The Twenty Minute VC (20VC): Venture Capital | Startup Funding | The Pitch
01:00:15 · Harry Stebbings, Jason Lemkin, Rory O'Driscoll
[01:00:15] S2: Jason, any final thoughts to you on those? [01:00:17] S0: The only small... This one's really minor. It's almost not worth bringing up other than it's something I'm tracking. But a tiny amount of anxiety that the Hugging Face has drawn some DOJ scrutiny. I don't think there's been a formal request for information or anything. It just, investors, it would be a bummer for us if M and A isn't really back, right? As we discussed, we need $10,000,000,000 deals to even bring deals to the IC. And if this $12,900,000,000 deal for Hugging Face isn't going to sell through antitrust, it would just be a bummer. It would be politics aside, it seemed like we were able to do normal M and A deals, right, With normal tax benefits and normal this and that. If it doesn't turn out to be the case, then we've got to go back to doing convoluted team and IP deals or slow down deals. It'd be a bummer. Look at the other, I mean, Salesforce is on an epic M and A role. I mean, they've hoovered up everybody this year. And I don't know that they would do that if the antitrust environment, again, no apologies, if the antitrust environment was where it was twenty four months ago, it's good for Venture that they're just hoover. I mean, who did they just buy this week? Cresta, right? [01:01:19] S1: They just bought Cresta for
01:01:19 · Rory O'Driscoll, Jason Lemkin, Harry Stebbings
[01:01:19] S1: They just bought Cresta for [01:01:21] S0: Yeah, 2 point less 7,000,000,000 spending off and friends, right? We need these deals. They happen in every two weeks, right? And for Venture to be like, at least to be de stressful, in my opinion, we need M and A to work like clockwork. Otherwise, we're just stressed over these goddamn IPOs. So I just worry a little bit about this thing because we want the sales forces and the service nows and Microsoft. We would just want them buying companies every couple of days for 1,000,000,000 and up. We need it to get out of our... To liquidate our portfolio. So this one, if something happened here, I'd be bummed, but it's just something to track if it gets anywhere. Salesforce says the opposite. They're game on for M and A, man. [01:01:57] S2: Dude, I agree. [01:01:58] S0: Bless the team there. It's smart too. He's buying his way into the future, into the present. There's some point where it's too much. [01:02:05] S2: Is he with Cresta?
01:02:05 · Harry Stebbings, Jason Lemkin
[01:02:05] S2: Is he with Cresta? [01:02:06] S0: I think what's happening, if you just look at all the deals that have been bought, this, this I saw, I'm dating myself back at Adobe, but obviously there's a little bit changing in the world with AI and B2B, right? So basically everybody's getting a punch card, right? They bought us some defense startup, I don't even know that for a couple $100,000,000, right? And what you do is you go around the table with all your SVPs and they get their best idea. And whoever was in service or support or whatever, Cresta was their best idea. And whoever was trying to get these sort of support and sales agents faster, Fin was their best idea. And you just keep, it's not that complicated. They go down the best idea and then someone goes out and figures out if they'll actually sell because some folks won't sell. And you just make this best idea and then people know their jobs are on the line. And so none of these deals are mark betting the future of the company. They're SVP chips. And I've been in the room when you went around the room. Rory, what's your best idea? Harry, what's your best idea? Come back next week. I want your top three ideas. And it costs you nothing in a sense because it's assumed some will fail, right? But basically they're getting around the table and they're saying, we're going to spend this much of our market cap and cash to do these deals because we to do something.
01:03:09 · Rory O'Driscoll, Harry Stebbings
[01:03:09] S1: And the interesting question is, do you do a Cresta, a more mature company that's using AI, but probably the original stack was pre LLM, and they've probably transposed their stack once the LLM has come out in the last four or five years. But in return for that, they have some scale, they have some enterprise deployments. Or do you buy something new, bright and shiny, where it's all LLM first, it's two guys from YC in '24, and they've got to $10,000,000 and they're exploding. Right? That is the interesting thing. [01:03:37] S2: Well, the interesting thing for me is that you've got a relatively similar price being paid for them versus Listen, but you're gonna have a 10x increase in revenue for Cresta versus Listen. Listen were 20,000,000 sold for 2,000,000,000, Cresta are well over 200,000,000 in ARR.
01:03:37 · Harry Stebbings, Rory O'Driscoll
[01:03:37] S2: Well, the interesting thing for me is that you've got a relatively similar price being paid for them versus Listen, but you're gonna have a 10x increase in revenue for Cresta versus Listen. Listen were 20,000,000 sold for 2,000,000,000, Cresta are well over 200,000,000 in ARR. [01:03:53] S1: And given that Sequoia is in boat, it's not like they miss the fact that they're getting a different revenue multiple. So yeah, on the other side of the table, you're right, the seller said, Yeah, I get why I want a high revenue multiple for Listen, because it's got growth and it's new. And I guess why I'm getting a still good, but not as a stellar revenue model for Cresta, because it's a more mature company. Yeah, no, you're right, it is interesting. It's the buyer deciding which bet do I want to take. And then thank you for reminding me, listen, that's a very good example. Do I want the ultra modern deal? But the problem is I'm going to have to pay a scary revenue multiple in terms of... When you're trading at 7x, to be fair, it's really hard to spend a lot of money at 40 x. You can spend maybe a couple of billion, but it it gets scary. [01:04:33] S2: I think the Cresta deal is actually pretty good. You're paying 10 x.
01:04:33 · Harry Stebbings, Rory O'Driscoll
[01:04:33] S2: I think the Cresta deal is actually pretty good. You're paying 10 x. [01:04:36] S1: I agree. No. I I I I agree. Exactly like... Yeah. I think the intercompany deal, think it's a smart deal for Salesforce. You get critical mass. You move the ball forward, maybe it's not as bright and shiny as the newest bright and shiny thing, but your service cloud business is your second largest, I think largest business now, and you have to make progress on that, I agree.