The Twenty Minute VC (20VC): Venture Capital | Startup Funding | The Pitch
00:33:28 · Harry Stebbings, Brendan Foody
[00:33:28] S1: There you go. Sequoia line up the warship. The next twelve months will be dramatically better for infrastructure companies upstream of Anthropic and OpenAI than for application layer companies downstream of them. This was your tweet. [00:33:42] S0: Why do you believe that? The reason I believe that is that the application layer companies' businesses are not far removed from the foundation model companies' businesses. Like it is not a far leap for Claude Co. Work to add capabilities across medical and legal. Obviously, they did it with software engineering and can do that across finance. And so I feel like building defensibility in the software layer on top of the models is going to be incredibly difficult. Whereas on the other side of things, in the infrastructure side, it feels like there are meaningful moats that are getting built. Like we're compounding enormous network effects in the business and a pretty significant data moat as we build out the inventory for our customers. Compute companies obviously are able to build moats through these very long R and D cycles. And so I think that there are going to be high margins that get achieved at the infrastructure layer and sort of sustainable, profitable businesses in a way that it's less immediately clear at the application layer. [00:34:46] S1: I mean, you saw Nebius, I don't know if you saw us, but they increased their pricing by 30 across support, which will have absolutely no impact on demand. Isn't that absolutely nuts? So you increased price by 30%, zero impact on demand.
00:34:46 · Harry Stebbings, Brendan Foody
[00:34:46] S1: I mean, you saw Nebius, I don't know if you saw us, but they increased their pricing by 30 across support, which will have absolutely no impact on demand. Isn't that absolutely nuts? So you increased price by 30%, zero impact on demand. [00:34:59] S0: It's probably the same for us honestly. We have the demand to double overnight, we just don't have the capacity. And so it's mainly a question of how effectively can we scale to mobilize people to build out these environments much more quickly. [00:35:13] S1: Do you do pricing elasticity tests? [00:35:16] S0: Because if you can double price and double the business. We maybe can't double prices. We could double capacity. We could probably increase prices by 30% without much of an impact, but the other thing you need to consider is that pricing is not merely a question of optimizing for the next six months. It's optimizing for a structure that wins the market over the next decade. For that reason, we're very focused on how do we do what's best for customers, how do we do what's best for experts, and how do we build a sustainable business while we're doing it, but make sure that we're not leaving oxygen in the market because high margins invite competition.
00:35:16 · Brendan Foody, Harry Stebbings
[00:35:16] S0: Because if you can double price and double the business. We maybe can't double prices. We could double capacity. We could probably increase prices by 30% without much of an impact, but the other thing you need to consider is that pricing is not merely a question of optimizing for the next six months. It's optimizing for a structure that wins the market over the next decade. For that reason, we're very focused on how do we do what's best for customers, how do we do what's best for experts, and how do we build a sustainable business while we're doing it, but make sure that we're not leaving oxygen in the market because high margins invite competition. [00:35:52] S1: Okay, I am an investor in several application layer companies downstream, like a Legora, which you mentioned there. We see the Legora versus Harvey battle. I think everyone actually is coming around to the fact that they shouldn't be fighting each other. They should be wary of Anthropic to your point. Totally. But then I look at it and go, there is incredible defensibility. It's a very deep product, specifically suited to the workflows of lawyers. Anthropic would have to build out whole separate product teams, divisions to come after them. They'd have to build out GTM teams, customer success teams, adoption teams. It's a different freaking company. The defensibility is there. Argue back.
00:36:31 · Brendan Foody, Harry Stebbings
[00:36:31] S0: Maybe I would say two things. First is that I think over the last two years, everyone has increasingly realized that the model is the product. That we can build so many of these different abstractions of trying to stitch together API calls and having all this patchwork logic where people used to have all these drag and drop agent builders. And then they just realized that if we give the model the end goal and we train it to accomplish that end goal, it has outperformed every other solution in almost every case that we go after. That bodes incredibly well for those that are training models end to end. The second thing to consider is that software layers are able to get recreated very quickly now. Like we're building out an eval set that measures how effectively agents can build end to end SaaS applications, where 2025 was the year of how do you get a model to make a PR and a code base, and 2026 is the year of how do you get the model to clone Slack end to end. Those capabilities are going to exist in the models in the next twelve months. That means very significant things for companies that are betting on software moats sustaining their businesses. If we [00:37:40] S1: take that extrapolated further, how effectively can we build Slack internally agent led entirely? That would very much concur with the SaaS is dead, because if you're a large company needing maybe small customizations, integrations, say you're a real estate company and you need very specific integrations to pricing providers, you'd build your own. I generally agree.
00:38:01 · Brendan Foody
[00:38:01] S0: I think that the caveat is when those companies have network effects, there's probably a significant moat that isn't being priced in fully. For example, Salesforce has tons of companies that are building integrations on top of their platform that creates this almost marketplace and network effect around it, or Slack has Slack Connect, right? And I think even Carta is another great example of this whole network effect of the people that use it and want to use the same platform across all of their companies. I think that the companies that have network effects will be able to, in some ways, generate more value because they can iterate 10 times faster while leveraging those network effects to create more value for their customers, and therefore build more valuable products, charge more money, etcetera, and increase revenue. The companies that don't have network effects are going to struggle very significantly, because then there's not really a defensible moat in the pure software associated with the products that they build. And so to me, that is the litmus test that determines whether this company is going to become worthless or whether this company is going to gain dramatic value from their ability to 10x product velocity. You said we're learning more and
00:39:12 · Harry Stebbings
[00:39:12] S1: more that the models are the product. What if I push back and say the go to market is the product? You're selling to law firms, it's about being in the room with, you name your biggest law firms, your Coolies, your Goodwins, your Wyden case, your Clifford Chance, building the relationship with the buyer, and then the CS and the adoption. And it's actually in the go to market, not in the product.