The Twenty Minute VC (20VC): Venture Capital | Startup Funding | The Pitch
00:41:45 · Harry Stebbings, Naveen Rao
[00:41:45] S1: Dude, it's quite fucking hard doing hardware investing. It's a very different mindset. Is this generation of investors equipped to be hardware investors? [00:41:55] S0: No. I would say if you're a pure software investor, you're kinda fucked, And I'll say that pretty confidently because SaaS, I don't think is gonna be where you gain margin anymore. And we had this sugar high for the... Since, what, 2011, 2010 timeframe till now of, you know, I can very quickly spin something up on an AWS cloud service, test the market quickly, try things out, and then go after a 100,000,000 or $200,000,000 SaaS was like massive fragmentation of the market because the delivery mechanism became very easy and frictionless. Now we're in this place where applications start to become more about the intelligence layer, and I just don't see software being a huge market in twenty years. [00:42:38] S1: Do you not just think SaaS becomes legora? And what I mean by that is, like, is legora SaaS? Well, kind of. Yeah. Enterprise SaaS, but kind of not. No. So does, like, the semantics not just change? I don't think anyone really is like starting fresh being like, oh, we're we're a SaaS company.
00:42:38 · Harry Stebbings, Naveen Rao
[00:42:38] S1: Do you not just think SaaS becomes legora? And what I mean by that is, like, is legora SaaS? Well, kind of. Yeah. Enterprise SaaS, but kind of not. No. So does, like, the semantics not just change? I don't think anyone really is like starting fresh being like, oh, we're we're a SaaS company. [00:42:56] S0: Right. So exactly. I think you're right. So I was taking the classic definition of SaaS, I suppose. But I think companies where you deliver an outcome and you do so through a combination of software and services, absolutely. You know, we're seeing that in in several companies, and I I invest pretty actively in startups, generate the seed stage. And, you know, I'm I'm seeing a crop of companies come where they're taking engineering tasks that have existed for a long time that were done in a traditional way and have to be done correctly. And they're making those tasks much more, much faster, much cheaper by using AI plus humans. It's great. That's... I mean, I would say Harvey was the first example of this for law firms, where the old way was I have, you know, a set of lawyers who go and look at contracts and, you know, write contracts, that kind thing. And they basically said, well, I can use AI and verify the outputs with humans and deliver the same thing with fewer humans and deliver it faster at the same quality or near the same quality, and I will disrupt that market. So I think we're gonna see... This is sort of the new test.
00:43:52 · Harry Stebbings, Naveen Rao
[00:43:52] S1: Can I? We see it... You know, I call it word wank, which is where, like, you know, VCs come up with a coin theory of the world. And it's like, you know, the the trillion dollar services thing that, you know, I think Sequoia did a brilliant piece on. And I love Julian who did it. It's very good. But, like, are we not just slightly jazzing it up? That's just the future. People using AI to do things efficiently. There's, like, a whole glamorization of it. Bit overkill, isn't it? But aren't you just investing in a law firm when you do that? [00:44:21] S0: Effectively. Yeah. But you're just... It's a better version of a law firm. Right? [00:44:24] S1: That's a lot. And you... And... But you'd be okay to do that because I meet a lot of companies doing exactly what you say. And I'm like, I don't wanna do a law firm. I'm happy doing a Legra or a Harvey, which sell to law firms, but they're not actually a law firm.
00:44:24 · Harry Stebbings, Naveen Rao
[00:44:24] S1: That's a lot. And you... And... But you'd be okay to do that because I meet a lot of companies doing exactly what you say. And I'm like, I don't wanna do a law firm. I'm happy doing a Legra or a Harvey, which sell to law firms, but they're not actually a law firm. [00:44:36] S0: Well... But we are seeing that. Like, some of the large law firms are now investing in AI directly. So I think in its limits, you'll see, basically Harvey sells to the law firms because the law firms have the channel. You know, is that channel gonna be enduring? I don't know. But I could also see them saying, well, you know what? We could just sell directly to companies. Like, personally, I would buy that. If Harvey said, hey. I have a solution that does all your NDAs. It does... It reviews your contracts, blah blah blah, like, all these things, and I I can gain, confidence that it works, I would send 80% of my workloads, my legal workloads to them. [00:45:10] S1: I am intrigued, though, because you spoke about some firms that are building their own. I think you saw KNE in the legal space commit, like, $500,000,000 to it. You know, Lin, Fireworks, where I'm an investor, spoken very openly about owning your own intelligence and the importance of companies leveraging their own data to build their own models. Do you think that is a very viable future or actually a slightly techno optimist prediction from a very specific standpoint?
00:45:34 · Naveen Rao
[00:45:34] S0: I think it's a bit techno optimist because I I think you have to have a certain amount of scale in order to build your own intelligence and own it. Keep going with law firms, for instance. If you're Cooley or one of these big firms, yeah, you can invest in these things and you can make it happen. If you're a mom and pop shop in the middle of Nebraska, you can't do that. So what you're going to use then is a service of some sort. Right? You may augment your attorneys with that service, and that's how you'll you'll provide service to your clients. So I don't see this as every company will use AI in a way of, leveraging their past data to make their own models better. They're not gonna do that. It's just that it's too hard for them. They want an out of the box solution. So I think there is a market for selling those out of the box solutions. But it's it's gonna be this long tail. The big players will start to customize because they have the scale to justify it. It makes sense. And it goes back to this idea that, you know, every part of our world is adversarial. Like, it depends on who you're fighting. Right? If you're fighting another big law firm and that big law firm goes and uses AI to supercharge their margins, well, you kinda have to do the same. The mom and pop shop probably isn't doing that, and the the people they're, you know, fighting against are not doing that. So they're gonna stay in this other other realm for some time.
00:46:45 · Harry Stebbings
[00:46:45] S1: I think one thing that underpins a lot of law coding is the percent of salary that we will then transition to technology spend. Yeah. When we look at lawyers today, you know, I think it's about a $300,000,000,000 legal market in The US, and you're looking at that going, well, how much of that will be eaten by these providers? I think you see that same question there with coding. You saw Benioff say that they'll spend $300,000,000 of a $6,000,000,000 developer salary budget on core code and coding tools significantly. My question to you is, will that stay at 5% for developers? Will that go up to 30%, 50%, or will it come down to 1%? Because that is the mother lode question.