The Twenty Minute VC (20VC): Venture Capital | Startup Funding | The Pitch
00:42:56 · Jason Lemkin, Rory O'Driscoll, Harry Stebbings
[00:42:56] S0: think it's a better investment than Hopin, but I'm not comfortable with this consumer negative gross margin [00:43:01] S2: Look, that I've been talking you asked an interesting question, Harry, stepping back. You're right. What you're basically saying is how do you compare known markets, solid growth, growing nicely, you know, not nice, it understates fireworks. A ripping market where, you know, inherently, it's not magic pixie dust. There's gonna be five competitors where, you know, your upside is real, but it's capped at some functional level because of our five competitors. And you're comparing that to how do you think about this thing where if it becomes everybody's thing, it's a $200,000,000,000 everyone uses Instinct. It's the replacement for iMessage plus Facebook. Yeah, it has that potential to it. And you're right, is that there is more uncapped upside in Instinct. And how do you weigh up? What does your know, you gotta do the three way payoff matrix. You know, if it's amazing, if it's good, if it doesn't work, and look at the two. It's... What kind of action are you looking for on the table, I suppose, is to some extent the question. [00:43:54] S1: Every big fund should be fighting their ass off to put as much money in Instinct today. [00:44:00] S2: Yeah. Okay.
00:44:00 · Rory O'Driscoll, Harry Stebbings
[00:44:00] S2: Yeah. Okay. [00:44:01] S1: So I'm voting for it. Okay. Next one on the IC, Jason. You've got Kevin Weil leaves OpenAI science to launch Warp Science with 215,000,000. It's a very early pre seed, so you may not be comfortable with that because there's no data. You've got the OpenAI research chief, Bob McGrew, where he raised the 232,000,000 series a. You have Legora 550,000,000 round.
00:44:01 · Harry Stebbings, Rory O'Driscoll
[00:44:01] S1: So I'm voting for it. Okay. Next one on the IC, Jason. You've got Kevin Weil leaves OpenAI science to launch Warp Science with 215,000,000. It's a very early pre seed, so you may not be comfortable with that because there's no data. You've got the OpenAI research chief, Bob McGrew, where he raised the 232,000,000 series a. You have Legora 550,000,000 round. [00:44:25] S2: Odd things to put together. I mean, I was trying to make sense of this thing. Right? There's a plethora of deals this week that I would describe as absolutely proven executive, big opportunity, hairy technical challenge, but big opportunity if it works. And that's, to some extent, it's the flapping airplanes thing. To some extent, it's ARDA, which is the Bob McGrew deal. To some extent, I don't know as much about warp science, it feels like the same thing. Big idea, talented executive. And there's just clearly a wild appetite for that at fairly high prices with relatively little derisking. And that's just one whole four or five of those kinds of deals here. And then the other type is the late stage, known good company doing really well, maybe Legora, maybe in a different way, Bedrock, where it's not as binary based on a person. It's just how do you price these late stage companies, which is easier. At some level, it would be easier to figure out your head on Legora or Bedrock than it would be to do flapping airplanes, Arda, or warp science, where all you know is the executive in question is talented, and the opportunity, if it works, is amazing. Welcome to welcome to the game.
00:45:35 · Jason Lemkin, Harry Stebbings
[00:45:35] S0: I'm gonna take a radical approach for for the IC, Harry. I know I know it might make you uncomfortable and you should veto it too. Like I want to veto instinct. But I think there's moments, and I know you don't totally believe me, but I believe in many best startups, sometimes there's dislocation moments where the market briefly struggles. And I think we should put 20% of the fund into OpenAI at the 1,250,000,000,000 round. Think that it It is is a moment when there's a little market panic. Anthropic is on fire. SpaceX has done well. The models are wildly competitive today. OpenAI has closed all the competitive gaps. It is a well run machine. It reminds me a little bit of that Anthropic round at 183,000,000,000 or so when the valuation made no sense vis a vis OpenAI, it was a dislocation. A lot of people made money on that round. This is a dislocation moment. This is folks misunderstanding. They're thinking OpenAI is struggling when the numbers clearly say otherwise. And we can fart around with these little $20.30, dollars 50,000,000,000 rounds. I think if we put 20% of the fund into OpenAI at 1,250,000,000,000, at least we can return the fund with that. And then we take our upside with some of our other exciting bets. [00:46:41] S1: Why do you say that? What is the upside on OpenAI at 1,250,000,000,000?
00:46:41 · Harry Stebbings, Jason Lemkin
[00:46:41] S1: Why do you say that? What is the upside on OpenAI at 1,250,000,000,000? [00:46:45] S0: Well, these are both going to be 10 to $20,000,000,000,000 companies. Just look at the growth and the scale. Look at Anthropic. It's only 0.1% of of the fortune five hundred budgets today. Clearly, it's going to be in the two to 3% range even by the most conservative estimates that us and Coatue together and Iconiq have done. Right? So going from 0.1 to two to 3%, I need Rory's help here. That's significant growth ahead of the investment. So getting... We... You know, getting... We need... If it's 20% of the fund, obviously it needs to 5x dilution aside to return our fund. There's a clear path to a $10,000,000,000,000 outcome. $2,030,000,000,000,000, the rest of the fund doesn't even matter. It's got a discount to Anthropic that I don't think it's going to deserve. And so worse, just like worst case with some of your investments, you get your LIC preference back. Worst case here, we double our money. Worst case. It's not that bad to double your money, worst case. And that's what you get from these dislocation moments. You get to double your money. When ordinarily these rounds like inflection or instinct are priced to perfection. OpenAI is not priced to perfection, and that's rare. And that's why I think we do 20% of the fund because that's the limit under our LPAQ. And we just tell the LPs because we can do that without LPAQ consent. We just do the maximum without consent. We just let them know on Monday.
00:48:01 · Harry Stebbings, Jason Lemkin, Rory O'Driscoll
[00:48:01] S1: The other thing is the quality of codex today is so significantly better than it was in a prior generation. I I know every coding team that we work with has switched from cool code to Codex in the last three to six months. [00:48:12] S0: That's why we should put 20% of the fund in. People aren't getting it. They've achieved parity. This is when you go all in, but the markets don't see it. The markets are too are are too superficial to see it. 20% of the fund. But nothing smaller won't... It's not enough. It's gotta be 20% [00:48:25] S2: of the fund. Interesting. Not crazy. I must say, Jason, despite... You're right. It's that Anthropic will prize. It'll be a 2,000,000,000,000 and maybe a pop. If you knew that this was the last private round and the trajectory of OpenAI was converging, I mean, you'd wanna know that they kinda got religion and wanted to do something like what Anthropic has done. Yeah. Not crazy. If they continue to say, we're gonna spend... We're gonna burn forever, forever, then you wouldn't wanna do it if there's another private round in it. But not a crazy idea because risk adjusted is probably less risky than some. [00:48:54] S1: I love that as an out there suggestion. My only comeback to that would be, could we not do Instinct and OpenAI and actually hedged. It's not a bad risk profile. To your point. [00:49:03] S2: If you... If that's your definition of hedging, please don't ever run a hedge fund. [00:49:07] S1: Why? My friend Leo told me that was how you did risk management.