The Twenty Minute VC (20VC): Venture Capital | Startup Funding | The Pitch
00:10:13 · Harry Stebbings, Jason Lemkin, Rory O'Driscoll
[00:10:13] S2: Jason, I think Rory is not going along with our thread here. [00:10:16] S0: Listen, haven't sat in an Andreessen or index partner meeting, but I'm pretty sure the math is something like how can we make at least a billion dollars off this deal? It's not even enough. That's, I Everyone has the four different scenarios when they write up the investment memo. A billion dollar position, not an exit, billion dollar position, is just the B outcome. This is 10% probability analysis, 25,000,000,000 or higher. 25, you know, this percent, we only make 1,000,000,000 on the deal, right? We're raising these funds every eighteen months, these 5 to $10,000,000,000 funds. We have to have so many billion dollar positions, positions, gains to even be playing at this game. It's just math. It's just the maths. [00:10:54] S1: To take the other side of the argument, actually, talk about seed, which is your role, Jason, you probably... I'm assuming you would agree that from a multiple perspective, it's going to be far easier for the best seed investor to generate a five X net fund than it's going to be for someone who's writing billion dollar checks into things.
00:10:54 · Rory O'Driscoll, Jason Lemkin, Harry Stebbings
[00:10:54] S1: To take the other side of the argument, actually, talk about seed, which is your role, Jason, you probably... I'm assuming you would agree that from a multiple perspective, it's going to be far easier for the best seed investor to generate a five X net fund than it's going to be for someone who's writing billion dollar checks into things. [00:11:11] S0: No, it's harder. It's much harder because unless you really do the Roger Ehrenberg find something in Antarctica, right? The entry prices are so high and the ownership typically is lower unless the seed fund is very large that actually, and all these Valors are cutting my pro radas, Rory. How am I going make it up on the back end with my SPVs and my triple? I can't make any, Five x is so much easier. I'll do it at 1,000,000,000 in town, and we'll raise it 5,000,000,000 next week, and I'll take the rest of the year off. The entry price, 50,000,000, a 100,000,000 seeds, you you can't make money. [00:11:45] S2: Just to add to that, not only can you not make money, you can't make money even worse because they're a multistage product for those big players in terms of they're the ones who lead them, and they crush your allocation. So not only does the price go way higher, but your allocation goes way lower. And so you have 3 to 500 k at best, and I've I've got this. And I've got this in a company that is going now to 18,000,000,000. It still doesn't move the fucking needle, Rory. [00:12:11] S1: Because what? You only got 300 k in the middle. [00:12:13] S2: 300 k in, and it's at a 100,000,000 price. It's...
00:12:13 · Harry Stebbings, Rory O'Driscoll
[00:12:13] S2: 300 k in, and it's at a 100,000,000 price. It's... [00:12:18] S1: No. That doesn't move the needle. No. You... That that I would agree. [00:12:21] S2: And so not only do you have a way higher price, but you have a way lower check going in. [00:12:25] S1: Look. Over time, in a rational capital world, the return multiple from early stage investing should be higher than growth, just logically over an extended period of time, because otherwise, why would you do it? [00:12:36] S2: I agree. But would you not say for the first time ever that we're actually gonna see that inverted? [00:12:41] S1: I totally agree. I think the last five years are gonna be clearly inverted. It's clearly gonna be... Mean, look, someone said it. Was It a very good line. He said the aggregate market cap of SpaceX, Anthropic and OpenAI went from around $400,000,000,000 three years ago to something like 5,000,000,004 or $5,000,000,000 today. That means... It's a trillion. And I've changed billion and so trillion, $4,400,000,000,000 to 5,000,000,000,000. Right? So you've got 4,000,000,000,000 plus of value created in in the late stage business. Nothing else matters. And if, you know, if your theory is there's gonna be 10 more than next year, then you're right. That's all you do. And if your theory is that was amazing, but it's probably not gonna be a run rate business, then you make different bets.
00:12:41 · Rory O'Driscoll, Harry Stebbings
[00:12:41] S1: I totally agree. I think the last five years are gonna be clearly inverted. It's clearly gonna be... Mean, look, someone said it. Was It a very good line. He said the aggregate market cap of SpaceX, Anthropic and OpenAI went from around $400,000,000,000 three years ago to something like 5,000,000,004 or $5,000,000,000 today. That means... It's a trillion. And I've changed billion and so trillion, $4,400,000,000,000 to 5,000,000,000,000. Right? So you've got 4,000,000,000,000 plus of value created in in the late stage business. Nothing else matters. And if, you know, if your theory is there's gonna be 10 more than next year, then you're right. That's all you do. And if your theory is that was amazing, but it's probably not gonna be a run rate business, then you make different bets. [00:13:20] S2: We will go back to schedule, which is are we starting to see a crack in the AI trade? Core Weave have had a tough week. I admit I'm a holder. It it has not been great. Rory, can you please provide some context as to what is going on? What do we need to know as background?
00:13:37 · Rory O'Driscoll, Harry Stebbings
[00:13:37] S1: Yes. Core Weave had a tough week last week. I think down 15, 20%. Kind of bond prices went up, implying, you know, lowest could default. But zooming out, when you think of the whole AI trade, these kind of neo clouds, they're always gonna be more risky than anything else in the system because they have... You know, they're underwriting high growth with large CapEx and lots of debt. So you try to thread the needle. If you grow too slowly, you don't meet your customers happy. If you grow too quickly and demand slows even slightly, then you're screwed because I... I'm doing it from memory here. I think, you know, CoreWheets, I think it's like $7,000,000,000 run rate or whatever, 10 or 20,000,000,000 of CapEx, $3,540,000,000,000 of debt. Right? I mean, that's the way you have to do it because you got to build these data centers and fill them full of compute. So it's just very tight. It's not like a software company where you can hunker down and cover your nut, right? There's just no way out here. So they're always going be risky. So anytime someone wakes up and says, Oh, AI is growing a little less quickly, all these things are going to go down. And anytime anyone says AI is growing amazing, they're all going to go up. And last week was an AI go down week, because probably because a little bit because of the anthropic numbers, which in retrospect is a bit silly. But there's no doubt last week was that things are slowing down weak, and when that happens, Core Weave jumps down. [00:14:50] S2: Was this a gross overreaction then?
00:14:50 · Harry Stebbings, Rory O'Driscoll
[00:14:50] S2: Was this a gross overreaction then? [00:14:52] S1: If the end user demand is there, then everything is going to work out, including CoreWeave. Because look, I think their biggest customers are people like Microsoft, OpenAI. Like, provided the demand is there, they want the data centers. It will all true up. [00:15:05] S2: Is that not like a generational buying opportunity? That's, like, down 25%. Of course, demand is not cracking. We will see that every single day. [00:15:13] S1: More precisely. But the problem... Yeah. Well, if it was that easy, we'd all be doing it, Harry. But, I mean, the real question is how does the demand compare relative to what these guys are spending? Can they fill everything they have now? Of course they can fairly quickly. But if you're continually investing for next, like I said, if your CapEx budget is 20,000,000,000, it's not enough that demand go up. It's that demand go up by a lot every year. The beating heart of the whole thing, and we're seeing people share it, is you add up OpenAI and Anthropix numbers together. So that kind of gets rid of the shift in market share. And the growth rate of that overall is what's going on in the AI economy. And that's the growth rate you have to look at. You know, the question is, how does CoreWeave's CapEx plans look at relative to that?