The Twenty Minute VC (20VC): Venture Capital | Startup Funding | The Pitch
00:04:25 · Rory O'Driscoll, Harry Stebbings
[00:04:25] S1: You have now arrived at your destination. [00:04:28] S2: Boys, we are back. Luckily, there has been a huge amount happening in the last seven days. So let's start with OpenAI. Its valuation got cut from 1,400,000,000,000 to 1,250,000,000,000, and the round reduced from 30,000,000,000 to 20,000,000,000 with only about 11,000,000,000 committed. As a result, everyone is going, oh, no. This is further examples of the AI wave cracking. How do we think about that? [00:04:55] S1: I would dispense with the whole AI wave cracking narrative. I think people are trying to extrapolate their desires, wishes, whatever, prejudice and biases on the story. It's as simple as the other company is bigger, growing faster, profitable, and about to go public, so you can buy it liquid at 1.5 to 2,000,000,000,000. What would you pay for the smaller company growing less quickly, still losing money that's illiquid? Answer less than 1,500,000,000,000. How much less? Well, that's what they're figuring out. So it's utterly not surprising. It is as simple as that. No projection about AI, positively or negatively, just as two securities are gonna be sold in the next two months. And which one do you wanna buy? [00:05:32] S2: But Jason told me last week that it was the most underappreciated.
00:05:35 · Jason Lemkin
[00:05:35] S0: I think it is. It just may... Maybe it needs to drop a little more. Well, don't forget. Listen. There's gonna be bumps. Right? And broadly what we call AI stocks fell 5,000,000,000,000 last week, right? Now maybe this AI round was the week or two before that. There's obviously a temporal gap, but when we're seeing this level of volatility and listen, I'm surprised that folks didn't talk more about it. I mean, Anthropic had a down quarter from net new revenue. It was down in this last quarter in terms of net new bookings over Q2. There should be some nervousness. Maybe it would fill up at a trillion. Maybe I'm glad we didn't put in our bid until the end, Harry. That second tranche will be lower than the first. It makes sense there should be a little bit of wobbling at the moment. The stock market's down. We could argue, maybe Rory will challenge me. We can argue that Anthropic's last quarter wasn't quite as crazy as some folks might thought. There should be wobbliness and maybe it doesn't matter. It matters where it'll be in twelve to eighteen months. But it makes sense there's wobbliness. There's wobbliness in the debt markets. CoreWeave debt is paying 15%. That's wobbliness. There's Broadcom having, I know Rory didn't kind of took me to task on this last week, but Broadcom having to guarantee Anthropic's debt is a little wobbly. It's just wobbly And IPOs are always thin and wobbly. No matter how many times we say they get oversubscribed 20x, so many of them are just a little wobbly going into it.
00:06:50 · Rory O'Driscoll
[00:06:50] S1: Again, I didn't take that off. I think all those things are true. Think it is. The way I think of it, there's a lot of pushing, shoving. There's a lot of price discovery, risk discovery going on on the supply side of the AI trade. You know, what price do you need to be paid to lend money to CoreWeave? What price do you need to pay to buy OpenAI in the private markets when you get in the public markets? Agree to all that stuff is going on. And I think when you go from assumed euphoria regardless to tempered euphoria, there's this kind of price discovery process on the way. I think it's fair, Jason. Those things are all true. As I say, my point is merely if the other side of the equation, the demand side holds up, all these things will be forgotten in six months. And if there's a problem on the demand side, on the growth side, then all these things will be straws in the wind of a very significant change. That's my point. When you zoom out to what matters, if the demand for AI is anything like some of the bulls would say, then let's talk about the core weave bonds, because everyone's like, Oh my God, the bonds are going to go. If the demand for AI is as strong as people think, then everyone's gonna need every damn computer, GPU, and data center they want, and those bonds will be money good because someone will buy the damn company. There's just no risk of that. If the demand is not there, then the first person is gonna suffer when the demand is not there. It's not gonna be Google or Amazon, whoever, big ass balance sheet. It's gonna be the guys like CoreWeave, and that's where the problem will come, and that's why there's some risk in it. So that's all that's going on.
00:08:16 · Harry Stebbings, Rory O'Driscoll
[00:08:16] S2: You mentioned price discovery. It was a tough week for Alphabet or Google, falling about 12%, most significant drop in a decade. Google Cloud doubled to an insane number. It doubled to, like, a 130,000,000,000, growing a 103. But search did slow to 12%. Free cash flow was negative, unusual when looking at Google. Is this just another element of price discovery? [00:08:40] S1: Again, it's... On the search side, it's been true for two or three years that there's probably gonna be some element of cannibalization of search. And, it still grew pretty nice. I think it grew 12% or so on search. But I think it was a combination of search angst and general angst, right, and CapEx angst. So nothing more than that. But... It's been so funny to watch the last two or three years as a... We've gone from Google is dumb as rocks and Satya is a genius. Then you fast forward, oh my god, Google is the most amazing company ever. Poor dumb Satya, he missed the boat. And now this is a switch back to, maybe the things that we worry about Google are still true, which is search cannibalization and... Exactly. But to be fair, to your point, the growth again, back, the growth is there. These guys are saying they can sell compute as fast as they can make it. And that's the number one thing. And that's where the growth is coming from.
00:09:27 · Jason Lemkin, Harry Stebbings
[00:09:27] S0: I just think we're in it. Listen, I think we are understandably just in a nervous period. Yeah, think it's at a $120,000,000,000 run rate growing to 100%. That's about as good as it gets for the folks in the cloud. The cloud group should feel pretty proud of themselves. I just think any metric comes up short, mean, Shopify just fell 15% as we're discussing this, right? Because they came up a smid short, even though they raised guidance for the next quarter, everyone's just nervous AF. They're just nervous AF, and I think it's appropriate. I actually think the Anthropic IPO is going to suffer for it. I think there's evidence of substantial pricing pressure. There's evidence that as dominant as they are, it might be not quite as dominant as there is, and I just think it's okay. There's going to be these squiggles going here as most things still hopefully go up into the right until we can distribute out to our LPs. [00:10:16] S2: What do you think Anthropic is gonna suffer for? You mean the the consumer excitement won't be there? You think that they won't have the pop that they could have? Like, what does that mean?
00:10:16 · Harry Stebbings, Jason Lemkin
[00:10:16] S2: What do you think Anthropic is gonna suffer for? You mean the the consumer excitement won't be there? You think that they won't have the pop that they could have? Like, what does that mean? [00:10:23] S0: I think folks are just gonna be nervous about a deceleration in quarter over quarter growth, and I think they're gonna be nervous over pricing pressure. Look, it's hard to process everything out of a... Out of the s one a, the quarterly amendment, but it sure appear, I mean, OpenAI is basically running around selling somewhat equivalent products for 30% off. We can discuss how much CISOs want China based open weight models there, but they're putting pricing pressure. JEV is putting pricing pressure and the latest models are effectively cheaper. It's just you have to have so much momentum to overcome a certain amount of pricing pressure and deflation. I just think the numbers suggest some nervousness in it, That quarter over quarter growth is slowing. And what does that mean? And how much nervousness does it create?