20VC: Sam Altman vs Elon Musk: The $100BN Battle | The Implosion of Thinking Machines | Can VC Survive Public Market Pricing Today? | ClickHouse and Replit's New Rounds: Analysed
Timestamps are as accurate as they can be but may be slightly off. We encourage you to listen to the full context.
Podcast Summary
In this week's 20VC tech discussion, Harry Stebbings, Jason Lemkin, and Rory O'Driscoll tackle the most pressing issues in venture capital and AI. The episode explores whether venture capital can survive when public market valuations continue to crater, with companies like Figma trading below their IPO levels despite being exceptional businesses. (04:25) The trio also dives into the spectacular collapse of Thinking Machines, where cofounders have fled the $50 billion AI startup, and analyzes the billion-dollar legal battle between Elon Musk and OpenAI that could reshape the entire AI landscape.
- Main Theme: The episode centers on the fundamental tension between venture capital's need for exponential returns and increasingly challenging market conditions, while examining how AI is creating both massive opportunities and unprecedented legal battles.
Speakers
Harry Stebbings
Harry Stebbings is the host of 20VC and managing partner of the 20VC fund. He's one of the most prominent voices in venture capital, known for his concentrated investment strategy and direct approach to evaluating startups and market trends.
Jason Lemkin
Jason Lemkin is a prominent venture capitalist and serial entrepreneur who has built and sold multiple companies to Adobe. He's known for his expertise in SaaS businesses and has extensive experience in both building and investing in software companies, bringing a founder's perspective to venture investing.
Rory O'Driscoll
Rory O'Driscoll is a veteran venture capitalist with decades of experience, including serving on the board of Omniture, which was acquired by Adobe as their first cloud company. He brings institutional knowledge and historical perspective to evaluating market cycles and investment trends.
Key Takeaways
Public Markets Create Venture Opportunities Through Value Sorting
The current public market downturn isn't destroying venture capital—it's actually reinforcing its core dynamics. (04:54) As Rory explains, public markets are performing their natural sorting function: punishing slow-growth companies with very low multiples while rewarding high-growth, trendy companies with absurdly high valuations. Companies like Palantir trade at 70 times forward sales for 45% growth, while established companies like Figma struggle. This creates the perfect environment for venture capital, which thrives on being in "hot stuff" rather than trailing-edge investments. The key insight is that venture capital's success depends on identifying and investing in the next wave of exponential growth companies before they mature.
Technical Leadership Is Non-Negotiable in AI Companies
The spectacular failure of Thinking Machines reveals a critical truth about AI startups: non-technical CEOs cannot successfully lead cutting-edge AI research companies. (17:14) Jason emphasizes that the best AI researchers only want to work on intellectually challenging problems with leaders they respect technically. When your CEO isn't one of the greatest technical visionaries in the industry, recruiting and retaining S-tier AI talent becomes nearly impossible. These researchers will leave significant financial compensation behind to work on problems that excite them intellectually. For AI companies, this means technical co-founder leadership isn't just preferred—it's existential for survival and growth.
AI Discovery Will Create Massive Advertising Revenue
The introduction of advertising to ChatGPT represents a fundamental shift in how we discover and purchase products. (42:32) Jason argues that LLMs have become superior to Google for complex purchase decisions, providing synthesized answers rather than overwhelming search results. This creates incredibly valuable "intent-based" advertising opportunities. With just 0.22 ads per prompt at a $50 CPM, OpenAI could generate $25 billion in search revenue. (48:07) Unlike traditional advertising that interrupts, LLM advertising can add genuine value by presenting relevant options during natural discovery conversations. This represents a massive shift in advertising real estate from Google's link-based model to conversational, contextual recommendations.
Venture Capital Is Becoming a Capital Allocation Game
Modern venture investing increasingly resembles public market investing, particularly at late stages where firms pay $350 billion pre-money valuations for minimal ownership and information rights. (63:58) Rory points out that when you're getting 0.3% ownership for a billion-dollar investment—equivalent to hiring a director at Series B—you're essentially a public market investor in private assets. This shift means the traditional venture model of board seats and information rights has been replaced by pure capital allocation decisions. Success now depends on stuffing money into guaranteed winners rather than traditional venture company building. The winners in this environment are funds that can access infinite capital and deploy it into proven successes across multiple rounds.
Growth Persistence Is Everything in High-Valuation Deals
When companies like ClickHouse raise at $15 billion or Replit at $9 billion, investors are making a single critical bet: that current extraordinary growth rates will continue for 2-3 more years. (59:06) As Rory explains, these valuations only make sense if you're underwriting "growth persistence"—believing the most recent growth rate represents a sustainable trend rather than a temporary spike. For ClickHouse to justify its valuation against competitors like Snowflake and Databricks, investors must believe it will capture a dominant share of the analytical processing database market. This isn't just about having a good product; it's about betting that AI-driven demand will create a large enough category to support multiple $30-40 billion outcomes.
Statistics & Facts
- ClickHouse Revenue Growth: The database company was doing approximately $50 million in revenue just a year ago and has since exploded in growth, justifying its $15 billion valuation through AI tailwinds. (57:42) This represents potentially 10x or more revenue growth in a single year.
- OpenAI Advertising Math: For OpenAI to generate $25 billion in search revenue, they would only need 0.22 ads per prompt at a $50 CPM. (48:07) This means roughly one in every five ChatGPT interactions would need to include a monetized discovery ad.
- Sequoia's Ownership in Late-Stage Deals: At a $350 billion pre-money valuation, a $1 billion investment yields approximately 0.3% ownership—equivalent to what a director might receive at Series B. (63:58) This demonstrates how late-stage venture has transformed into public market-style investing.
