The Twenty Minute VC (20VC): Venture Capital | Startup Funding | The Pitch
01:01:29 · Harry Stebbings, Jason Lemkin
[01:01:29] S2: 11. [01:01:30] S0: If the margins... If, if, super fan, both great companies. If the margins are minus 50%, I will still recommend we do factory and back back Harry's investment here. And I'm gonna I'm gonna... Unfortunately, I love Rory, but if I have a vote, I'm I'm gonna vote against his proposal to Lecora. And I understood the margins were closer to zero and improving due to their their their own... Their post training on their own version of open weights model, but minus 50, Rory should have told us about that before the IC. I felt that was a Monday shocker, and I'm a little uncomfortable with the kid on the team for not socializing that ahead of time.
01:02:03 · Rory O'Driscoll, Harry Stebbings, Jason Lemkin
[01:02:03] S1: Funnily enough, look, I'm not going to be leading around that Harvey Alagua were investors in GCAI on the in house GC space. But actually, in defense of Harvey, for a long time, the rap was, oh my god, people don't use the product enough. So I would argue, if I was Harvey, if they could truly say that gross margins are negative 50, the correct spin on that is, my god, liars have pounded on our shit. And as soon as we get our own internal models, they're never going back. Maybe stepping back, what do I think about this category? I think it's an amazing category. It's not as... What I said two weeks ago, nothing's changed because I try not to change. In five year and ten year investments, it's really bad if everything changes every week. But, yeah, it's a really good category. It's not going to be as big a spend per head count as software engineers because I think a lot of the laws, the lawyers work will remain to be done. But I think it's a good category. I think it's all about valuation at this point. And, you know, it's a two way race in the Amlaw space. And so the kind of second order tactical questions here around TAM and thing would kind of decide make a decision for you, where I don't have the facts in front of me on that. So don't have a profound opinion on it, except to say I am interested in the negative gross margin comment as a positive spin. [01:03:19] S2: My word. That was a very long way to say very little, Rory. [01:03:24] S0: Yeah. Thank you. Thank you [01:03:26] S2: for your concision, intern in the corner. That was super helpful.
01:03:26 · Harry Stebbings, Rory O'Driscoll
[01:03:26] S2: for your concision, intern in the corner. That was super helpful. [01:03:29] S1: I agree. It was not concise, Harry. That's okay. But you're right. That's fair. Was It not one of my more concise ones because I was Tell him what's right. Prefer a sharp no, I'll give you. No. I won't do it at 10,000,000,000. Because I think when you count the legal heads, you don't get to 10,000,000,000, law lawyers. We can do one more [01:03:47] S2: ding ding ding. Do we invest in this? We got Crusoe, $3,900,000,000 series app at $30,900,000,000. For those that don't know, Crusoe is in the data center build out a business. They build data centers. They provide GPUs, and they also do managed inference, full stack. They have a huge order book, about 140,000,000,000 of total contracted value. For those that don't know, business is flying. In a hot market, Jason, $3,900,000,000 at 30,900,000,000. Are we writing our biggest check from this fund?
01:04:21 · Jason Lemkin
[01:04:21] S0: I mean, to be honest, as you know, the fund doesn't believe there's anything really defensible in these data center models other than the backlog and access to infrastructure. But we believe Crusoe is at the top of the second tier there, right? They have some interesting things, right? They're able to build their own modular data centers, They own the chain from power to tokens. There's a lot of appealing things in this. I think our approach at the fund needs to be a portfolio approach. We should invest in all the data centers that rise above a certain level of projected DCF projected growth projected margins and most importantly circular guaranteed circular financing. And this is all this is all as much as I love the boys at Crusoe. This is all a spreadsheet investment. I've done the math and I believe it's just below the fold. It's just a hint too expensive to hit our margin despite the growth. But I think we should do all of these deals that have the requisite level of circular financing and the ability to access infrastructure. So I give them that. I'm just a little bit worried about the valuation here. So reluctantly, reluctantly, I'm gonna have to pass on on Crusoe. 10,000,000,000, though, would have been great, boys. You guys, bonus this year will not be what you'd hoped. They will be epic bonuses this year. I make them all the decisions as the managing general partner, but I think you'll each take a couple million dollar hit by missing the last round. Telegraphing that in September.
01:05:37 · Rory O'Driscoll
[01:05:37] S1: Pushing back and taking that and going back to my earlier comment, how is something... When I said about, you know, worrying about a slowdown, how is it actionable? This is an example of where it is actionable. Right? Because something like a coding agent, something like a AI app, like Harvey Lagore or whatever, there's a long trajectory. They're not levered plays. You probably can survive a one year bump. Conversely, the data center trade is very levered, so very exposed not just to AI usage, but to growth in AI usage. You're really leaning in on the upside, which means there are amazing investments to the up, and it probably would be tough investments to the down. You wouldn't want to be out of that sector. But again, going back to how do you make these concerns actionable? Right now, I'd be saying to myself, if I had if I had a portfolio across the whole kind of AI spectrum, I wouldn't want it all to be in that AI CapEx trade where any kind of slowdown when you've got, like, four or five to one leverage can be pretty brutal. So I would be a little bit afraid. I'm not gonna... The specifics on cruise. Jason, you're It is a spreadsheet exercise, and I haven't run spreadsheet. So I don't know. Right? But I would be thinking in macro, how much of that bet would I want? Right? I'd want some because it's been an amazingly good bet. I mean, look at Corweave. But you also look at the market cap. I want to think Corweave's at 60 and Nevis is at 40. I could be wrong. It could be the other way around. And so Crusoe at 30. I mean, I think it's smaller than Corweave growing much more quickly. So again, it's... And they all have, you know, pretty substantial negative free cash flow. So a lot of your success is betting on future CapEx. And maybe the other statement, Harry, to further prove that you're wrong and that you can in fact take into account some of those risks. My appetite for a deal like this would go up directly proportional to how much, as Jason said, a long term commitments you have from a Microsoft versus a second tier, and then b, how much visibility you have on your debt runway for the next three years. I would prefer a slightly lower price, slightly more dilution and a longer runway, such that if there's a data center bump in the next twelve months, you're protected.
01:07:36 · Rory O'Driscoll, Harry Stebbings
I got to finish by saying a really fun day in The Wall Street Journal yesterday. I don't know if you saw it, but I read the journal in the morning, I check-in in the evening. It's... It was so funny yesterday because the headline in the morning was deals pull as Wall Street worries about data center trade. It was, you know, SPN and then there was two others. So it a nuclear company, one other. So that was the headline, top of the page, first thing in the morning. We then had the best single day in the Nasdaq since the dawn of time. It was an amazing day. And the headline at the end of the day was Nasdaq Explodes as AI CapEx Fails Recede. So literally... And what you saw in that, literally, in the space of eight hours and one trading day, people went from, oh my god, CapEx is scary, to The Wall Street Journal is like, it's all gonna be great. And it was just... It was fun to watch that kind of oscillating, you know, terror greed moment in real time, literally in the same eight hour period. [01:08:28] S2: Boys, what have I missed? [01:08:30] S1: Clearly, the last Crusoe round. But I missed it too, dude. [01:08:34] S2: Rory, is there any other that you think I've missed? It it is a slight recycle, but I do just think it's worth saying. I'm sure you guys saw at the Twitter sphere. Keith Raboy, Joe Lonsdale, going for our Wallachs unbelievably again.