The Twenty Minute VC (20VC): Venture Capital | Startup Funding | The Pitch
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.
00:16:23 · Harry Stebbings, Jason Lemkin, Rory O'Driscoll
[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. [00:16:30] S0: You know what's just a little bit interesting? I know it's just an anecdote and people will make fun of me, but I'm trying to launch this app Saster Connect. Hopefully it goes out in the last next couple of weeks, but I've worked on it for a while, this AI matching recruiting app. And when I switched it myself to HYCU55 and JEV, total costs went down about 70%, 72. Now there's some costs that are going to keep going up. We're all going run five agents a day, 10 agents a day. We're going to run them on multiple platforms. I just upgraded to Muse Paid yesterday, right? So there trends going the other way, right? As we see in the Anthropic Quarter. But again, percent for if a lot of mature applications can see that kind of deflation from improved quality of tokens and pricing pressure, that's a lot. Even though everyone's going to be coding at seventy two hours a day with 20 agents, a 72 decrease in effective price is material. And it's faster. It's faster and 72% cheaper and better. So that hadn't happened yet, at least in my personal agentic experience since the beginning of twenty fifteen. On an as used basis, nothing got cheaper. No matter what anybody said on evals and token price, nothing got cheaper until HYCU55 plus Jebb. Then I saw 72% decline for B2B workflow running constantly. [00:17:42] S1: For same task?
00:17:42 · Rory O'Driscoll, Jason Lemkin, Harry Stebbings
[00:17:42] S1: For same task? [00:17:43] S0: Yeah, for the same task and higher quality. So like, it's just one and people can make fun of me, but it is interesting. For me, it is interesting for that actually to happen in the real world for the first time. [00:17:53] S1: Agreed. [00:17:53] S0: It just makes us hard to predict for me. It just makes it hard to predict how it's all gonna, mean, twelve months ago, none of these models barely worked. Today they're epic. In Black October, they've become weapons to destroy Binance and everybody else. It's hard to know in twelve months how these sub metrics are gonna play out. Think it's almost unpredictable. [00:18:11] S2: But I think that exact statement, Jason, is why we have the unpredictability or the binary nature in venture markets. It's why we have the volatility in public markets, which I think is just like a lack of certainty around what the five year looks like. I think the whole world does not know what five years out looks like in a way that we generally have done for the last thirty, forty years.