The Twenty Minute VC (20VC): Venture Capital | Startup Funding | The Pitch
00:31:47 · Jason Lemkin
[00:31:47] S0: To answer the question, think Harry's got a good point. I think both are true. A while ago, Rory brought up that there probably won't be another deal like Manus, right, which was a direct investment. I mean, I'm paraphrasing you, right? But after that one got unwound, no one wants to do that deal again, right? This sort of direct investment in an Asian startup. This isn't investing in a US based folks running open weights, but not open source models is not the same as Manus. But there is risk. And I think if twenty four months ago, most VCs would not want to take that risk because it's a clear risk. You don't have to fast forward to today with the Cohere Qwen issue to know it's a risk. It's just the reason on the IC thing, the growth is so phenomenal that we're taking risks today that you wouldn't take if we didn't see growth that was jaw dropping. That's the job of venture today. And it's okay if it blows up. It's okay if fireworks or whatever goes to zero in our portfolio at IC because we have other investments. That's the job. And we're taking risks. We wouldn't take this risk if it was a triple triple double double, but it's not a triple triple double double. But it doesn't mean that it doesn't mean that the risk level didn't just go up in the last week. A lot. And these DeepSeek being blocked by the U. S. Government and this whole Qwen thing and dialing home and Anthropic being on the GSA schedule. These are negatives. These are negatives. I think what we may look back is, and I still believe in the IC, we may, this is just my sense, I think there's a 56.3% chance we look back on OpenRouter and this was just a moment in time. Was a moment in time, going back to earlier the show, when OpenAI stumbled. So Anthropic was the only alternative for state of the art coding. And then the Chinese open weight models got really good at coding. That's what Elon said. Like, it's really good. But he even said they'll catch up the fable by the start of next year. So there was a gap that these models filled. And now OpenAI and others are going to fill this gap. And the low cost models are going to fill the gap. Like they each now have a much cheaper model that's much better. We may see these open weight models go from 60 something percent of open router to 10% in six months.
00:33:43 · Jason Lemkin, Harry Stebbings, Rory O'Driscoll
And that would not be an extraordinary amount of change based on what we've seen. That would not be... This is not sticky. [00:33:49] S1: It wouldn't. But Jason, you've talked very well, I think, in the past about maiming markets in terms of kind of the Fortnite ification, the shrinking land that's available. And to Rory's, I think, eloquent point, there will still be some companies and there'll be some companies that want reflection and poolside, but it is a maiming of an open market. [00:34:08] S2: Think you had to look at it... I understand the point you're making, but I think you've just got to look at it. The inference market is still so big. I mean, we added up all the competitors, and they only had $5,000,000,000 And, you know, we just agreed that the closed source two frontier models are a 100,000,000,000 already. So as long as there's... Yeah. If 10% of the spend is willing to kind of do... Put up with the brain dead of open source to save real money, and you do save real money, then there's gonna be demand for that. Does it get to 30,000,000,000? I don't know. When the overall market is so big, 10% of it is still big. And that's the big Ohio. This is... It's the mother of all markets, so everything else works.
00:34:08 · Rory O'Driscoll, Harry Stebbings
[00:34:08] S2: Think you had to look at it... I understand the point you're making, but I think you've just got to look at it. The inference market is still so big. I mean, we added up all the competitors, and they only had $5,000,000,000 And, you know, we just agreed that the closed source two frontier models are a 100,000,000,000 already. So as long as there's... Yeah. If 10% of the spend is willing to kind of do... Put up with the brain dead of open source to save real money, and you do save real money, then there's gonna be demand for that. Does it get to 30,000,000,000? I don't know. When the overall market is so big, 10% of it is still big. And that's the big Ohio. This is... It's the mother of all markets, so everything else works. [00:34:43] S1: Jason, you teased Black October, but I do think it's significant. Oh, yeah. OpenAI models and Wiz found two very critical PHP flaws hidden for more than a decade that have been exposed thanks to, you know, where we are in the cycle and the sophistication of AI and some models. What do we take away from this, Jason? How do you respond to this? What should we know that we don't know? Help me out here.
00:35:05 · Jason Lemkin
[00:35:05] S0: Well, look. I mean, I mean, we we said months ago on this. I said that everyone's gonna be hacked. The biggest change is, know, back in the old days before the models got good, I remember my CEO said the only reason we haven't been seriously hacked is no one cared. Now anyone can be hacked in seconds. People attempt to hack faster every day. So everyone's going to get hacked. And this PHP thing actually is worse than it looks because there's so many websites in PHP that no one's going to update. It's great that a lot of stuff runs on WordPress or that Replit and Lovable and others immediately ran like gateways or barriers to protect you. I mean, they're not all running unpaid, but they immediately ran. And there's a lot of stuff that went up and people, people released patches and updates. But you know, a lot of government and other sites and nonprofits, they just took their websites down and who's going to fix it? I mean PHP is still like 40% of the internet, right? And I bet it's more of old crap. I bet it's like 80% of old crap. So like, this is like Mr. Robot Live. Like all these old websites are running on PHP. No one's patched them since this happened. No one cares. The IT team was laid off three years ago. They're not vibing nothing. And we're going to find our way into all this. It's just going to get worse. Everyone basically, including Sam, just said it's going to get worse and worse and worse and worse. Right? And I think we're still grappling with the fact that everything that is a threat vector will be exposed almost in real time.
00:36:23 · Rory O'Driscoll, Jason Lemkin, Harry Stebbings
[00:36:23] S2: Agreed. Because if you're not up to date with the latest stuff, you're way behind. There's just are you right, there's going to be a year or two years of this. It's just inevitable. [00:36:30] S0: I think the only thing that's going to save us is there's only so many people that can pay large ransoms, and there's only so many systems that control dams and other natural resources. People are going to give up on putting too much energy if they can't make So money or debilitate it may actually decline for a while when they realize hacking the 20 VC sub stack only gets you so much money. But anything that can be stacked, hacked is going be hacked. Ransomware it's getting more and more professionalized. It's just it's just the next level. Right? [00:37:03] S1: There were a number of large private rounds. [00:37:06] S0: Totally. [00:37:07] S1: There was Legora raising 550,000,008,800,000,000. We've spoken a lot about Legora versus Harvey in the past and passing 200,000,000 ARR. Just in the last twenty four hours, there were rumors, and we obviously never never comment on rumors, do we, Rory, of Instinct raising at a $30,000,000,000 price. [00:37:24] S2: Yeah. Yeah. [00:37:25] S1: Yeah. Which we can go into. We can have some fun with that one. Because a lot of people are suggesting that is peak, peak, peak, because the revenue multiple for Instinct is the same as it is last round. [00:37:34] S2: Which has some sort of mean the valuation didn't go up. I mean, I know. Exactly. It's just
00:37:34 · Rory O'Driscoll, Harry Stebbings, Jason Lemkin
[00:37:34] S2: Which has some sort of mean the valuation didn't go up. I mean, I know. Exactly. It's just [00:37:38] S1: Yeah. We have others like the ex OpenAI research chief, Bob McGrew, with Arda hitting a billion 5, raising 232,000,000. [00:37:48] S0: Yeah. I'll take last one question on the Instinct thing. It's a question to you guys because you guys know better than me. We can make fun of the 30,000,000,000 at token revenue, right? And say it's a sign of the times, which perhaps it is. The question I just kind of wonder is when will we exhaust the equity here? We just talked about equity versus debt for the public players, right? In a sense, the 30,000,000,000 doesn't surprise me. They need the capital to pay for the inference, right? They need the money. What are they raising? I mean, it's rumored. Let's say they raised 3,000,000,000, right? They need it. Forget about the rest. This isn't just a vanity raise. They genuinely need the capital to compete. But even if you're getting every dollar that every sovereign wealth fund has, the GIC has, like how much money is there for the Instincts of the world? It feels infinite now, right? [00:38:30] S1: A lot more. [00:38:31] S0: Yeah, but how much is it? I just don't know how much it is when that merry-go-round ends. We just have a structural issue in this late growth phase. We just have... Because right now it's it's game on, man. [00:38:41] S1: I did an Instagram on Instinct, and I had over a thousand DMs, and over half of them were asking to invest.