The Twenty Minute VC (20VC): Venture Capital | Startup Funding | The Pitch
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?
00:11:06 · Rory O'Driscoll
[00:11:06] S1: And it's worth pointing out the numbers in very precise terms, because the funny thing is, even after we point them out, people can still disagree, right, what it means. But at least let's get, I mean, rough and tough in q one, and I'm using GAAP numbers here, not run rate, because GAAP numbers, as I say, are audited, and the CFO will go to prison if they're wrong. So I always assume they're correct. Roughly 5,000,000,000 in q one, roughly 11,000,000,000 in q two, roughly $17,000,000,000 in Q3. Those are the numbers, object to fact. What it means from Q1 to Q2, you can look at it as an absolute number, they went up $6,000,000,000 and they went up probably a little under that, about $5,000,000,000 Q2 to Q3. So on an absolute number basis, that's one perspective. You can also look at it as a percentage. They were at, what is it, 5 or 6,000,000,000 in Q1, they went to 11. They went up, they doubled Q1. So their Q on Q growth rate was 100%, which is an astronomical year on year growth rate. Then they added exactly the same number in Q3, but by definition, because they're starting at 11, now you're adding the same absolute number of ARR, but on double the revenue size. So the growth rate naturally, the Q on Q growth rate has plummeted to a roughly 50% Q on Q growth rate, because you started at 11%, you add roughly six I'm just using rough numbers. It's roughly growing 50% Q on Q, which is still 5x year on year if you compound it. So if you buy into percentage based growth, you could say, Hey, 100% in Q1, Q on Q, they grew 50% Q2, Q2 to Q3, right? If they stick at 50%, that's still 5x year on year growth rate, that's the positive spin. The negative spin is, oh, they were growing at 100% and only a quarter later, they're growing at 50%. Those are equally true statements of the same facts. And as Jason said, another way to think of it is just really at the margin, they added a little high fives, early sixes, I can't remember which, Q1 to Q2. And the absolute number that they added Q2 to Q3 was slightly less than that on a GAAP basis. So the most negative interpretation is, which I'm not saying I agree with, by the way, is that you're adding roughly $20,000,000,000 a quarter of revenue, in which case, you're slowing out pretty quickly. And, literally, as I said, you can throw out those numbers, and I'm sorry that was a wall of numbers.
00:13:15 · Rory O'Driscoll, Jason Lemkin, Harry Stebbings
But, you know, you can squint one way and say, you know, they're still going at 50% Q on Q, which is 5x year on year, that's freaking amazing. You can squint another way and say, oh, my God, it's de accelerating from 100% Q on Q to 50% Q on Q. Does it go to 25 next quarter? And all the money is in that bet. That's the only discussion [00:13:33] S0: Listen, at the Anthropic obviously isn't a startup at this point. Right? It's not even a scale up. But I, as a startup, saw someone that did instead of 6,000,000,000, 6,000,000 last quarter, and only did 5,400,000,000 this quarter, I would not invest. [00:13:46] S1: But hang on, let's be clear. I understand. I'm just going to put out, I'm going be very clear. It's not that they did 6,000,000 in the last hour, that they added new ARR. I mean [00:13:54] S0: But their bookings, maybe bookings decelerated. [00:13:57] S1: Yes. The rate of bookings growth decelerated. The absolute number of bookings went up. I mean, they sold more shit in q three than q two by about 5,000,000,000. [00:14:04] S2: But what's actually interesting, is given the bookings decelerated, one thing is that, oh, reaching TAM levels in enterprise, they're naught point one percent of Fortune five hundred spend. And so, actually, there is so much more budget for them to consume, and the booking still decelerated.
00:14:20 · Jason Lemkin
[00:14:20] S0: Yeah. That's why I think the only... Listen. I mean, I... There's not enough data in here for... Or or maybe I'm not smart enough to parse it. That's why to me, the answer is simply pricing pressure. It's that simple. The demand is there. The market should, if you look at OpenRouter and others, the demand does not appear to have declined. I don't see any metrics that say penetration of the Fortune five hundred has reached 100%, but you've just got a lot of pricing pressure everywhere. So whether it's a combination of folks buying from other vendors because it's cheaper or implicit discounts that they've added in HYCU 5.5 and others, maybe we've reached the point where Anthropic ability to command a price premium has hit a local maximum. That's one potential thesis. It is open. I mean, I'm sure if we saw OpenAI's numbers, they look much worse if they're literally offering a 30% discount on Astra with essentially what appears to be a higher cost basis. And they're offering a 30% discount. So lucky they're going public second, right? But it appears to be working. It appears to be working. 30% off is a big deal. It approaches the 40% that we target for open weight models. And this is my thesis is that pricing pressure hit them in Q3. I just think that's the only thing I can point to because everything else is going pretty darn up into the right.
00:15:29 · Rory O'Driscoll, Harry Stebbings
[00:15:29] S1: I mean, probably true. Right. I mean, it's gotta be something like that, Jason. I mean, is just worth stepping back and reminding ourselves again on a GAAP basis, 4,500,000,000 in GAAP revenue last year, full year, exiting a run rate of 9,000,000,000, and they're probably going to do 56,000,000,000 in GAAP revenue this year. So year on year, their growth rate is 12x, right? That's just an objective fact at this point. But then the interesting thing to your point is, you look at the same kind of growth rates and you come up with roughly $120,000,000,000 of GAAP revenue next year. So they're probably going to go from 12x growth rate to 2x growth rate in a year, right? So to your point, pretty sustained slowdown to still magnificent numbers. It really is glass half full, glass half empty. You squint one way and you say, my god, this is a company doing 56,000,000,000 in revenues that can still roughly double next year. That's freaking amazing. And you going the other way and you go, oh my god. It went from 12 x growth to two x growth. Is it gonna go to a 50% growth or five... 10% growth in, you know, the following year? [00:16:23] S2: Do you remember when we had Stewart Butterfield and Slack in zero to 10 in eighteen months was, the gold standard, like, the gold standard.