The Twenty Minute VC (20VC): Venture Capital | Startup Funding | The Pitch
00:33:08 · Harry Stebbings, Rory O'Driscoll
[00:33:08] S2: Scratching the obvious itch there, you're basically saying that we're in a bubble. [00:33:13] S1: I don't know if I'm saying... You're trying to make me say I'm in a bubble. I just think that, well, we got the pref, as Jason points out, so we're all fine. But what you can say for certain is the production rate of decacorns is higher compared to anything we've seen before, including five decades of data in the public markets. It definitely, I mean, this is the most economically transformative event since the industrial revolution, or we're getting a wee bit ahead of ourselves. You pick. [00:33:41] S2: Which would you pick, Rory? [00:33:42] S1: Maybe the better answer is this. I'm actually going to go back to the pref answer, right? It's kind of funny, because you have to remember all these private company valuations, that valuation is set by someone who does have a LIC pref. And once you have a LIC pref and you believe it exists, you can say to yourself, unlike a common stock where it trades every day, you can say it's a 1x plus option value. And the thing right now is option values have high value because there's a lot of vol. Some apparently three companies in this decade will become worth a trillion dollars, many will become 100,000,000,000, even if it's 10. It's rational to say there's some non zero probability this company becomes fricking amazing. And my downside is a one x. To make it concrete, I don't think all these stocks would trade at 10,000,000,000 or more if they were all traded on the public markets?
00:33:42 · Rory O'Driscoll, Harry Stebbings
[00:33:42] S1: Maybe the better answer is this. I'm actually going to go back to the pref answer, right? It's kind of funny, because you have to remember all these private company valuations, that valuation is set by someone who does have a LIC pref. And once you have a LIC pref and you believe it exists, you can say to yourself, unlike a common stock where it trades every day, you can say it's a 1x plus option value. And the thing right now is option values have high value because there's a lot of vol. Some apparently three companies in this decade will become worth a trillion dollars, many will become 100,000,000,000, even if it's 10. It's rational to say there's some non zero probability this company becomes fricking amazing. And my downside is a one x. To make it concrete, I don't think all these stocks would trade at 10,000,000,000 or more if they were all traded on the public markets? [00:34:31] S2: That's not giving me an answer. [00:34:33] S1: I think it is.
00:34:33 · Rory O'Driscoll, Jason Lemkin
[00:34:33] S1: I think it is. [00:34:34] S0: Well, we're all... We're betting this is true. Right? I mean, Menlo had some math when they raised their last fund. It was... I think it was a $3,000,000,000 fund to deploy the next twelve months that they're betting they'll have at least $425,000,000,000 plus exits to make the fund, right? That's just the math. It's not complicated, right? That they can do that like clockwork. That's the bet. The AI spend and the recent exits of the last X months justify it. Historical evidence makes it suspect. So are you living the moment or are you living as a student of history? I just don't think in venture there's a lot of upside in being a student of history, even though we have one starring on the show, which I'm grateful for. I don't know if it gets you the huge carry checks. [00:35:13] S1: And in fact, as I looked at this data, which one of my colleagues was doing for something else, I think what I actually realized you need to do is then you say, if you extrapolate, what level of growth are you assuming to make this math work? Because yes, Jason, are. Because every year, I mean, every decade, it looks bigger than the last decade with the exception of 1970s because stocks go up. But the question is, I mean, made a comment for 25,000,000,000 plus outcomes and in a world per fund, yeah, and there are only 130 above 10,000,000,000 ever. So there's probably only 70 above 25. And so you got to get four new ones. It's doable, but you can't miss a lot here, dude.
00:35:13 · Rory O'Driscoll, Jason Lemkin, Harry Stebbings
[00:35:13] S1: And in fact, as I looked at this data, which one of my colleagues was doing for something else, I think what I actually realized you need to do is then you say, if you extrapolate, what level of growth are you assuming to make this math work? Because yes, Jason, are. Because every year, I mean, every decade, it looks bigger than the last decade with the exception of 1970s because stocks go up. But the question is, I mean, made a comment for 25,000,000,000 plus outcomes and in a world per fund, yeah, and there are only 130 above 10,000,000,000 ever. So there's probably only 70 above 25. And so you got to get four new ones. It's doable, but you can't miss a lot here, dude. [00:35:52] S0: But that's what Andreessen got so right. People, when we started our investment, maybe pre my investing career, but people mocked Andreessen in the early days for overpaying and doing this wrong and saying, we have to be in all the winners. And they just did the math. Yes, you have to be in all the winners. And even a lot of the winners, won't make money in because you'll overpay, but the super winners will make up for all of it. It's it's just basic. And everyone... All the Yahoos mocked them, they are completely right. The price of overpaying for a winner is get... Being in the super winner. [00:36:19] S2: Well, of super winners, Jason, do [00:36:21] S1: you wanna come back to
00:36:21 · Rory O'Driscoll, Harry Stebbings, Jason Lemkin
[00:36:21] S1: you wanna come back to [00:36:22] S2: the investment committee? We can do a deep mind. Damas the legend that is Damas Esarbus, raised at about $10,000,000,000, give or take, from Thrive a matter of months ago. Now Isomorphic Labs, his company, in talks to raise it between 40 to $50,000,000,000 price. We can do this? [00:36:41] S0: I mean, generational talent has generational prices today. As much as I believe in the JEV teams and the TypeSafe teams, he's gonna pull together a team like never been seen since the dawn of mankind in artificial intelligence. Maybe he fails. Maybe he's had enough of it. Maybe he's enjoyed life in London too much, too many posh clubs. But I think I've seen the fire. It is a scary bet. We have our liquidation preference, and no one will be able to assemble a set of talent like this. This is the next and last chance to cherry pick the best of the best of the best, and this is the job.
00:37:10 · Rory O'Driscoll
[00:37:10] S1: The interesting thing about this company will be that unlike the vast bulk of the revenues that come from the foundation models, where it's, you know, intelligence automation, where the value capture is replaced labor. Here, the value capture is not replaced labor. It's actually make science discoveries. And the way because you know, when you discover it, when you do a molecule, if you automate the 500,000,000 of science spend that you pay science wages to, that's not really going to cut it. What you really want to do is, know, when you create the $200,000,000,000 drug, you want to get 10% of that on a royalty basis. So it's kind of the as the models devour all the knowledge worker dollars that are available to them in terms of direct replacement, at some point, they're going to have to monetize via creating whole new things with their intelligence. And, you know, it's a lot more credible today just given the math, the recent work they did on math, which as one mathematician correctly pointed out, don't actually get paid a whole ton for solving Stokes, Navia, whatever it is. But if you can discover the next GLP drug, that's a winner, because those things do money. So it will be interesting to see I have in the past said it's hard to get the drug companies to extract meaningful royalties when they still got to do phase one, phase two, phase three. And many of these companies end up being drug companies down the line. It'll be interesting to see what happens here, but it's a big pile of money if you can extract the value, not just from a labor percentage.