, right? And brought in brought in brought in the whiz guy. Just had enough of this Salesforce crap, right or wrong, right? Um actually, if you look across all of AI, a ton of Salesforce executives have been recruited, right, to come in and help because and you can make fun of it like I used to make fun of how back in the day Salesforce hired Oracle executives because they took shots at Oracle, but you need folks to know how to scale.

47:34 There's not only So, what is Salesforce at 45 billion run, right? 50 billion, right? I mean, the Anthropic's past that now, right? Open's past that. So, you don't want to hire kids. You want to hire someone that has some idea how to play. So, Salesforce is about it, right? Uh that is but but but um but if you step back for a minute, I'd rather have someone from Whiz that is close to technology, right?

47:56 That is in a hyper competitive space rather than asking how many seats of Slack you want. It's just a very different go to market motion, right? It's very different. Jason, you said if you have not already hit your end of term or end of year goal in terms of product and you're not well into 2027, you're behind. I'm making assumptions. I don't imagine workday quite at the cutting edge like two of your companies at 2027 already hitting those goals and Silverlake circles a $43 billion take private bid for workday.

48:31 One of the biggest SAS buyouts ever. We got two of the best SAS minds in the business here, guys. What should we take from this? It SAS isn't dead. One of the biggest firms, one of the biggest buyouts. The stock popped 18% afterwards. Wow. I think what you can take from this is that it cuz the SAS isn't dead thing is just too simplistic. I think what you can take that is a very financially oriented, wildly savvy buyer is willing to bet money that they can buy this at a at a constrained price, lever it and generate a

49:12 return because the revenues are sticky enough to allow them to pay down the debt over 5 years and with you know reasonable multiple stability sell it on and make a 20% irr plus or minus. I mean I ran the numbers. That's the bet in other words. So, so it's not quote dead, though. But what it is not is wildly exciting. What it says is s this is the mature phase of an industry, right?

49:36 When it's not about wild growth, it's not even about untempered growth. It's literally about someone saying this thing is growing at 13% yearon year. We can pro, you know, we can buy this thing for was it roughly five times revenues, 16 times trailing EBDA. will probably leverage it, you know, two or three times in four or five times in EBDA, but it's gonna be a big equity check.

49:56 And then you run the the the LBO model and you say, you know, you keep at 35% operating margins for 5 years. You use all that cash. It's roughly 10, I think it's 10 billion a year in revenue. So, it's like three billion a year of cash. You pay down the debt and the interest. And you know, provided you buy right, you can make 20% and almost a 2x over four or five years.

50:22 It's what you recognize is I look at that deal and I go, I'm torn cuz I first of all, I think silver like a wildly smart. It's very interesting when you run the sensitivities. If you pay like 20% too much and it dips down into the mid- teens, it's it's almost the exact opposite of venture in venture deals. If you're in the right thing, it almost doesn't matter what you paid.

50:42 You see cursor for details. see open router for details right this is the exact opposite this is fine precise financial engineering if you're wrong by 20% 30% on price you know your IR dips from 20 which is totally acceptable at scale to low teens in which case you wish you hadn't done the deal >> can I ask you a question precise financial engineering for a four to six year hold period six years ago chatbt didn't exist Are you able to do fine precise financial engineering in a world where we move so fast?

51:23 >> I don't think system of record is I think it's a moat but I don't think it's a ticket to growth. This is I think super important and it's something that everyone on X gets wrong. It's great to have a system of record which workday has it means churn even with AI and and LLM's help. is very hard to churn or you just don't want to churn. But it sure as hell doesn't mean I want to spend more money with that vendor.

51:42 That's their challenge. But it sure as hell means the five years are far more predictable than 95% than poor Monday, which we love, or others. I we have no idea where Monday or even HubSpot will be in five years at the SMB level. We know pretty much where Workday is going to be. 10 years, right? Um and so I think this growth versus retention is misunderstood.

52:04 There is a little bit of upside in this deal which may I don't know if it's part of Silverlakes calculation. The CEO came back, the founder, one of the co-founders came back and Neil came back. He came back. He hired his successor when times were easy just before AI. He brought in a great knobs and dials coco and uh you know like our friends at Daniel at UiPath and others and realized it ain't going to work today.

52:27 Came back. So, I don't think Silverlake is planning on on an Neil like radically changing it. But I think if he does, like there's real upside to this. Maybe instead of their 20% IRA, it could be a gamecher if he creates the agentic version of workday, they at least have the founder back in the saddle doing it. And that would make me feel a lot better if I were Silver Lake that I have upside.

52:49 >> You'd But it wouldn't be in the damn base case. And Jason, you framed the base case exactly correctly. It's like it's 5.3 times 12. In other words, what this says is financial minds will pay five times revenues for system of record growing at 13%. Anything that's not a system of record, anything that's not growing as fast, price accordingly right down from here.

53:11 Because you right, there's no way you'd apply the same kind of leverage to, for example, a to-do or a task management or project management software or a website building software. Right? In other words, what this gives you is kind maybe I'm trying to what this gives you is a sense of what the baseline is for best-in-class LBO takeouts. Right? If you know if Air Table give if the Air Table bending spoons gave you an idea of what it is if you just you know if you don't have that kind of system of record, you get 2.7.

53:43 If you do have if you're not if you're vaguely profitable and in a space where as Jason says you can't predict 5 years you get 2.7. And what workday says is if you've got 30% operating margins modest growth but you're a system of record where you really can believe in the next 5 years then if you're lucky you get 5.3 times revenues. That's the big ass thread right now.

54:04 That's the aha. And you know contra contrast just one last comment. Contrast that with the game for open router where they're going to get see I think a trailing re plus or minus 100. You know they're going to get 70 times trailing revenues. Which game would you prefer to play? >> Workday has something that makes it a better deal for P I think than anybody else on the target list which is that it is a somewhat closed system of record.

54:28 Now Salesforce is out there working their faking tails off because they are a muchly open platform. You can build your own agents on top of Salesforce tomorrow. And a lot of the hot GTM startups are built on top of Salesforce. They're not necessarily only on Salesforce, but it's open. Try building on Workday. It ain't so easy, right? It it is like LinkedIn, right?

54:46 It is intentionally uh barely open. So, there are negatives to that, right? But it also means you're going to cap it is you're going to capture more budget um overall in your ecosystem than you would for others. So I it has more of a buffer against agentic damage to your growth than an open ecosystem has. Right? Open has negatives today. And so I would want system of record um churn impossible and closed AF.

55:16 >> Agreed. I want the most closed system that can't churn because the reason system of records aren't that great is because if they're you need your system of record but if you're remotely open and the and you can produce a better agent yourself or a third party a lot the value will extract to the agent even if the system of record is retained right but workday is so closed um they've got a leg up right um so >> Jason how open is Salesforce >> they are a toller right like a Shopify but they're pretty Shopify and

55:46 Salesforce are pretty open. You and I, the three of us can ship, we can we can use OOTH to ship a Salesforce app tomorrow. >> Just to prove that, Jason, really quickly, sorry, um Harry, really quickly is that look, there's a bunch of companies even in the pre-LM world like Gong, Outreach, Salesoft that are all effectively built on top of the Salesforce platform, right?

56:06 You can't name the equivalent with any ease in workday. There's a few but it's much harder some of the planning tools but pretty much most and it makes sense within the financial accounting system everything gets sucked into the gravitational pull that is the GL and the accounting system right so I agree it's a good point Jason whatever dollars are in that ecosystem if they're careful and shrewd workday will get most of them if on the other hand if they get too greedy and they don't invest enough then the customers

56:36 start thinking oh my god this is just not advancing over 5 years maybe I do need more of this agentic workflow on top. Maybe the smaller customers start evaluating Netswuave, start evaluating the next generation. Uh you even at the very small end, you know, you've got the Willis, you've got the campfires, you got people like that. You can't be such a greedy bastard in your ecosystem that you incent people to start trying to move out, right?

56:58 But Silver Lake are smart and Neil's smart. this. You could have this be a profitable, self-contained universe, but remember the most exciting version of that is you pay down all the debt in five years and you double your money. You're probably putting in plus or minus a 20 to30 billion equity check because you're not going to get infinite debt. You know, maybe 20 billion, you might get 185 billion of debt, which means you need a 25 to30 billion equity check.

57:26 So you're going to turn 30 billion into 60 billion, which on a multiple basis is not amazing, but it means you've generated 30 billion in gains and 20% of that in carry. So someone's about to make $6 billion if they can pay down this debt and just work knuckle down for the next six years. Go team. >> Yeah. And anal gets to rebuild his company outside of the public company eye, which is slightly overrated because he has to hit the underlying numbers, but it's much better.

57:54 >> Yeah. >> It's still much better. It's still much better. Instead of large numbers of stupid comments, he will get one very focused comment from one of the world's smartest investors. It's probably a trade-off, you know, right? >> Just one last thing on this. I don't mean to go in the weeds here, but since you asked, versus Salesforce, I just it's just interesting.

58:11 So, we run Salesforce entirely headless. >> Yeah. >> Okay. So, we have our own agent 10K, our own AI VP of revenue. It runs Salesforce under the hood. Pro is it makes Salesforce much more powerful than it ever was. It's like I didn't log into Salesforce for seven years. Now I log in every day because I have an agent. Con, it can connect to anything.

58:30 The agent, it literally can connect to any other agent including competitors, including other data sources, data lakes, data, everything. The agent doesn't care. So it's really a weird world as a system of record or a core system. Do you want to be extensible and open? Right? It Salesforce has said you can be headless risks and opportunities, right?

58:54 because the risks and oper you make your you make it much easier to abstract you away or to compete with you even while you may retain a few seats right you may ret the the logo retention may be high but but it makes you have to run faster workday doesn't have to run that fast um everyone can't run it headless and and integrate any single thing or pull out all your employee data and push it into my own ATS or my own system or own financials um I think it's a the more it's a shrewd deal because it's the best it's the

59:20 best mode out there with the system of And and I go back to my comment. If it is a true deal, it also by definition means it's the high watermark of what deals are going to look like. Plan accordingly, people. You get 2.7 from the Ben Spoon and you get 5.7 from the Silver Lake guys and he pays your money. He takes your choice. >> Lmin you have a buyout fund.

59:39 Which other asset would you buy next? >> I'd want to know who gave Jason money for buyout. I would give Jason money for venture, but I don't see him as the spreadsheet guy. I just think more and more about the fact that systems of record um are going to retain their customers. Um but I think we we just underestimate that's just not enough to grow. You got to it's grow or die today, right?

01:00:05 It's grow or die. This whole show everything grow or die. Who cares about the stockbased comp or anything at Enthropic? My god, it's open router 192x revenue. And so just because your customers are prisoners does not mean in today's world they will spend one more dollar with you. In fact, the CIOS want to cut what they spend with their when they're hostage, right?

01:00:27 They're like, "Okay, I want to spend 90% 80% of last year. What can we cut from our bill from the vendors we're stuck with? It's a I I I got to think, but yeah, Rory's right. I'm not the best at the spreadsheet." >> You know, I'm actually gonna I'm gonna cancel my comment and disagree myself. Actually, I think you'd be great because I'll tell you what you would bring to the table that I think a lot of these P buyers missed.

01:00:47 It's this idea of mission clarity around growth. If you don't have growth of some sort, you're in a desperate race against the debt and the best you can get is a mid- teens IRA. If you work there and you buy cheap, and remember that's when you buy at, you know, at 5.7 times revenues. Some of these PE deals were done four or five years ago at 10 or 12 times revenues for not as good a quality asset as workday today, right?

01:01:12 I think you would I think the PE firm should hire you as their operating partner where for every new person, every new deal they do, you explain the facts of life. It's really clear here, people. The only thing that matters, you can't just stick it to your customers. If you don't give them value, you're going to get shafted in the end. Rory, for me, the death spiral here is the exact guy who's got no idea about AI and has a load of logos and has a load of middle management.

01:01:38 And I think Jason would be the freaking best. >> I agree. I changed my mind. I agree because you're you're done if you don't. >> By the way, you can click the link below to donate to Silver Lake Lankin Ventures uh for the buyout firm. Uh we said, >> I don't want to spend money on the positive side. If you look at it like a more SMB version, I I'm not saying how um how widespread it is, but if you look on social media, a lot of folks are like, "Okay, I'm I'm I'm lifting off Air Table now and they're like, "Bending

01:02:06 Spoons is going to raise my prices 3x, right? I'm let me start doing it now." Right? And so it's just an extreme version of what you have to be careful with everywhere. I mean, Bending Spoons may lose 20% of Air Table's customers who finally spend a week lifting off of Air Table, but when they triple prices, it's a good deal for Bending Spoons, right?

01:02:25 But it's gonna happen a lot faster than workday. >> Agreed. >> Growth at all costs on the consumer application side. Two big fundraisers from Higsfield who raised uh at a $5.5 billion price from DST and they hit 700 million in ARR. And then you have Lovable who raised a new round from Menllo. They're around the 600700 million AR range too raising at a $13.3 billion price.

01:02:52 big price divergence for very similar revenue numbers which I find interesting guys we've talked about these companies a lot how do we think about them well you know on the lovable thing the thing I was think I mean it's so so crazy since when we started the show right and lovable and replet were both raised into like two billion and were were really terrible products when we started the show now they're great products they're they're truly generationally great I do think today I know de engineers and developers will

01:03:20 mock me for saying this but I do think that they deserve a arguably a somewhat similar to be in the cursor conversation in terms of stickiness, strength, capabilities. They were not when we started the show. So, is the lovable Okay. Did did Meno pay up a little bit as an existing investor? Right. Who was already in at four? May maybe. But is that multiple that far off the cursor multiple that we just saw?

01:03:43 Not it's not radically off, is it? >> Yeah. A lot of if at the end of the year it's probably a little pricier, but whatever. But it's not it's not as out of whack as it might have seemed with cursor as a comp, right? These are becoming the these these platforms are becoming one thing is they're becoming very rich. They're they're very good now, right?

01:04:01 Cursor they're very good. They can do so much more than they could six months ago. There's so much more complexity. I mean cursor launched origin, right, which would bot graphite or whatever. It's going to become a GitHub entire workflow replacement in a couple months, right? Um, you know, I I I'm I'm closer to Replet, but Rep Levelable, but they both just launched automatic deep pen penetration as part of their products, right?

01:04:22 So, you can go really deep on security. So, these aren't just little like little hacks a year ago. And it also makes the startups harder to harder to to beat them out, right? The as these become these cursor and lovables replets become true platforms. They're really great. They're great software today. So, I you know, when when the cursor deal was announced, our jaws dropped.

01:04:40 Now, it's a comp. It's just a comp. And I don't think this is such a bad comp for lovable um to cursor. Maybe maybe that sounds wacky, but that was the one one I thought. Um you know, Higsfield's cheap. Although when the deal was done, it was at 500. So it's funny in today's world by the time the deal announced it's at 700 million. So it's still cheap, but like uh that's that's what happens if you don't announce a deal the hour the term sheet is inked, right?

01:05:07 And look and you guys know what both of them have done really well is parlay that kind of massive bottom end demand for AI in lovable's case for website building and coding in Higsfield's case for video you know start with a PLG motion and then you know add kind of minm market and enterprise products on top it's it's a welltrodden path it was well trodden in in kind of the SAS days we did a bunch of that it all works you you build your top of funnel and then over time you just add the enterprise features But they've

01:05:36 both done it really well. And you're right, lovable have you punched their way into being a, you know, big picture coding alternative. There's different ways of going at you, you got the cognition style, you got the cursor style, you got the lovable kind of replet style. They're not direct comparables, but in the big picture comment of the thing AI does best is write code.

01:05:56 Lovable is a tool that uses that to write a lot of code. So it's got a lot of lift. And yeah, so I think they both built good enterprise business on top of you good consumers. It's not as I mean Higsfield and I know you guys are in them so you know much better than me. Uh I think there is clearly an market for enterprise video. It's a good market. It's it's not as perhaps deep as the coding market but you know great to see him do it.

01:06:22 >> I think the one the one meta learning for me we can move on is I do think took me a little while to see this. do think these products today um not forever maybe only for six months right or who knows I do think they now are defensible and have moes I think they are so rich I mean for example Higsfield I was one of the first 10 customers I think what could you do make a a 4-se secondond video using Kimmy or Quen who car you could it was a great way to do it because I didn't even know how to use a Chinese model okay

01:06:50 but that wasn't particularly defensible now you can make a fulllength motion picture okay and you can do it another it's just so hard and now that on love repable which we even though I'm a user for a year you could have made fun of these products when Harry invested when we started the show now they really can build almost build production grade highly secure apps with everything across like it's just so like I know we're building so quickly you better be into your 28 29 roadmap or you're failing but they they are

01:07:19 starting to get these layers of moes and the folks that work at these companies are so smart right Hicksfield is like the smartest mathematicians in in in in Kaz Lovable and Replet have become talent magnets. I mean, I know the team at Replet better. You walk into I mean, these are the smartest people that Amjod could recruit for years and so these layers are not impenetrable, but they start to get thick and and crusty this crust around them, right?

01:07:44 >> I staying with that because I think you had that mode coming. I think you're exact because there was a whole bunch of oh, what's the mode? I think the truth is in any new software market out of the gate moes are t are light but the companies that execute and get traction you you accrete moat over time I mean just to give two historical examples I mean you know the netscape browser wasn't that early on it wasn't that hard but as yet you parlay that into other things now ultimately you only got acquired for 10 billion

01:08:09 which at the time felt like a failure oddly enough but the initial thing was relatively simple it got complex I mean the MS DOS product and The classic example is magnet. The MS DOS product was, you know, mind-blowingly simple, but over time you just accrete more and more value. And the same thing's going to happen here. Yeah. I mean, will there be some guys who stumble along the way?

01:08:28 Of course there will, right? But you're right, Jason. If two years ago, it is probable that someone could have built a lovable competitor with the features that had relatively quickly. As they add more and more features, that just gets harder and harder, right? >> Yeah. And I don't know that that was obvious six months ago that this would happen. I don't think I don't even know it was obvious to these companies we're talking about that it was ob obvious, right?

01:08:51 Um >> I think it going back to my it just shows just push on for I mean just push on forward, add more stuff for your customers, revenues grow, good things happen. >> It's just you know don't overthink >> if you're faster than everybody else. >> You just have to be faster and better. That's all. Just faster and better then it will accrete. Right. I think that's >> Yeah.

01:09:10 Well, faster and better is a more tangible thing than thinking some kind of I mean, yeah, there are businesses that are much more mo central, right? You know, massively high IP, you know, some obviously the model companies to some extent and definitely things like the bioinformatics companies there, but there are also business that will become wonderful businesses where the mode is, as you say, Jason, faster and better.

01:09:31 And you just got to know which game you're playing. >> Speaking of high IP businesses, literally like 3 weeks ago raised at 10 billion. Today they've announced they've raised 700 million at 21 billion from Jane Street, Kleiner, Seoia, Andre. >> Okay. >> Four weeks after double the price. >> It was a good month, Harry. >> Yeah, it was a good month. >> It was a good month.

01:09:54 You got You only need one great month to raise today. Whether you preede or or north of 30, you used to need three to four good months to raise. Now you just raise on the one. Listen, I don't know the details of the deal. I mean, Jane Street's a c wants to be a customer, too, or something, right? I So, like those deal, it's not that they're suspect.

01:10:15 It's just you never quite know how it's all tied together, right? So, that was the only asterisk I had in the deal, but I don't I don't know the details, right? >> Boy, what story have I missed that we should discuss? >> Well, there's one that I kind of I don't know if you missed while you were vacating there, Harry, but the Department of Justice is picking on poor Andre because of these overlapping boards, right?

01:10:35 I I put it in. It's in my schedule. Thank you for mentioning the vacation from my lounge. >> But what's why is it what's the story behind the story? There must be >> and I did the story because yeah I you know I often think one of the jobs we try and do here is let everyone in you people who listen know what's interesting this year week right and I will admit this time yesterday I knew exactly Jack I was like huh what gives I looked at this and and I'm like why is let me let me say something cynical and then retracted.

01:11:04 Why is the Trump administration picking on Andre Hoitz? One would have thought that there is, you know, honor among thieves and gratitude. You know, the definition of an honest politician is when he gets bought, he stays bought. I would have thought, >> yeah, Elon got his deal done in weeks, $60 billion deal, but therefore, so you know, so I went to, so I did the research and it turns out that this initiative, no surprise, was actually kicked off in the prior administration, which frankly was much more willing to quote

01:11:31 unquote, you know, get involved in business and kind of try and tell them what to do, right? What's happening here is zoom out. There's something called the Clayton Act, which I think in the early 1900s, an antitrust act, section 8, that basically says individuals can't sit on two on two boards of companies that are competing, right? And there's all sorts of definition of how you define compete.

01:11:51 There's a dimminimous threshold. And that's on the statute books. And it turns out under the Biden administration, Department of the the DOJ, I think it's the FTC within the DOJ, but don't quote me, had actually init actions on that. There was a couple of kind of general business folks who were in overlapping boards and interestingly Toma Brava they had a couple of companies where in one case they I think they' spun off a separate company from from an from an existing company so they had a lot of overlapping boards the

01:12:20 DOJ kind of got on them and eventually they said we just take the board members off right and it was so this is a thing right this is apparent and it's like a it's a low consequence thing because what invariably happens is if the department comes around you you just pick the less interesting board and you come off Right. And what sounds like what happened here is even though you as I say you'd have thought the administration change would have killed this apparently as part remember when Fiverr and DBT were merging

01:12:45 right border the kind of DOJ had to look at that cuz there was you know antitrust issues and that got true and it was passed but as part of that it kind of you know some the light went on and someone in the department of justice head says hm do we have a section 8 Clayton act violation here because Andre's on the board of data bricks and they're also on the board of I think at Fiverr, right?

01:13:06 And now they're competitors. So now this has been percolating and now they're investigating, right? I mean, this is one of those things where I know why the law originally exists. It's all back to JP Morgan and overlapping boards and the antitrust and whatever. You look at this and you go, really? Is this the biggest fish you have to fry? But my guess is it peters out into some version of the venture firm just saying we'll take off the board member on five tons, whatever.

01:13:35 Right. Now, there are It's interesting. There's there are ways you could contest it. If you want, if you gave a [ __ ] and wanted to litigate, there's all sorts of things because it actually said the legislation says individuals can't be on two boards, but it's not as clear on can two separate individuals be on two separate boards. There's a whole bunch of reasons why you could decide if you had the stomach for it to litigate and see would the Department of Justice back off, but the truth is no one's going to bother.

01:14:01 I shouldn't say no one's going to bother. It's it feels to me like if this thing rumbles on and the Department of Justice doesn't back off or they don't decide the competition issue is dimminimus at some point if it got really serious is my point. No one's going to get into trouble for this. If it gets really serious they'll go okay we'll take a board member off.

01:14:19 It's kind of a silly >> yeah it's probably a non-story in the end thinking through it more. Right. >> There is a remedy here you resign. Right. If you're a compliance officer in you're wasting a lot of your time on this, but you might a non story is a yeah >> the only weird niche thing it's but you might ask the founders if they're okay with it of each company right maybe that's not even a permissible out under the Clayton >> it's not actually the funny thing is to your point you're exactly right and this is it's a

01:14:45 very interesting example this because it's an example of you and I both know that that's the acid test because we would be worried about is founder A pissed about founder because they're are we shading are are they are they kind of are we damaging the other company by disinformation but the classic antitrust thing is all about consumer damage and what they're hypothesizing absurdly is that the data bricks guy and the fiverran guy get together and they say why don't we raise the price of tools of AI tools and we'll

01:15:18 stick it to all our consumers like JP Morgan and B of A and you know whatever right and that's so far from what's happening that you kind and This is the problem. You pass a law for one reason like to prevent US steel from raising prices in 1909 and here we are in 2025 2026 and do we really think that data bricks and fiverr are are dbt are colluding about the price of data tools.

01:15:43 You're right. The the the logical test would be found array are you cool with this for found to be and if they're cool we're cool. But it turns out that's not the way we write laws. >> Yeah. Yeah, I mean if Martin Casado had to step off the board of fiverr after exiting cursor at 60 billion, it's probably okay given their position in data bricks. Like it's all right.

01:15:59 That guy just got us a 60 billion exit. We're sitting on 200 billion at data bricks. Fiverr. Uh good luck. We'll switch to an observer seat. >> Yeah. Anytime you want. >> Not the I'm going to move to observer status. Like it's a >> technically just just to be >> that doesn't work either. You got it. >> Doesn't work either. They actually thought of that.

01:16:19 They're literally like Mr. Mr. JP Morgan can't bring his big banker nose in 1909 into any of the meetings. Yeah, I know. That's what we're trying to solve. >> So be it. Just send me just CC me on the updates. >> Yeah. Genuine comment here. It's why and this is a serious comment. It's why when we talk about all these regulatory regimes for other things, you have to remind yourself these regimes go on forever, right?

01:16:40 And if we pass some law about AI regulation now, you've got to be really careful the unintended consequences, you know, months, years, and decades later. these once the regulatory law is passed it doesn't leave >> it's professor O'Driscoll >> sorry piss off >> you know one last thing in all seriousness at at Andre's scale and everyone has to take the series 62 and you're broke like there's probably 40 or 50 legal things going on in the background at any given time right it's probably not even four it's probably like 40

01:17:10 and this is so this they don't even talk about this one right it's t it's it's mentioned it let let me know if I got to do anything I got to I got to go to that pasta lunch uh with Michael for uh for the closing lunch >> for $12. $12. >> $12. Yeah. Let me know if there's an issue cuz there's like 50 other lawsuits. Everyone everyone's coming after Andre, right? >> Yeah. It's the old no conflict, no interest comment. Exactly. They have lots of interest, so they have lots of conflicts. It'll be fine.