The Twenty Minute VC (20VC): Venture Capital | Startup Funding | The Pitch
00:41:37 · Harry Stebbings, Jason Lemkin
[00:41:37] S2: are you going to take to IC this week? Serval, Cognition, Baseten? [00:41:41] S0: Well, listen. I mean, Harry, as you know, much much as, in many ways, Windsurf team lamented having to sell out to Google for just a few billion. The Crosby team's gonna gonna lament selling to to SpaceX for only 60,000,000,000. Right? Cognition at 80,000,000,000, it seems market correct. Now to get to a 10x with dilution, a trillion dollar valuation, I start to get nervous with the latest round from OpenAI and Anthropic. I do get worried that fundamentally it only owns so much of its own IP, but geez, I don't know if you saw the last Q3 of Anthropic. Like the one thing that is working that never stops working is coding agents. And Cognition has a bunch of the field open to it. They made a lot of their own luck. I don't know if the original version of Devin, when I brought it to committee, you know, a year and a half ago, I don't know that that product worked. They lucked out buying the windsurf team. They lucked out buying IP. They lucked out from open weights. But this is something with the kind of momentum that I think we can't sit out. And we have a little bit of money left in the fund, couple billion, and we need to deploy the next one. I say we close out the last fund with $2,000,000,000 in Cognition. We're already up 5X on paper. We can't lose. We might as well put the last $2,000,000,000 in Cognition. And I say if we get a little recycling before the round closes, we toss it in two.
00:42:54 · Rory O'Driscoll, Harry Stebbings
[00:42:54] S1: Interesting. Just for the people listening, because it wasn't obvious, that was a much better question than you normally ask, Harry. Because normally you say, here's a deal, Jason. Tell me why you should take it to committee. And honestly... And I respectfully, I said it's kind of stupid because all you're just saying is give me a sound bite. Right? The reason this was a good question, much more interesting, was because you have three deals in front of us. And it's worth pointing out to the listeners what they were. Three really amazing companies. You were basically asking Jason to pick between Baseten at 30,000,000,000, up 2x from June, an inference company, Cognition at $70 to $80,000,000,000 up from $48,000,000,000 in September and Serval at $3,000,000,000 up from $1,000,000,000 in December. Three different companies, very different businesses. One's an inference provider, one's a coding agent, and one's a very hot next generation AI app in the ITSM space. So three different businesses, all of whom have had around and are getting a second re up within this twelve month period. So as I say, because it forces Jason to choose, that's a much more interesting question, if you know what I mean, than just tell me nice things about this company. [00:44:00] S2: For the editors, can we please cut that segment? That's the first time that Rory has actually congratulated me on the [00:44:06] S1: It's okay because I think it happened by accident. [00:44:08] S2: I'm gonna play that to myself later just to give myself more confidence.
00:44:08 · Harry Stebbings, Rory O'Driscoll
[00:44:08] S2: I'm gonna play that to myself later just to give myself more confidence. [00:44:12] S1: But actually, genuinely, it really was a super interesting question. I kind of... So would you like to do an inference provider at 30,000,000,000, a coding agent at 80,000,000,000, or a IT AI app in ITSM at 3,000,000,000? I mean, could you... [00:44:27] S2: No shit. Which would you pick? Serval. Are you kidding me? [00:44:32] S1: Okay. So you do... You think your upside in Serval at 3,000,000,000 is better than your upside at Cognition at 70,000,000,000.
00:44:32 · Rory O'Driscoll, Harry Stebbings
[00:44:32] S1: Okay. So you do... You think your upside in Serval at 3,000,000,000 is better than your upside at Cognition at 70,000,000,000. [00:44:37] S2: Oh my god. The tide is changing. ServiceNow is an old guard. Bill McDermott's amazing, but he's like Slootman. He's a sales led CEO. We're in a product led generation. Jake and Tatiana at Serval are incredible. The product's amazing. The enterprise adoption is better than I've ever seen. And the upside, just pure multiple on cash. Now there's an there's an addendum and a star, which we can go back to. Multiple, way better here. The chance of getting a a 10 x here, I think very likely. The chance of getting a 10 x for base 10 at 30,000,000,000, god, you've gotta squint. The chance to get a 10 x at Cognition, to Jason's point, gosh, we're nearly hitting a trillion there. So, yeah, I think the multiple is clearly much more evident there. Now the challenge, though, that we have with Serval that we don't have with Cognition or Baseten is if we're an AUM play just putting cash out the door, they only raised a 150,000,000. And if I'm Andreessen, I wanna put 500,000,000, 1,000,000,000 out the door. And so,, as we say in The UK, I need to do Cognition because I need to move money. But for the multiple, it's the easiest decision you [00:45:44] S1: made. Interesting.
00:45:44 · Rory O'Driscoll, Jason Lemkin
[00:45:44] S1: made. Interesting. [00:45:45] S0: You know what the question about Serval, I don't know. I really don't know it at all. The founders don't know it. This is just my question to the IC. Does it expand the TAM? Am I bounded... For for real for real. Right? Not for hand waving. Am I in essence bounded by a subset of ServiceNow's TAM today, right? Now every founder will expand the markets and add concentric circles, but is this really expanding the TAM here? I generally don't know, but I personally am not excited about disrupting existing players if you don't expand the TAM, because I think we don't get anywhere at the end of day.
00:46:16 · Rory O'Driscoll
[00:46:16] S1: And I think the argument they'd make would be some version of ServiceNow just is a list of things that IT has to do. And Serval is actually a product that does those things for you. So you can command more value from it. And the way you'd validate that is looking at their ACV on a like with like basis. In other words, there's a mid market company that might spend $200 on ServiceNow, would that same company be willing to spend 300 or $400 on Serval? And that's what you'd need to see to get TAM expansion. Because, I mean, we think... I know one of my colleagues had talked to him in past, this is an amazing company, amazing team, a great market. Mean, it's always worth remembering. Until recently, Servicenow was, I think, the second largest market cap SaaS company. You had Salesforce and then Servicenow. ITSM is a much bigger market than you think because it kind of becomes the general corporate to do list for service functions like legal, accounting, all the back office folks were using ServiceNow to keep track of their tasks. So it's been a way bigger business than I would have guessed when we saw it in, what was it, 2010 or so, right? So yeah, replacement for that is a big opportunity. But I hear you, Jason, it's the, can you expand the TAM? And are you dealing with a ten year grind ServiceNow down deal where you do it forever? Whereas Harry, to take the other side of the argument on Cognition, I mean, the beauty of the coding agents is, special cognition, they're coming into large enterprises and basically saying, We will help you effectively rewrite your entire code base, enable your team to be agentic coding, and getting huge dollars for that. So in terms of money velocity on the table right now, Cognition has just an ability to command many more dollars. I think Serval probably has the compounding effect of those probably ten or fifteen years of grinding down service now to a bigger outcome. So I don't know, it's kind of velocity, capped versus long term great mega trends, but is it going to take a while?