The stakes are way higher than they've ever been. I thought we understood this next phase we were going into and how big this was going to be, and very sincerely, we've probably added a zero to everything. I think there's going to be a lot of trillion-dollar businesses that are created from this. The game is on. Ready to go.

[Music]

Byron, you know what, dude? I appreciate people who gave time when they really shouldn't have done to like 19-year-olds who knew nothing and were so kind and supportive, and that was you. And so thank you for rejoining me when I am slightly older but much less intelligent than I was. Um, it's great to have you back, man.

Uh, Harry, you big stud. It is great to be back. It is uh awesome to see you. It has been too long, but it is amazing to see what this thing is built into. So, congrats and uh thrilled to be with you today, my man.

Do you know what? I'm as surprised as everyone else, to be honest. Um, I do want to start though. We were chatting before and you said, you know, a couple of years, but now it feels different and it feels great. And I actually, this was not in this beautiful agenda here. I wanted to start there. Why does it feel different and great now? And why are you optimistic bouncing into work today?

Uh, I mean, this AI stuff is just awesome. I'm a tech geek at heart, and uh, we all look a little taller and sound a little smarter when um, there's an uptrend in a market, but uh, this one's different. Like, this is this is going to be the type of thing that we tell our grandkids about, and that generations talk about this transitional moment. And uh, it's absolutely awesome to be part of it. I I think great businesses will be built and money will be made, but just from the technology side, what we're going through is so damn cool to see and I'm just loving it. It It's neat to see mind-blowing demos again and to be part of discussions of what can be um, and things that you couldn't have conceived of a few years ago. And so it was it was tough. It felt like a steady gut punch coming out of the, you know, the 2000s and, um, with the market pullback and people questioning tech and so many board meetings doing layoffs and just having to survive. Um, and it's just awesome to be back on offense again.

I agree in many respects. The challenge that I have though is the transience, so to speak. And what I mean by that is, wow, that demo is amazing. This company's great. Three weeks later, new demo from new company and, oh wow, it really is quite average. It seems like the uh defensibility is completely gone. The commoditization is almost across everything, and so it's very difficult to know where to play. How do you think about just playing the game on the field, being aggressive because you have to, versus kind of pausing to see what shakes out?

So I would phrase it a little differently. I would just say that the pace of innovation is incredibly compressed right now, and the best teams are using that for their advantage and just iterating at mind-boggling rates. And the the marginal companies are getting passed faster than ever, and we're going to keep seeing that because the the tech and the enabling tech is so damn good. Um, I don't worry about commoditization in the sense of price erosion, which is often implied. It's often used as a derogatory term, but sure, you can think of perhaps foundation models as commodities in the way that hyperscalers are. And and by the way, the best business in the history of software is sitting there with AWS in in what people refer to as a commodity. And so I think the same playbook's going to be run in the foundation models. I think that the layers on top of those models are going to extract phenomenal value um because they're going to deliver phenomenal value. And I think we're going to see great businesses built at multiple layers in the stack.

To what extent do you care about margin when investing today? A lot of people are denigrating a lot of the specific app layer companies for having shitty margins. How do you think about the importance of good margins early when investing?

So, it was interesting how you worded the question. How do you think about margins when investing today? And I would separate um, I would add some words in there which is, I care a lot about margins on investments we make today, but the margin profile of the future. And a lot of these businesses um, that are doing transformative things may have really crappy, certainly net margins, but more importantly, where I think the question was going, gross margins because of an investment profile that involves massive capex um, etc. And so you can look at a business like a Snowflake that had negative gross margins very late in their in their life cycle. Um, and that was a a precursor to the LLM world where these businesses have had, you know, very tough gross margins in the early days, and you're now starting to see the leverage kick in. And so we are investing for the future. None of the investments we make uh are cash flow based in the short term. And in fact, very few of them are gross margin based in the short term. Um, but a lot of them do require you to look over the horizon and see what can happen. And in a business like a a Stripe or a Twilio or a Shopify, um, they went through those journeys as well. Um, many businesses have this really intense capital-intensive investment horizon, even outside of frontier tech.

When we think about, you said there the capex required, these are in large part very capital-intensive businesses, even on the app layer, to the extent that we haven't really seen before. How do you think about the dilutive nature of these businesses given how early we both are and how much cash is going to need to go in?

Uh, we talk about this a lot. Um, and I'd say, you know, we're excited in many cases to be small investors in very large companies. You know, you look at an Anthropic or Perplexity or a Canva. Um, and we, you know, we have, you know, nine figures into uh into each of these companies. Um, and yet uh, we are still, you know, well below historical venture standards where you aspire to own 20% or something in these businesses. Uh, and it's a long journey where billions more will probably be raised by um, by at least a couple of those, and so it is a different venture.

Why did you decide to break the rules there, my friend? Cuz there's always an opportunity cost of cash, and you can put that nine figures somewhere else, and that multiple is just getting shot. You know, I remember one of my friends in Canva, and they did not Canva, Anthropic, and they did it at like four, and when it was done at 60, they had like a 3.8x because of the dilution, and that really struck me. And my question then is, well, amazing businesses and yes, generational defining, but the opportunity cost on that multiple is pretty high. Uh, how did you guys?

If you believe that's the end state, sure. But um, you know, current reports suggest Anthropic may be raising at 170, and uh, people are buyers at that number, believing that they could be one of the next hyperscalers in a trillion-dollar business. So um, you know, 3.8x will keep you in business for a long time, but the reason to do it is because you believe it could be a 30x. And that's the basis of our Anthropic investment is we believe that it is a generational company. Now, there aren't going to be many of those. And so you have to be right. And that's the scary thing right now is that the stakes are way higher than they've ever been. And these businesses in some cases could still go to zero. Uh, and so you've got this u these hyper power law outcomes that are scary, and it is changing the nature of the game. I do think that scale matters from a for venture firms to be able to play over this arc of private life. And on the flip side, the outcomes are going to be bigger than we've ever conceived of. I mean, I I sold my company years ago for hundreds of millions of dollars, and that felt like all the money in the world and was the top outcome for our software cohort in that vintage back in 2005. You know, now that's a a seed round for some of these businesses.

Well, I think one of OpenAI's rounds is about the size of the entire SaaS funding market for that quarter. So, you know, don't feel too bad. Um, my question to you is, I was chatting to Jason Lenon before this, our mutual friend, to really well. He said, what I'd love to understand with him very much on this point is, when we look at the concentration of value, the concentration of funds, is there any point in investing outside of the mega top 10 deals today, given 40% of venture funding went to 10 deals?

It's a big landscape, and so there's a skew with the dollars raised stats because of that concentration. I think the numbers right now, the top three LLMs, if you include um, you know, Anthropic, OpenAI, and and X in there, uh, are going to raise a hundred billion dollars in this six-month period, um, which is just an inconceivable number by any historical standards. Um, and obviously people are betting that there'll be eventual return there. However, there are hundreds of other really compelling venture businesses that will be created in and around those ecosystems. And I do believe there will be great venture outcomes by uh from a number of companies in and around those businesses. And so the the power law will play into the the premium outcomes of those returns. But I also think there's a lot of, you know, 10x's and many hundred X's that are going to exist in and around those businesses. And so um, I I do think that the economy is still vibrant and healthy. It's just skewed much more than we've ever seen or or literally could have believed uh, just a few years back.

Can you help me, my friend? I'm a vertical SaaS nerd. Um, not quite as good as you, sadly. Um, otherwise, I would own sports teams too. Um, but my question being, give it time, Harry. You're far too kind. I feel like an old man, if I'm honest, like looking for the next Service Titan or the next Procore, when everyone else is shooting around with these incredibly cool companies. Is vertical SaaS as we know it dead in the way that, honestly, kind of who gives a [ __ ]?

I think it's a it's a legitimate question. Our view is no, but it's a it's an area of debate, and frankly um, alpha comes from not only being right but contrarian, ideally, because you're going to get some um, you know, some counter cycles in there. And our belief is that it's going through another cycle, and AI is a foundational part of what vertical SaaS is ahead. Um, data models uh, matter much more than they historically did. Um, connectivity and collaboration up and down the supply chain matter much more. Marketplace capabilities um, are a defensible moat. There's a lot of attributes um, that matter a lot. And as I think back on our vertical SaaS investments, you know, like a Shopify um, or Service Titan or a Toast, when they added payments, it became that big next horizon unlock for them and really doubled the TAM and the market caps for these businesses. I think AI is going to do the same thing. That what it can do um, you know, with Service Titan as they talk about automating the technician experience and the ability to go out there and have a co-pilot alongside of you. I was at the MaintainX board meeting yesterday. They're doing the same thing um, on the factory floor. When you look at luxury presence in real estate, what they can do for the real estate professional to interact with their clients. And so, uh, the competitive landscape is is heating up in the sense that more entrants are able to come over from horizontals and come up from infrastructure layers to try to make a run at these spaces. But I do believe great vertical software will still win. These are big markets. These practitioners deserve great tech, and they will get it. And so in many ways, I love that it's not as sexy right now and people are distracted because we're going to stick to, you know, our core and work with great founders and great markets, and I think that those will be rewarded over time.

Couple of kind of questions off the back of that. You mentioned there, you know, some great businesses, but some businesses that are already at scale. That's different versus a company that's at sub a million in revenue with next to no distribution and next to no customers.

Absolutely. We're doing both, Harry. So um, you know, we're we're

If I were to push you in a camp, does it favor Service Titan more or your precede company more?

Okay, so that's a great question, and I will confess we're in the challenger business, and AI gives the incumbent some advantages that didn't happen in cloud one. So in cloud one, you had a business model dislocation going from license to subscription, and you had a delivery model dislocation going from on-prem to single instance, multi-tenant, you know, cloud delivered. In this AI wave, it's really the next horizon of cloud, and so you're layering intelligence on top of cloud delivery and business models. You're moving maybe to a token model or some other monetization of value, but essentially, it's an extension of cloud, and the incumbents have platform advantage, data advantage, you know, massive distribution advantages. And so the fast-moving incumbents are absolutely going to make a run at being the leaders in the next cycle, which hurts the challengers, and that is a reason to be scared. I still believe that the high execution uh challengers will beat them over time, and they also have some inherent advantages and innovators, and all them, and some of these things still exist. But when I look at our own portfolio, I look at a company like a Canva, or I look at a company like Intercom that's at a scale where in some ways they're already becoming an incumbent in those markets, and yet they're disrupting themselves at awesome rates and have AI products that are already, you know, deep into the hundreds uh of millions in revenue. A and it's just fantastic to see what they're doing, which then I think will be an indication of what uh the public incumbents may be able to do if they're nimble and act fast. I think Intercom will be actually a case study for the most aggressive uh reaceleration rejuvenation in a world of very changing technologies. What what Owen and the team have done with this Finn product, and it's a great use case for AI, to be clear, like where you have the customer data, that interaction. But um, I was at one of our portfolio company board meetings the other day, and they mentioned that they had switched from, you know, human-based um, uh, interventions to the Finn product from Intercom, and they showed the stats of deflections went up, I forget, to, you know, 90% automated now, and their NPS went up. And I said, okay, I get that the deflections and costs are going down, but it makes no sense to me. Why is a robot better than a human in interactions? And they said, look, they're giving faster and more comprehensive answers. And so the the recipient, the the customer who has the question is getting, you know, they're getting links and references and more information back than our humans were providing. So it's a better experience. And that was an unlock for me where I realized like, actually, this can be a a win-win-win on so many levels, and it's starting to happen. And so, you know, customer support and service and and messaging and and help desk and ticketing, and these things, you know, is one of these killer use cases that's just starting, but it's going to roll through so many other areas.

I think the fundamental question that Rory addressed actually at scale, I don't like to tell them, but they actually make me quite a lot smarter by hanging out with them. But one thing that he's really taught me is that really the real question we have to grapple with in this next wave is, will AI fundamentally transition the technology that we sell and create into the labor budget, not just the technology budget, or will it remain in the technology budget? If it does move, amazing, we open up a multi-trillion dollar market. If it doesn't, much less exciting. How do you think about that fundamental question of the ability to move to the human labor budget?

Oh, that question is already being answered. It's not even a debate anymore, Harry. It's over. Um, these these tech solutions are absolutely addressing, you know, software, hardware, and services budgets comprehensively, and they're doing it um, in a very successful way. And if you look at um, early adoption in categories that skew this way, and so you asked, are we still doing, you know, early stage vertical SaaS? We're going down accounting and legal and medical. We're going through these sectors where there's a lot of, you know, frontage humans doing busy work and paperwork, and we're supercharging them. We're taking away a lot of the the manual, you know, transcription and summarization and error-prone laborious processes, and we're freeing them up. You know, a bridge is freeing doctors up in their patient interactions to actually interact and talk with a patient than having to turn around and type things into the into the computer for most of the meeting.

Okay, that's a really interesting topic because what struck me there was Epic coming out and saying, "Hey, we're going to offer transcription." And I think you're seeing this more and more where the incumbent is fighting back. How do you think about that fight back from the 30-year-old incumbent?

Uh, the game is on, and I think that, you know, Epic has had this this wonderful state-endorsed monopoly for a long time. I hope that they're going to continue to be forced to be open as a system, and I think you're going to see a thousand flowers bloom in the medical ecosystem because that is one of the most important areas for AI to address. Uh, if you read Dario's um, essay from Anthropic, "Machines, A Loving Grace," I highly recommend everyone reads it. But it's a it's a tech-optimistic outlook of what AI can do. And one of the great statements he has is that a hundred years of medical research is about to be pulled forward in the next decade. And so this certainly goes into diagnostics and treatments, but it also goes into patient care interactions. AI can be so damn powerful when you um, use it to help patients in at the point of treatment, at the point of care, for follow-ups, for um, preventative medicine, those sorts of things. Um, and Epic holds the key in terms of patient data that we need unlocked, and um, and we need that treasure trove to be accessible for these apps and for innovation to happen. And I think it's going to happen, and I'm I'm very bullish uh, on the potential for AI in medical use cases and healthcare more broadly to be utterly transformative into quality of life um, and uh, the the treatment processes for patients.

We mentioned about moving into the human labor budget. We've seen, I mean, one of your companies, Shopify, unbelievable like 91% revenue growth in the last few years with a 30% reduction in workforce. You're seeing Alex Karp say the same thing at Palantir. Reduction in workforce, massive growth in revenues. Are we seeing the era completely where it's dramatic reduction in workforce and optimization of revenue?

More with less, ruthless leadership on this behalf. We are. I just would push back on the on the ruthless leadership point in the sense of, I I love the statements these executives are making, which is, um, we're going to we're going to give you all the tools in the world to supercharge your daily job so that you're doing the cool stuff again. You're doing the strategic, the architecture, the direction. Tech is going to work for you. You're not going to be a slave to tech. Um, and it's going to enable you to have much more leverage. We're going to grow the business, but we don't need to grow the workforce to do it. And we're going to supercharge what everyone's doing. And so, I think we're going to see the era of the micro business. I think that we're going to have, you know, 10-person companies that are crossing billion-dollar valuations. And, you know, kids in schools are going to be able to launch businesses in real time in in ways that, you know, haven't been possible before. And so, I I think that is great for the economy. I've got three kids that are at various stages of entering the workforce. And so, there's going to be disruption, and that's scary. And I absolutely admit that um, that we're going to go through this cycle that we all need to understand in terms of what entry-level jobs mean, the training, the enablement, those sorts of things. Um, but society's been through this many many times before, and I believe that we will work through this cycle quickly and positively.

You said that at the beginning when we chatted, you know, I hope you've still got that kind of, you know, youthful naivety. Um, sadly, no. Uh, in Europe we say "alapell," um, you know, to the trash. Um, I'm really concerned that there's this generation of 23 to 30-year-olds who don't have a passion for the craft, who aren't experts in the craft, who are about to get hit by, I think it's this completely naive utopian view of like, oh, we're just going to give you tools, you're going to do more with with them, and how beautiful. It's a reduction in force, Byron. It's not like, hey, just do more. Toby's cut thousands of people, which has been a good decision for the business, but these 23 to 30-year-olds are about to get hit with a train. Do you disagree?

There's this uh awesome history going back to uh Bessemer Venture Partners' namesake, the Bessemer Steel process, which uh many people don't know. You look at newspaper clippings from a hundred years ago, and there's these great headlines and articles about the coming workforce dislocation and factory workers, you know, being displaced because the Bessemer steel process is so much more efficient, and the the struggles the economy is going to face and society's going to face. And yet, literally fast forward, you know, a few years later, and buildings are built into the sky because skyscrapers are now possible with stronger steel, and railroads are built across the US, and transportation and connectivity and e-commerce unlocks. Um, you read the articles about, you know, the phone operators, and I think it was 4% of the female workforce was um, doing manual switchboards, and this idea of this huge dislocation of the workforce when that was automated. Um, you know, there's there's hundreds of these micro cycles that have gone through with different tech disruptions and things. Um, it's coming, definitely. And at the same time, more opportunity is going to be created as a result, and the potential for these new workers to leverage technology to do amazing creative things. The the micro film producer that can now, you know, release a a a movie that they can create on a laptop. The, you know, the ability to do apps, the ability to do fundamental research with agentic PhD-level supporters in new areas of, you know, biology and physics and chemistry. Um, we're we're looking at, you know, fusion investments now that I think will be supported and accelerated by by AI. Uh, there's just this whole different wave of innovative unlock that will be possible that will favor the the nimble and the reactive and the dynamic, but society at large will benefit.

You make me feel like I'm being too negative. It's a it's an active point of public discourse. I I get it. Um, I also, by the way, don't agree in the fully utopian era of abundance where we're all going to sit back and and uh, you know, consume the arts and the robots are going to work for us. It would be good for sports team investments uh, with a lot of leisure time for uh, arts, entertainment, and and sports. Uh, I don't I don't go that far, but I do think we're going to get some hours back in the day. I think we're going to have a little more balance, and I think that um, we're going to benefit in in areas like like medical that we talked about, like education, where everyone can have a personal tutor, and and everyone will be able to have tailored learning pathways um, for their benefit. Um, and again, in in fundamental areas of scientific research um, you're going to be able to merge fields where, you know, agentic PhD-level, you know, chemists and biologists and physicists will be working together at your side um, to unlock things in ways that weren't conceivable.

We mentioned kind of the naivety that I've lost, or the cynicism that I've gained, whichever way you want to put it. It's come on. No. Yeah. Sorry, dude. Um, uh, Dario's writing is brilliant, but you know, optimistic to say the least. I think it just raised a new round when he wrote it. Um, but my question to you is, I have been raised in this business, and as part of that, there's rules that are ingrained in you. Now, one of those rules is treble, treble, double, double, you know, the SaaS compounding growth journey. And I look at that and I worry that what we've told founders for treble, treble, double, double is no longer enough. Do you think that is correct, and we have now misled founders, and that isn't enough? Now, don't get me wrong, it's still pretty damn good business if you ride that arc and scale it. But um, unfortunately, yes. Uh, we just released a state of the AI report that broke this down and quantified it, and we uh, were again, geeks at heart, so forgive the uh um, uh, analogy, but we we referred to these AI ecosystems as galaxies and talked about um, some of these supernovas and shooting stars that are emerging, where we're seeing businesses go from zero to 100 million in 1.5 years. That's the supernova profile. Um, and, you know, Dario at Anthropic's now been open with it. They're well past it, so I think he's more comfortable sharing the numbers, but, you know, zero, 10 million, over 100 million, over a billion the next year. And, you know, he's openly said there's a chance to cross 10 billion um, in the next year. And so, it is it's a curve that goes like this. You know, we used to have this chart in our state of the cloud report that had a seven-year journey, and and those were centaurs to 100 million. Um, that that that has it was zero to 10 million in like 18 months was like, "Holy [ __ ] go deliver the term sheet with, you know, a dog and a golden, you know." Yeah, that that's cute now, but it's off by an order of magnitude.

To be fair, these are the um, this is a rare class of company and rare breed. um, a small subset of even the companies we back. Nonetheless, all the companies that are started meet that profile, but we thought it was important to document and share it and say, like, this is actually possible now. Consumer-like growth for enterprise businesses is happening, where um, adoption curves can pull through great products in um, inconceivable rates and of adoption and speeds. And the supernovas then, you know, yield to the shooting stars, which is kind of a four-year profile. And I would say that's um, the fatter part of the curve for businesses we're fortunate to work with, where you you see a pretty good number of companies going from zero to 100 million in a four-year arc. And and again, that's a, you know, that that gets to this kind of quadruple quadruple um, type cycle, where the the businesses are just, you know, scaling really steep curves. Um, and you had asked earlier about margin profiles. Some of these um, early on are needing to invest at heavy rates, but, you know, far from all of them. You see a large number of these businesses that are doing it in pretty capital-efficient ways. And that gets incredibly exciting. You know that you're a data nerd like me. We talk about the the rule of X and these trade-offs between growth and efficiency, and all that. And ultimately, we do still believe that all businesses should be valued as a sum of their future free cash flows. And that that ultimately is the mark of a good business. And the the incredible thing is that these businesses still have those fundamental economic profiles in most cases, where they can throw off real cash flow at scale.

But if I'm a founder now listening to you, what you're telling me is, hey, take as much money as possible, invest in [ __ ] growth as fast as possible, and don't worry about margin. So, so actually, no. And that's why I wanted to make that second point that efficiency still matters. We do think that trade-off comes into play, and we quantify it. The rule of X mathematically shows it's it's about a 2 to 2.5x um multiplier value of growth over efficiency at mid-stage scale. Call it 50 million ARR or so. Early on, you know, the math doesn't matter much. You're it's hopes and dreams. You're just trying to get in market. So, it's an infinite multiple of anything. Um, but when you actually get the engine going, there should be math um, underlying the fundamental assumptions. And and I assure you, one of the coolest things about the profile of Anthropic and Perplexity and Canva, these businesses is the math actually pencils out. Um, and you'll hear these founders talk about like, in the foundation model phase, it's a bit misleading because um, the the P&L doesn't match beautifully, but you should think of these model releases as a product in and of themselves, and there's a healthy life cycle to that product. And so, you know, you you're monetizing last year's um, training in this year's um, revenue line, while you're investing in next year's model, which is going to be, you know, monetized in in next year's release. And so there may be these order magnitude step functions where each atomic unit of product is highly uh, you know, successful and profitable, and yet the P&L looks upside down because of this uh, hyperscale, no pun intended, uh, growth rate that they're enjoying in that forward investment cycle. And so even though it seems crazy, I believe it would be economically imprudent not to forward invest um, when you have that market demand there and when you can show the unit economics working at each fundamental level.

Totally agree and totally get you there. Can I ask you, a lot of people think that the excitement, although very real, will plateau in some respects, and that maybe GPT-5 is the first instantiation of that kind of incrementalism in terms of development. Do you agree in terms of that incrementalism coming, or do you actually think, given what you see today, we're still so early on the curve that actually more compute, in the way that we're seeing Elon and Dario require it, will lead to actually continuous exponential gains for the near 18 to 24 month future?

It's going to be fits and spurts, and I think that was part of the people being underwhelmed with the 5.0 release and discussions, but, you know, we've had these cycles before, and there will be, you know, breakthroughs. But fundamentally, I do believe, does it remind you of other cycles? The thing I love about you is your wisdom, honestly. You've seen so much. Does it remind you of other cycles?

Uh, it does, and there have been there have been some hard miles here. We've been through a lot, Harry. But the the curve is still up into the right, without a doubt. And I do believe that we will cross over this term. You know, people use um, you know, uh, various different terms about uh, you know, levels of reasoning and awareness and um, and AGI and the like. I have no doubt we're, if we're not there, we're going to blow past it very soon, and that we will get to this notion of, you know, higher-level reasoning that does mirror, you know, the world's smartest scientists. And I think that's coming in the next 18 months. Um, and that these curves are going to continue. How we harness that, how it um, instantiates itself will be, you know, the the opportunity for us all to figure out and monetize. But um, I I don't think it's slowing down. Uh, I do think that we're also getting many more hardware approaches and solutions out there, so that it's not as wonderful as Nvidia is, it's not just an Nvidia world anymore. Um, and the chipsets from Amazon and Google and AMD and others are um, becoming quite capable. And so you're also going to see um, you know, different approaches, different optimization paths, you know, innovations in technology that that unlock uh, leap aheads in terms of uh, training capabilities and and cost to deliver inference. Uh, and so I do think that we're going to continue to see innovation there. Um, and these scaling laws continue to hold.

You know what I I find really interesting that's changed a lot in my 10 years investing is levels of competition. I'm sure you remember when 10 years ago, there'd always be one other competitor, and you'd like hate them, you know, silently, because it's rude to hate them publicly. Um, and uh, you know, there'd be one or two. Now there's 15 in every single thing. How do you think about and how does that factor in to your thinking when making an investment?

Yeah. The social graces are gone, aren't they? It's kind of a bummer. Yeah. Uh, yeah. For what I it's like it's like the way the way to win. Rory says this really well, which is like the way to win in AI, enter a space and just like scream the freaking loudest, and then like deliver on customer promises afterwards, but scream so loudly and raise as much freaking money as possible, then suck all the air out of the VC room, and then deliver from there. Like Harvey is a good example of that, he's mentioned.

Yeah, I think that works in some spaces. Um, I I think that's counter to my earlier point though, which was um, the great products are being pulled through. People are finding them. Um, you know, Chat GPT didn't scream from the mountaintops. They they delivered a um, world-changing user experience, and people showed their friends. And um, Perplexity is doing that in um, in search and answer engine world, and um, these models, you know, at the API layer are doing this for business users who are um, looking to connect them. And so I think the capital's important in terms of of building and forward investing, as we talked about for the business model, but I actually think marketing and sales have less of a role in this new economy um, than they did before. And that uh, these products in many ways are are selling themselves, and product-led growth and innovation is the unlock for um, th this, you know, supernova and shooting star aspirational growth profile, because you can't put uh, human sales reps against these things. Just just the um, the sales learning curve that Mark Leslie talks about when we backed him, you know, decades ago in Veritas, it is no longer applicable because you just can't possibly throw the bodies at a zero to 100 growth curve inside of two years. Just that, you know, the sales uh, models don't support that.

I totally agree with you there. One of the things I love about Bessemer is your discipline, actually, and I think you've seen it play out across multiple cycles. I think people consistently think you're a very disciplined player, be it in terms of temporal diversification and price. You've had to break that discipline in a new cycle. I'd just love to understand how do you think about breaking pricing discipline today, where respectfully you have in the names that you mentioned, and how you think about when you're willing to versus when you're not. Is it clearly just an outcome scenario planning game?

So, um, thank you for the, I I think what was meant as a compliment, but I'll also say that um, we spend a lot of time, it turned into a bit of a negative. I'm so sorry. Well, it's it's it's fair. And what I would say is um, I mean, we're certainly not value investors. We we pay market-clearing prices. We we um, lean in where we believe it's there. And and you know, we're we're uh, we're buyers again in uh, in, you know, at some of these top-pegged rounds, deep into the hundreds of millions. Um, and so, I think it's very clear that we we um, we played to win. I think though the distinction there is that um, we are we do fundamentally want to understand how the businesses become self-sustaining and scaled, and we will walk from a lot of things that we don't see the unit economics penciling. One of the most famous and most painful for me was Tesla early on. It's on my anti-portfolio. If you go to the Bessemer website, we have a page dedicated to our screw-ups, and that's one of mine. And it was because I couldn't fundamentally see how the unit economics of the Roadster were going to work. And to be clear, they didn't. And without the, you know, the DOE bailout loan and things, Tesla wouldn't have existed. But what I missed was that Elon's a force of nature, a generational entrepreneur. And he put that company on his back and powered through so many subsequent layers that the next arcs of the model worked and pulled everything else through it. And that's one of my big regrets is that our our job is to see that potential in entrepreneurs to um, to create those unlocks. And that's the challenge that I put back on myself is how to how to break this notion of short-term discipline um, for the long-term horizon of what's possible.

What prices do you do at then? I mean, we've done the last several rounds, so um, I I forget the valuation of the first round. I give uh Pete Cinci, by the way, a lot of credit, who's a good friend and a great investor. He also did Databricks, but he was very early um, with Arand um, as that business was being formed. We did that the, I believe what was technically the second round. Um, uh, so I I think that was branded a B. It may have been technically an A, and then and then subsequent rounds, but again, I wish we were earlier and larger shareholders, and still regret that we didn't see what what Pete saw early in that business.

Do you think about taking chips off the table at any point? You know, we're seeing the extension of private. I'm not talking about Perplexity here, but just generally, we're seeing the extension of private markets um, in a way that we've never seen before. You know, Horsley Bridge taught me that, you know, fundamentally venture is a very challenging category or asset class unless you know the small windows of hyper liquidity and can recognize and act on them. Do you think we are in one of those small windows of hyper liquidity in these assets today, and do you act on them?

I love that question, and I hope you continue to ask that question to um, LPs and later-stage investors as well, because it's looked down upon right now. Um, you know, it's sort of a dirty word. If if we went and sold um, you know, part of our position in some of these companies, people might think there's signal risk there or there's issues. Um, and to be fair, Bessemer has, you know, this awesome um, history, and we've generated billions for our LPs, and so we don't have DPI pressure that some emerging funds might or whatever. But, um, I think that stigma is wrong. And if if these businesses went public um, as they used to, I mean, my very first IPO, Cornerstone OnDemand, you know, went public with 50 million of ARR and I think with 700 million market cap, and they traded up to billions over time, but, you know, that used to be a really successful IPO back many years ago. Um, and now you look at, you know, Canva at, you know, 40 billion plus, and Anthropic at 70 billion plus, and Perplexity, you know, um, deep into decacorn status and the like. These businesses, you know, aren't going public anytime soon. And yet, from an an investor standpoint, there's a there's an argument that they should be handed off to later-stage investors and hedge funds and things. Um, and so I do hope and believe for the industry that liquidity in the secondary markets is is viewed more favorably and more active. And this is a change in my view. I'll confess that um, I I was pretty hard-lined against this. Not for founders and teams. I always feel that taking some pressure off for them is good, but I didn't love it when our co-investors were looking for liquidity um, early in businesses. But I do think that in these mid-stages, when people are staying private so long, that an outlet's healthy, and I do think that LPs deserve that. I think for emerging funds um, it's important that you have these options and that the world doesn't judge you negatively for it, but actually understands that, you know, there there's some economic necessity in in a healthy ecosystem, and capital flows both ways.

For years, you've had a pricing premium in private markets, which has led in large part to the expansion of these private markets. Now you're seeing that move to the public market, and you're seeing your Figas pop in the way that they do, your CoreWeave, your Circles, your Bullish pop yesterday. My question to you is, will we see this mass movement towards public markets, given the reception that this first wave has had?

Oh, I hope so, Harry. God, I hope so. Um, definitely the discussions are heating up again. Uh, and I do think we're going to have um, a healthier IPO market uh, at the end of this year and in particular going into next year, but in many ways, we have to. It has been um, record lows and record bad in the last several years, and um, and that's not sustainable uh, for the capital flow reasons we just talked about. Um, and this liquidity discount hasn't made sense. If you go back um, in the markets a decade plus, private markets traded at a discount because they're they were illiquid, and there was uncertainty and less disclosures, and those things, and and logically they should. Now, it's a growth-adjusted discount. Of course, when private companies are growing faster, you have to normalize the the multiples accordingly, but rationally, there should be a discount uh, for the the lockup characteristics and and the information flows and those things, and and we haven't seen that in many years. Um, I hope and would love it if the public markets um, return to premium multiples and the private markets price off of those. I'm not convinced we will, but I am optimistic that we are finally going to see more IPO activity.

When you look at our Cloud 100 list, which will be uh released here shortly, um, I'll give you a little bit of a spoiler um, uh, piece of news there. We're over a trillion dollars in private market cap now among just the top 100 cloud AI companies right now, um, which is uh, just an astronomical number uh, to consider. And so there's a trillion dollar.

How much of that is legitimate do you think? What's that? A trillion. How much of that is legitimate versus synthetic hype?

Uh, I think this is entirely legitimate, Harry. And that's the that's the crazy thing. Now, of course, it it's skewed towards the top. I think OpenAI, um, X, uh, um, Anthropic, you know, Canva, Databricks, Stripe, go down the list. Uh, I think those are incredibly high-quality companies that essentially are are tradable public entities in a private wrapper today. So, I think that those are entirely accurate marks and and very real. And the quality level of this list has never been higher. And so, I would u I I think there's buyers and sellers at the marks all the way down the top 100. Now, you can make a case that, you know, 101 to 300 may have some walking wounded, some, you know, last round prices that are artificial and the like, but I think we've cleared most of that out of the system. And when you look at uh, Mr. Irrelevant, if you use the NFL draft analogy, number 100, it's an awesome company on the list. It it's a great business that, you know, certainly people would be buyers at or above um, the the last round marks. And I think you're going to see that across the list. And so, again, there's a trillion dollars of enterprise value sitting there um, that's not yet in the public markets, and and should be soon.

You said, "Like, we're not going to see, like, your canvas go out soon." Why? I said this to Cliff. I messaged him after the Figma IPO. They should go public. They should, and I, and I think they will. So, I'm not, uh, not scooping news, and I put them in a, in a general basket of very short-term, uh, meaning, you know, in the, in the Q3 window or the like.

Um, but clearly, they could have been public long ago. Um, and they're in no rush, and they, of all founders out there, are thinking incredibly long-term. Um, the, the, the ultimate Giving Pledge that they did, giving away 30% of their economics, um, for, uh, for, you know, not for public good, including, um, you know, a lot of initiatives in, in Africa, um, I think shows. I, I, I told him he could have just done the Giving Pledge to my fund. You, you would have absorbed the, uh, the 30 billion happily.

"See, Harry, the power." "I, I would, I would help a friend, Byron." "Okay, I'm here. You couldn't deploy more than 29 billion." "Harry, don't get greedy. Come on." "Well, I could." "Sam, do you want it?" "Yes, please."

It's amazing how many SPVs have popped up with that exact value proposition. Oh my god. It's like there's a rapper on a rapper on a rapper, and my dentist is doing it now. I'm not, I have no doubt when, uh, and that is probably another sign that things may be a little heated. Um, but, uh, but I do think that that great companies, ultimately, like Canva, you know, deserve to be public, will be public. Um, they've hired a great CFO in Kelly. They're, um, you know, they're, they're certainly giving indications that they're headed that direction, but they, they continue to think long-term, and they've made it clear to investors that they do not want a short-term mindset. And we bought in. It's one of our largest investments in our firm's history. We're hundreds of millions in, and we're thrilled to to be part of it. And so, they keep building value, and, um, we believe that it, it will be a great public company when they choose to go public. Um, but, uh, but, you know, the urgency level there is, um, is moderate.

"What is your largest investment?" "When I had Founders Fund on, they said it was Andreessen Horowitz." "It was their first and their second largest check." "I was like, whoa." "It's one thing to be your first, but your first and your second." "What's yours?" "That's awesome."

Um, so it used to be Twilio. Um, then, uh, yeah, probably StubHub, Canva, Anthropic. Um, yeah, probably, probably that bucket. We're, we, we now very comfortably go deep into the hundreds of millions. We understand that, you know, these, these rounds have gone grown to a point where scale does matter, and we need to be able to support our companies all the way up. And so, we've, we've added, you know, growth capabilities to be able to do that.

"And did, did you have to learn to get comfortable doing that, Byron?" "You're my friend. Like, if I was to write, like, the transition from a $20 million check, which is an awful lot of money, and we're both very grateful to have the luxury to write them, but that to a 200 million, it, it is a very different muscle." "And I'll tell you also, um, as you're alluding to, it, uh, it goes against your instincts when when you have a business that's cranking and you own a lot and it's marked up, you know, 10x, and another round comes up that's also at a, at a big forward multiple." "This, um, you know, mental disconnect of, you know, hey, let's let someone else now come and mark it up and price it and let them run. I'm already sitting at a 10x, that's great." "Versus this, I want to be a buyer again and reset everything and, and, you know, put in 200 million that now I need to go back to work and, and prove that I can dig out and get a return on again, etc." "It's intimidating."

And we've actually added people and processes to make sure that we don't get subject to this kind of mental inertia, um, where we, we invite in, you know, another partner to look at it. And our best deals, we're constantly saying, you know, okay, we have the "century team," which we call it, which we believe will be the iconic companies of the next century. And it's also a bit of a riff on our Cloud 100. Um, but it's, it's a, it's a team that'll come and help and basically partner with you on a deal and say, "Okay, let's take a fresh look at this. Let's re-underwrite it. And let's make sure that we believe there's a 10x here ahead that can be there." And in which case, you know, let, let's double down. And we, you know, we don't do it in a way where we, you know, are muscling out everyone else in these rounds. Oftentimes, we'll be part of a syndicate. And, and we still, you know, do believe that other partners around the table can be helpful. But, you know, we're trying to break that, um, that, that mental, uh, trap of, uh, of being comfortable with success and, and being afraid to to really back up the truck. And so, you'll see us doing that more and more.

I think where I've [ __ ] up is like when you do a deal at 20 million at seed, and then four months later, it's crushed and it's at 100. And I've been like, "Why would I pay 5x what I've just paid?" And actually, you have to be willing to pay up fast in your best companies and don't think about it in the, "Why would I pay more than what I've already paid?" Very dangerous mind. It, it's incredibly hard, especially when, you know, we're, we're all investing at big numbers to begin with. And, and we have a lot of times where literally the day the round is announced, someone will offer them a 2x step up. And, you know, that could still be a great investment. And so, um, the, uh, the mindset of these things is that is that bad? I remember Pat Grady saying to me, "Dude, the biggest challenge that I have is that I do a deal, and the next day someone offers them three times the money at three times the price." And what we forget is that actually capital fuels companies and can distort the journey in a negative way. I think there's a real risk of overfunding businesses.

And so, you know, there's, there's a good in there, which is, I, I do think that there's a positive when you get, you know, great firms and partners in there. There's a signaling benefit, and there's an impact. I do think that we actually can help, you know, move the slip of the line a little bit for these companies and add value. And so, one of the ways that we, you know, add value is that it, it makes it easier to raise downstream capital. And I think that's totally true and, and a good thing. But there is an excess, and that the the people showing up the next day with with huge markups pushing more capital can be seductive to founders. And so, part of the discussion is, look, if you had that additional capital, the critical thing is not to spend it in a disruptive way. And that's the fuagra analogy where you, you choke on the capital and, and you don't want that. Um, and if you execute on the plan every day, you're going to be adding value. So, let's make sure we're fully capitalized to play out this next horizon of risks and goals and investment we want. And if we could take a little extra capital to that, maybe we do. But what's more likely is, let's actually go out and execute, and let's, you know, put this first wave of capital to use, and let's build more value, and those investors are going to be there at even higher prices downstream. And, and the important thing, and we, we try to get alignment with our, with our team members and things, is we want to build a ton of value. And if the round gets so frothy and runs away that it's, you know, that it's even too highly priced for us to double down, that's okay. Like, that's a good thing for the company. And if your cost of capital goes down a ton, then, then we're your partner. We'll go out and raise at, at a very high number and take very little dilution, and everyone wins because we're shareholders and we're aligned.

Peter Thiel always says his biggest investing mistake is not doing the next round of Facebook. If I were to ask you, what's the biggest mistake you made when you didn't double down again? What would it be, and how do you reflect on that personally? Oh, I mean, not only do I have the anti-portfolio of the misses that we didn't do, that, you know, the Tesla and Atlassian and companies like that front and center, but, um, but yeah, doubling down on, on every one of our winners. I mean, I'm fortunate. I, I think Service Titan was my 13th IPO. Um, and, uh, you know, have, have a couple dozen unicorn investments. And so, um, mathematically, every one of those, I should have done every subsequent round and wish I did.

"Is there one that comes to mind more?" "So, um, I would say on the positive, um, Twilio, we did exactly this." "I would say with a company like Procore or Service Titan, we, um, we still were very large shareholders, but we had a lot of, um, a lot of people come in and follow." "And I think this was one of the things actually you talked about vertical SaaS, so there is a good lesson in this." "We underestimated TAM and weren't sure these could be $50 billion businesses because we didn't yet unlock the payments expander." "And so we misassessed the, um, the total TAM and therefore got weak need investing, you know, into the billions and we should have, but we left a lot of money on the table." "We owned 28% of Shopify and Twilio at IPO, and we owned, you know, well less than that of, uh, of Procore and Service Titan just because we, we, you know, included a lot of other investors downstream."

"Market size misunderstanding, misestimation is the single greatest reason why great investments are not made." "Do you bother doing outcome scenario plans given for your best, you wildly misread them?" Not only do we do it, we require it. Every one of our, uh, IRs, investment recommendations is the, is our memo terminology, has a scenario analysis at the end. And, and we also have actually published many of these on our website where we'll go back and publish the memos. And it's kind of embarrassing when we do because you look at the, just goes nuts upside scenario, and they're embarrassingly small. And it's not because, as investors at the time, we don't believe that they could be much more, but we're trying to be rational and we're trying to, you know, bracket it in, like, a, a medium-term horizon that our partners will understand. And, and yet, the tiebreaker of these deals is always the one that you, in your gut, believe can just go nuts, and where the 100x scenario is there. And so, it, it's always this amusing back and forth where the vast majority of our deals that we put forward, you know, solve to a 3x, and you're sitting there and like, you know, you look at these scenario analyses, and it's like, "Why is it that every memo I'm reading solves to a 3x?" And it's because, you know, people are trying to balance and be rational and talk about capital loss and all these things, but at the end of the day, the deals that get done, it's the ones where the, the, the partner is sitting there saying, "I'm pounding the table that the, the high end and more is possible." And, um, and that's, that really is the, the qualitative overlay that has massive quantitative implications.

"But if you think about the mistakes that have been made in terms of the misreading of markets and TAMs, is it not actually detrimental to the quality of your investment decision-making if we consistently misestimate or underestimate them?" It, it's incredibly detrimental. Um, and, you know, you go back, go back and look at, you know, the Facebook, if you did a TAM analysis on, you know, Harvard, you know, "Hot or Not," it would have been pretty small. Um, when, but then, but, but then I, I go to what Jason Calacanis taught me, which is like, "Don't do it. Don't do it." He's like, "Hey, you know what you do? You go, is the founder world-class? One, and then two, can I see a 3x the time of the next round?" "If I can do the deal, world-class founder, and I can see it." "Don't try and think, is Twilio going to be a $10 billion business?" Because no one thought Twilio would be a $10 billion business. Now it's much bigger. Just do the 3x. Yeah.

And so, I, I don't fully concede that, which is, um, and maybe that, maybe the tiebreaker here in my mind is, I look for at least exciting adjacencies. So, you've got to have some killer unfair advantage to get started. You've got to have this mindset of, okay, they know what they're going to go attack first. They're going to build a killer product. They can get into some vortex of growth and, and launch. And the, I may have a lot of questions about the TAM, but there's enough adjacencies, enough things that could go right that they could layer things on. And so, you, I want to see that, that the three-dimensional cube of of segments and products and users that, that can flex over time. And we don't have to have it figured out. We don't have to know exactly what it's going to be, but I have to believe that they're playing in a big enough pond where, you know, good things can happen. And I think that's the difference. And I will totally concede that that there are times where we're not imaginative enough to go after it. Um, and great founders will will break through at times, but I think that combination is still powerful. And, and the investments that we're making today, and certainly that I'm making personally, tend to still overweight massively those two things, you know, team and TAM, and, and at least our vision of the TAM horizons. But I would say, um, like the analogy we were talking about of vertical SaaS before, where you go through workflow automation, then you go into payments, now you go into AI, and you go into services, like, even what seem like small markets can unlock massive dollars when you're creative about the horizons. And, and that's what great entrepreneurs will do. They'll, they'll go attack those markets, suck up the value, and really deliver awesome product and, and can build great businesses. And, and as long as you, you know, you price things rationally at each step and walk it up, um, it probably backsolves into Jason's math also, but from a top-down rather than bottom-up point of view.

I think the unwavering lesson is truly great founders always find the second that act, the payments for Toast, which completely unlocks a business that was never there before.

"You said about 28% of Shopify at IPO." "My question to you is, famously, you guys sold pretty early, and the outcome since has been so astronomically larger than anyone anticipated there." "Do you sit and reflect on that as a partnership and change your go-forward stance on liquidating positions once public as a result?" So importantly, we distributed early. We didn't necessarily sell. So what we did is we gave people the choice. Um, and a lot of RLP's, mind you, do sell, um, pretty quickly after getting stock by mandate. And so that, um, that did, you know, that left a lot of money on the table for a lot of folks. We absolutely wish that we had, you know, held on to, uh, Shopify and not distributed, you know, when we did. Um, and, and hopefully some of our LPs and, and certainly some of my partners have held and, and been able to benefit from the run-up. Um, but, uh, but at the end of the day, you know, it's a fantastic company. I think there's still a long journey ahead, and that's why you see people still buying even at these valuations.

"Crushing." "Absolutely." "Toby's a one of those force of nature generational entrepreneurs as well." "I completely agree with you." "Do you agree with Sequoia's evergreen fund structure?" "Uh, in terms of a strategy?" "Yeah." "Yeah, it's, I agree that there's a lot of positives to it." "This idea that, um, you, you have incentives to manage all the way through." "Bessemer actually has a heritage where many decades ago, we had some evergreen components to it." Um, but I do think it's hard. I think that public management's a different beast. I do think that the economics should be different. Um, at the end of the day, especially, um, in a DPI world, our, our LPs get paid to manage capital and do the allocation, and, and a lot of them want the capital back. And so, um, you know, what the merits of consistency and, and fund flows and those things, have some trade-offs with hold periods and, and public duration. And I love innovation capital markets. Uh, we're seeing, you know, other firms adding asset management businesses and debt products and roll-ups and doing all sorts of things. Um, you know, there's, there's some kernels in there that we agree with. There's a lot in there we, we probably aren't going to pursue. But, uh, as a fan of capital markets and innovation, just, I, I applaud creativity and pushing bounds.

"Capital markets and innovation, baby." "Is venture a game of just pure scale?" "We're seeing General Catalyst, we're seeing Lightspeed, we're seeing Andreessen Horowitz." "You need money to play this game now, it would seem." "Do you agree with the world that is being often articulated?" "I call it Chanel and Walmart, which is boutique provider with specialist customer, and then Walmart, enormous provider, wall of cash, sells everything." "Do you agree with that or not?" "Do I agree with the Walmart analogy?" "No." "But do I agree that scale is important?" "Yes." "So, uh, um, why don't you agree with the Walmart analogy?" "Uh, well, actually, the direct analogy of the low-cost provider, lower cost of capital, you know, sort of push the bottom." "I think you're seeing a maturation of the asset class, and I think the analogy might be the investment banking world, and that you have, you know, platforms like the Goldman's and Morgan's and JP Morgan's that are providers of, you know, broad global multi-asset, multi-stage, multi-sector, um, that can be full-service shops, and that's very much the path that Bessemer's on." "We have nine offices around the world." "We manage tens of billions in assets." "We're multi-stage." "We want to be able to support our companies all the way through." Um, that's very much the mindset we're in. I do also believe that there are specialists, and maybe, uh, you know, the Tiffany's analogy is maybe, I don't know, in the banking world, maybe that's the Catalyst, or or what have you, where very good at very specific things. Um, and that's, uh, that's, you know, very much the strategy you're running. That's the strategy that Benchmark, you know, continues to run, um, and I think that there's a lot of opportunity there. And so, there can be a bimodal curve in terms of approaches, in particular, I think geographic firms or very specific sector firms, uh, healthcare has been an example where sector expertise has been really an advantage, but you need scale. And so, I think healthcare-specific firms have had success for that reason, but, um, this maturation is going to make it tough in in the middle.

"How do you think about that?" "That's an interesting one." "I don't like thematic funds." "I think healthcare and cyber are two areas where it really pays to be thematic because I think it's just so deep sectoral knowledge and networks that are so required." "But if you actually look at the majority of great venture firms in terms of the winners that they've had, they've been in generalist funds." Um, "I don't buy the defense firm, climate firm, fintech-focused firm." "Actually, do you know what?" "Stripe's been won by your General Catalysts of the world, not by others." "So, I actually agree with you for the most part." "I would say that you will get alpha from some of those funds, but the important thing is not to get ossified in an approach." And this is very much why we don't hire sector-specific investors, and we don't give you air cover if your sector goes out of favor. Meaning, our job is to make our LPs money. And if you're in a sector that's cooling off, you better get the hell out and go somewhere else that's going to make money, or like you should stop investing. And the risk of having a semiconductor fund or a semiconductor team is that you know, you carve out, pick a number, 500 million to invest there. Like, you bet your ass they're going to invest 500 million in semi, whether the right answer was 2 billion or zero. And, and that's the risk. And so, we have a very different approach, which is we are constantly optimizing the incremental dollar across sector, but also, um, stage and geography. And we compete for dollars, and that is a mindset that we love, and it requires constant reinvention. The term we use internally is road maps. At every one of our offsites, partners are presenting new road maps, and they're talking about theme sectors, subsectors, um, you know, investment hypotheses that they have that they're going after. They're getting feedback. They're sharing it. They're iterating. And if you don't constantly reinvent yourself, like, you don't have a future, best because the markets are moving fast. And it's our imperative to to get ahead of the next trend, not sit comfortably in a sector that has had a good run and believe that you're entitled to another good 10 years ahead.

"Byron, I, I love you, dude, and your track is just so good." "Did you ever have a bump in the investing period?" "Like, did you ever have a-" "No, I'm being serious." "I know." "I, that is why I'm laughing." "It's not a silly question." "It's a painful question." "13 unicorns." "I was shouting to my mother before this, and she's like, 'Oh, what are you doing this afternoon?'" "I'm like, 'I'm interviewing Byron.'" "And I told her about you, and I'm like, 'I like 13 unicorns of like, I don't know, 30 companies.'" "I mean, your hit rate is like ridiculous." "Like, did you, did you have a moment of self-doubt, crisis of identity as an investor like many are having post the '21-'22 era?" Oh, Harry, I've had so many. I mean, in our industry, you just wake up and you read TechCrunch or or listen to some of your podcasts, and you're reminded how bad we are at this job because there's so many cool things happening that we've missed. Um, my first road map at Bessemer was RFID, radio frequency identification, which, uh, was and is a zero trillion dollar market. Um, it was a total dud, and thankfully I only made one investment there, and it also had a, a SaaS underpinning. So, we ended up pivoting and making a few bucks, but, um, it was a stupid idea. And what I credit my partners with is, um, one, you know, uh, patience, but two, direct feedback. And so, we iterated and pivoted. And because I wasn't hired as a radio frequency identification investor, I was given the opportunity to pivot. My secondary road map was cloud, by the way, which ended up being a pretty nice, you know, uh, uh, second act. But, um, it was a, it was a really bad idea. And so, you know, I had my first three investments were all very bad. My next two ended up being, you know, billion-dollar IPOs.

"I spoke to Doug Leone about this where you have young people who make bad first investments." "I certainly did the same." "I thought WhatsApp for doctors and nurses would be a good business." "What, what, um, how did you get out of the trough or not get in it?" "Three bad is tough." "Yes." Um, "Again, I think that this is, uh, patience and support from the partnership to to make enough shots on goal to to get some statistical relevance out of the sample size." "I, I remember, uh, uh, one of my great senior partners, Phil Hardman, who's a professor at HBS for years." Um, "And I would go sit in one of his classes and, and have a long dinner or lunch with him." "And he drew on the board my career, which is basically this straight line, you know, you know, with some bumps and then like a little bit of a tick-up with Cornerstone on Demand and Loquin and some of my early things." "But he's like, he's like, 'Just give it time, dude. Like, you're, you're wandering in the desert a bit. I know you're anxious. You're type A. Want success, but like this business is all about, um, you know, building a portfolio and, and putting yourself in position to be successful, and don't, don't, you know, shoot out of the gun, you know, crazy big checks out of the gate so if you go 0 for three, you're done.'" Um, "but, you know, ease into it." "And that was hard to take at the time because, you know, we're all aggressive and enthusiastic in this industry, but it was the right feedback." "And, you know, just, just resetting and learning and trying to get better, um, allowed me to be in a good headspace for subsequent investments and, and to keep going and to have some confidence." "And I do remember, um, back when I was an entrepreneur, one of my board members was was Rob Dessen, he was at Mayfield at the time." "And I went to see him when I was going back into venture and joined in Bessemer and getting some advice." "And he said, 'Your first investment is going to suck. It always does.'" Um, "you know, so yeah, I was talking to him about a deal specifically, and he basically said, 'Well, so don't do it.'" "And I'm like, 'But Rob, like, by definition then, like, I'll never do an investment, cuz you have to, you have to get over that first one.'" "And he's like, 'Yeah, but like, this one really sucks.'" Um, "unfortunately, he was right on both." "Uh, my first investment did suck, and I shouldn't have done that one." Um, "but I think the point kind of applies, which is it's a learning game." "So, just you need to be in it to have enough shots on goal to to score some." Uh, "and cycles matter a lot." "I really feel bad for great potential investors who joined our industry with checkbooks in 2020, 2019." Um, "and they did great deals, but at market prices which were way too high." "And many of those people got washed out of the industry and never got a chance to make their fourth and fifth investment like I did." "And, and we may never know if they could have been great investors." And so, um, cycles matter a lot, and, and having, you know, enough bullets in the gun, uh, to hit a target matters a lot.

I think that's why temporal diversification is so important. Like, I look at our, our first fund, and it's like, you know what, a lot of it is high-priced and good companies, but high-priced. And then the second half is much more reasonably priced. And that's where, like, not shooting your load in 18 months is so important.

"Very much so." "I mean, time diversification is one of the few things we can manage in our industry." "You mentioned it in terms of exits with the LP comment where concentration matters." "That tends to be true, but it's not something we can control because there tend to be IPO windows, M&A windows, and our job is to try to, you know, take advantage of them, and they'll cluster, but we can't usually create those when markets are closed." "However, entry diversification we can create." "And few of us are good enough to actually, you know, play the markets, um, counter to trends and be most aggressive when things are are cool and to to really pull back when they're hot, which is probably what you should do." "But at least some notion of of, um, smooth and consistent, um, to to weather those those storms so that you can take advantage of the cluster of exits tends to be about the most successful model for time diversification and venture."

We've seen a [ __ ] ton of young people, um, start their own firms. Uh, you've seen people even leave Bessemer. Do you think though that the spinout time is is up? We saw this like compressed time where like there were a lot of freaking spinouts very quickly. Do you think that was a new normal, or do you think that was a compressed time where people realized that carry would be less than they thought, and it would actually be better to be a solo GP or a GP of their own fund? Uh, the latter. I do think that this was a point in time where people were looking for that reset where, um, for positive or negative reasons, um, they, they wanted, you know, a fresh start. And, um, because in venture, I do think partnerships and, and platform matter, and ultimately, um, a lot of those goals are to then go out and build up another firm. And so, um, you're, you're either running from something or to something, but, um, the end of the day, I think the best firms are pretty flat at the top, and, and so you're not seeking better economics. Um, you're really seeking, you know, a better environment or better structure. And so, um, I do think that a lot of great partners were able to to launch out and get funded and, and kick off. And we'll see platforms then built out of some of those new funds, and probably more reinvention in the industry than we'd seen before. But it is one of the few asset cycles where past performance is an indicator of future success. Private markets are very much networking ecosystem-based. And you see, you know, very analytically, I referenced my partner Phil Hardman, who taught at Harvard before. He would quantify this, and he wrote the private equity and venture capital textbook and would do the data, but I forget the exact numbers, but it was something like eight out of the top 10 firms in one cycle would repeat in the next because there was this virtuous cycle. And so, um, the challenge is, which of the new funds are going to break in and be those those next two that disrupt? And there's opportunity there, and maybe it goes up to three or four. But I also think that, um, there's a benefit to being a consistent, stable platform, and, and, uh, many of those will persist.

Final one before we do a quick fire. Everyone's always saying like PE is going to come save the day. There's going to be a wave of PE acquisitions. Um, do you think PE will come in and save the day? And do you think number one, and, and do you think number two, the rollup strategy that they're trying now with your Salesforces and your Clouderas will actually work? I think the next wave of liquidity is going to come from a combination of several buckets. I think PE will be one of them, and it's going to be a pretty fun time for PE as these, um, companies are long in the tooth. Vast majority are not going to get public, um, and consolidation will make sense because at the core, a lot of these businesses are very high gross margin and are run pretty inefficiently because we've got a growth mindset, and we're certainly not optimizing for cost in the early days. Um, and, and so there will be a lot of opportunity to to work through those portfolios, and I think, um, private equity will have a run there. Um, I also think big M&A is coming back. I do think that the, the incumbents responding to the cloud AI imperatives, um, are going to need to get back in the buying game. The FTC is finally taking a more rational posture on, um, antitrust and, and, you know, blocking deals and these things. I, I think they're going to let market forces, you know, operate there again. And so, there will be this buying imperative that rolls through the, the public markets, and companies like SAP and Oracle and IBM need to buy, or they're going to get crushed. Um, and then I do think that the IPO markets are going to open up again, and we're going to see a pull-through there. And the big wild card, this fourth bucket, is what we talked about briefly. And I thought that one of the great questions you asked was, will secondary liquidity start to flow through, um, from different, you know, capital providers, and will crossover investors be comfortable doing more secondaries and things? And, and I think yes. I'm not totally sold on these exchanges for private markets or these sorts of things, but I do think incrementally we're going to see people get more comfortable with secondary, um, transactions. Um, stop looking for signal risk in that, and we're going to take pressure off from all these sources, which will then get capital flows coming back, which ironically may then just feed the engine at the front end even more.

"Did Tiger do more to help or to hurt the ecosystem?" "Oh boy." "The fuagra analogy comes back to me there." Um, incredibly mixed. You know, I, I think that there was a lot of, um, happy disruption and big thinking and creativity that, that I applaud. And there was a lot of, um, reckless overfunding and, um, and deal work and non-governance that, um, that we're going to have to clean up for quite a while. I think their returns will be better than people give them credit for. When I look at Scale, when I look at OpenAI, and I look at quite a few that actually they're in with me, they're at the top of the pref stack, and they're in like 50, 60 million dollar companies at 3, 400 million prices with 3 to 5 years of runway. I'm like, they're not going to lose money on those deals. They're not going to make huge money, but they'll be okay. I mean, that's the amazing thing. Over these cycles, an index of the venture industry may be fine. Um, yeah, historically it has underperformed the S&P and probably will again in this case. Um, but you'll make money, and, uh, and I think that that very well could be the case there. Um, it certainly wasn't an optimal portfolio construction, but, um, but at the end of the day, I think you're right that they're going to have some home runs in there that, that more than make up for a lot of the the zeros. And then in the middle of the pack, there's going to be a lot of one to three X's that, um, that, you know, carry the load.

"My friend, are you ready for a quick fire round?" "Well, let's do it." "I'm in your hands." "Who's the best sourcer on your Bessemer team?" "Oh boy." "Everyone on in our partnership is constantly outbound." "I would probably put Jeremy Levine there in terms of just his ability to see unique deals, um, that are contrarian." "And I think, you know, part of sourcing, we think of it as just, hey, outbound, aggressive, creative, etc." "But I think the insights, um, to see what others don't is, is the essential part of that that's often overlooked." "And, and I give many of my partners credit for that, but I, but you asked for one, so that'd probably be my answer."

"Best picker." "Who do you think when it's the accuracy of shot, they're good?" "David Cowan." "Why?" "Steadily, um, finds, you know, great people in weird places doing, you know, bizarre things." Um, "you know, I mean, Rocket Lab is one, you know, Peter Beck sitting in New Zealand, um, you know, recently, or, or Olo, or some of these things, um, where he just has incredibly high conviction and will pound the table at times, uh, you know, things that may seem non-obvious, and, uh, and just has an incredible nose, has been doing this a long time."

"Dude, is a hero." Um, "one seed firm, one series A firm, and one growth firm that you can invest in as an LP." "Go." Oh boy. Um, and to be clear, you gave me no prep, so I'm going to give this on reaction. Um, uh, you, you, you didn't do the nice thing and give your, uh, your speaker the prep notes. Um, Seed Fund, I mentioned Pete Casini before. Um, what they're doing at, uh, Launch Fund, I've got immense respect for where they're going. And at inception stage, they're literally sitting, um, in the, you know, classrooms and labs at, at, uh, Stanford, working with professors, and, you know, Pete's done this many times already with, um, with Perplexity and Data Bricks and many others, where I mean, he literally was there at the inception stage of these decacorn businesses, and, you know, any one of those deals would be, you know, a great firm run, or, or a great career for an investor, and he's done multiple. So, from a seed stage, um, I, I think they're going to do some really special things, um, early stage. Oh god, there's so many. Um, you know what, uh, you know, I think that the, the first round folks, I think, um, uh, oh, this is horrible. I'm forgetting Uncork's new name. Remind me. Um, uh, oh, sorry. Uncork is a new name. That's right. The predecessor. I think Uncork, um, does awesome things. Um, and, uh, and actually is very aligned in kind of investment style and approach. Um, you mentioned, uh, you know, Lemmin and what he's done in very selective ways. Um, I just, I have a lot of appreciation. I mean, it's nice. I mean, it's nice. I love those people. Jason's like my dearest friend, dearest.

"None of the new guard there." "Those aren't the sexy names." "You chose First Round, Uncork, and Jason." "I love again, I love them." "I agree." "They're all 10-year-plus firms." "They'd all be kind of long in the long in the tooth." "You didn't mention ironically your Sarah Guo's the hotter names." "I'm just in that was interesting." "Harry, you suggest that that history is a negative." "Um, I think quantitatively history is a positive." "I think the data shows that, um, that you actually benefit from some pattern of success and platform." Um, "and each of those firms has to go through some cycle, and both First Round are certainly going through generational transitions." "But I think the next generation are incredibly promising." "I think the founders would even say they're they're proud that they, you know, they'll carry on and, and exceed them." And so, um, I think those firms are getting stronger, not weaker.

"Please, and no, no disrespect to them." "I didn't mean it in any horrible way." "I love all three." "Jason, if you're listening, especially, like, you know, huge love." "Don't disown me." "I love you so much, dude." And, you know, uh, Josh Kopelman, don't disown me. Yeah. And, and that is that takes nothing away from, um, a number of the upstarts that you highlighted. Um, by the way, it's just I think they're less proven. And so, you know, we're, we're also trying to work with them, but we're figuring that out.

"Which growth firm would you do?" "Like mine's March." Um, "I mean, March is fantastic." Um, "I, you know, I, I love their culture." "I love their style." "I mean, quantitatively, I think that, you know, Sequoia continues to to mint platinum records." Uh, and so, you know, probably some combination of the two.

"What element of your investing style would you most like to change?" My partners would probably say I should be more detail-oriented. Um, I am much more team and gut. Um, and so I'll confess I don't intend to change it, but, but I do miss some of the small things at times. Like I'm not a guy that's going deep in documents and details and things. Like I'm not, I'm not going to be hung up on, you know, some some usually deal term or financial thing or whatever. Like I, I, I'm all about working with great people at this phase in life. It's too short. I love this job, but I just I want to have fun. I want to do big things with great people and, and, um, and that'll get me in. Sometimes I'll do crimes of of commission where I'll just fall in love with some things and miss some details, but like I, I don't think I'm going to change that.

"I asked one of your biggest competitors who said, can this be, remain nameless, what I should ask, and they said, 'The dude is just one of the only people who's done insanely well, respectfully, financially, and it seemingly doesn't matter to him.'" "Like he's just as hungry as ever, doesn't kind of give a [ __ ], he just wants to win more and more." "Does the money not matter after a point, and it's just about winning?" "How do you reflect on that comment from your competitor?" Um, one, I, I wish you'd name them because that's incredibly flattering. I, I, um, I appreciate that, and I, I love hearing that. I, I do think I try to live by that. Um, I mean, I'll confess when I sold my business long ago, my wife and I sat back and said, "Okay, like, hey, it, it's not life-changing money, but actually, we could retire on that money." "Do we want to move somewhere, raise a family, unplug?" And I couldn't conceive of doing that. You know, we are all so damn fortunate. Like, there's a lot of great economics in this industry, and, and, um, we get paid way more than we deserve. But, um, it's just so damn fun to be in the middle of what we're doing. And like, I, I can't imagine not doing this. Um, I, it's an incredible privilege to sit down with awesome people who want to change the world and help them do it. Like, it is, it is the coolest job on the planet. And so, like, I have no intention of stopping anytime soon. And, and the money is, you know, is a nice byproduct of it. But, uh, but it's a cool gig.

Final one. What have you changed your mind on most in the last 12 months? I, it, it's probably, um, the, what can be from the scale of the opportunities. Like, I, I thought we understood this next phase we were going into, and, um, how big this was going to be. And, like, very sincerely, we've probably added a zero to everything. I think there's going to be a lot of trillion-dollar businesses that are created from this. And it, it just, I mean, I, I, I said it was kind of embarrassing when you look at our, uh, scenario analyses and our memos that we published on our website before, because, you know, we, we talk about a billion-dollar outcome as a big, as a big deal and the great success case, and these businesses went on to become 10 or hundred billion dollar companies. That exact thing is going to happen where, you know, we talk about some of these investments, and we, we, you know, we hesitate, and we, you know, we, we get really close, and we invest, but we're anxious and nervous and whatever. In the end of the day, these things just blow through everything that can be. Um, and we're, we're seeing it real. Like, when you actually see the Anthropic numbers that he's now sharing, and, and like, this is real, and you know, their path to, um, billions and billions in revenue, and, you know, really compelling unit economics. I, I just, we have never seen this in the history of our industry, and it's playing out.

"I'm going to ask you an unfair question." "Anthropic over or under a trillion within a three-year period?" I mean, we put our money where our mouth is. We've been a buyer. So, over. And that's again, like, we, um, a year ago when we were buyers, we still wouldn't have didn't conceive of that. We thought that where they're at now would be the exit, not another entry point. And that is incredibly awesome. I will never forget having Vince on from Thrive when he led the $30 billion round. Uh, and I was like, "Dude, what are, what are you doing?" And he's like, "Harry, if it's a trillion-dollar company, we'll make money." And I was like, "That is the weakest investment rationale I've ever heard." And now I feel like a total [ __ ]. One of the beauties of this business is, uh, is you can, you know, fortune favors the bold. And, um, and there will be those outcomes ahead, and, and obviously we placed our bets where we think they'll happen, and there'll be many more.

"Dude, I so appreciate you." "I so appreciate the friendship." "Thank you for joining me today, man." "Great to see you again." "Great to be back." "I look forward to, uh, seeing you in person, but until then, thank you."

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BVP Partner, Byron Deeter: The Future of Venture - Why Chanel vs Walmart is BS

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