The Twenty Minute VC (20VC): Venture Capital | Startup Funding | The Pitch
00:57:15 · Dev Ittycheria
[00:57:15] S1: Yeah. I'll connect dots. Right? Remember, we started this discussion about people leaving and, you know, leaving very, very quickly. And here's the parallel I draw is like investors long ago and actually even more recently have learned to protect themselves in situations. They negotiate these kind of issues upfront, what happens in any kind of exit, including a weird one. Employees never thought to ask about this. So if you're a founder, you're gonna have employees saying, hold on, what happens to my equity if the company's tech and some members of the team get bought, but the company doesn't? And I think founders need to be able to answer that question because that's a question as people learn about this, it's going to be coming up more and more often, especially if people switch between companies very often.
00:57:56 · Rory O'Driscoll
[00:57:56] S0: And the idea of corporate law Delaware or even if you go to a place like Texas, you shouldn't have to think about it as an employee because it's like, dude, there's common law and you'll all be taking care of the same. But once that gets eroded, as you say that, once that you know it's up for grabs, then it's quite insidious. And you're right, everyone has to think, when I join a company, I don't just have to think what my 1% is worth. I have to think, well, what could happen to my 1% if you sell the IP? What could happen to my 1% if you sell the IP and half the employees? And I think it probably makes everything harder to pull off. So it'll be interesting to see if this leads to some kind of pushback away from those kind of structures. I mean, they're not ideal, and the the only reason people are doing them is because of the FTC. I mean, no one ever say this because they can't, but it's because of the FTC and the fact that you can't get M and A through in any appreciable time, whereas you can get these deals done literally overnight and the employees start next days. It's a workaround, a regulatory problem that is no surprise creating a bunch of second order issues and unfairness.
00:58:56 · Jason Lemkin
[00:58:56] S2: I just think it's interesting because it it... Listen. This this structure is fading away a little bit in the politics aside in the current administration. It sure seems easier to get a quick deal done, a a fin or a listens lab pretty quickly. Right? So some of these issues, some of them are fading at the margin. But man, I don't know. Some of these deals sure feel like mergers and substance to me. So I think I think if one of these lawsuits wins, which even if one fails, another may well win. Right. I think this is a mergers and substance. I think these deals will die because they already have double taxation. They're already horrific from a double taxation perspective. Then add a whole set of risk and carve back for the employees we're leaving behind with the keys at Windsurf who will end up being the big winners and cognition, right? But it looked like they got left with the keys and a year of cash to work it out. I think it'll end these deals if there's significant legal risk here. It also feels to me a little like a safe note. You know, SAFE say, I know this sounds niche, SAFE say they qualify for a qualified small business stock because they're stock, but they're not. They're clearly not stock. And all these non merger documents say they're not mergers, there's licensing deal. I'm sure they say the more deals go by, the more clauses say it's not an acquisition but just because you say it's not a duck, it don't mean it's not a duck. I think some of these are
01:00:09 · Rory O'Driscoll, Jason Lemkin
[01:00:09] S0: Exactly, and that's exactly the case to lay it out, which is it was a de facto in acquisition and there's a whole bunch of things you have to do in an acquisition. So yeah, you're right. [01:00:18] S2: It's just in hindsight that we didn't think about this because they may end up being like, how the hell did we think we could do these deals? And just completely work around the... Not just part of the cap table, but the whole cap table. [01:00:28] S0: But it's it's forgiveness permission. I don't... We talked about it at the time. We don't like it. It feels unfair. But I think the pragmatic answer that I'm willing to bet... Grock was NVIDIA, wasn't it? Right? I'm willing to bet. Let's say they have to settle and they have to chuck in an extra $200,000,000. The real answer is my lawyers, my very smart lawyers came to me and said, I found a way that we can buy this company on a Sunday night and all the employees start on Monday morning and we have the IP versus this other way where we put in an application to the US government and close in nine months. And Jensen said, is there some risk? And they said, yeah. He said, I can live with it. Done. We did the deal. And then two years later, you go, yeah. There was a little bit of risk. It turns out it's 1% extra on the price. Here's $200,000,000.
01:00:28 · Rory O'Driscoll, Harry Stebbings
[01:00:28] S0: But it's it's forgiveness permission. I don't... We talked about it at the time. We don't like it. It feels unfair. But I think the pragmatic answer that I'm willing to bet... Grock was NVIDIA, wasn't it? Right? I'm willing to bet. Let's say they have to settle and they have to chuck in an extra $200,000,000. The real answer is my lawyers, my very smart lawyers came to me and said, I found a way that we can buy this company on a Sunday night and all the employees start on Monday morning and we have the IP versus this other way where we put in an application to the US government and close in nine months. And Jensen said, is there some risk? And they said, yeah. He said, I can live with it. Done. We did the deal. And then two years later, you go, yeah. There was a little bit of risk. It turns out it's 1% extra on the price. Here's $200,000,000. [01:01:10] S3: I think an additional that just isn't discussed enough is Muse was a phenomenal launch and has been a phenomenal reception. And I respectfully think DOS has been very unimpressive. I thought that demo was incredibly poor, very tech centric. How do I do flights for enterprise usage for an OpenAI employee? I thought it was out of touch, and I thought it was very underwhelming. Thoughts?
01:01:35 · Rory O'Driscoll, Harry Stebbings
[01:01:35] S0: Obviously, you've Muse for a while, you're right. Let's do Muse, they've killed it. And, you know, I I... As as someone who taught Ian that acquisition isn't working, it seems there's a whole bunch of gear grinding, I just gotta give the executors credit. Whatever he did, whatever between Zuckerberg and Alex Wang, they put their heads down and they ship product. And as the CEO on this call... Both CEOs on this call know better than me, that cures everything. They ship the killer product. They launched it full on. They resourced it with compute. They kicked ass. You know? And it's good. I mean, I'm going to New York this week. I'm pay... It's real fun. You do instinct and you muse, and you kind of check on them and see who's winning. It's kind of a bit of a geeky joy, but there you are. They're, you know, absolute... Let's use the word frontier, state of the art. This is as compelling as any freaking start up. You guys have muse nailed it. Anyway, conversely, was trying to figure out dots today. I wasn't quite sure what it is even at the end of it. I went and looked at in anticipation of the program here, I went and looked at the whole online demo day thing, and I'm not quite sure I got it yet. I see where spaces is going, but yeah, it's not nearly as cool. [01:02:37] S3: And so you are a thirty year venture investor, Rory. How do we feel about America adopting this?