Private For Longer & What That Means For Wall Street with Jeff Richards of Notable Capital
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anywhere. To explore more about iConnections events and gain access to its members-only platform, visit iConnections.io. Welcome to the Risk Reversal Podcast. I'm Dan Nathan. I am joined by friend of the pod, Jeff Richard, managing partner at Notable Capital. Jeff, welcome back to the pod. Great to see you again. All right. You and I saw each other a week ago, which kind of stimulated our need to get a

a mic in front of our faces a little bit. We had a group, a couple bankers, a couple VCs, a couple media folks, and it was a good conversation. We were talking about the landscape in general. You were last on the pod April 17th. You had a very optimistic tone at the time, which was great timing on your part. But the conversation that we had last week was

pretty illuminating to me. I think that someone like you, you've always been optimistic. You've been coming on our pod for years. I think that back in late 22, you had a similar mindset as you just had in mid-April 17. And I think that's really helpful. I think for me, part of my media presence, whether it's on CNBC or here, I tend to be a bit more skeptical, which doesn't

make for a great investor. Let's be very clear on that. It might make for great content. But there was something that you said to me, you were listening to one of our podcasts, you were listening to a Wall Street strategist. And you said to me, I think the Wall Street set has this wrong. And we're talking about AI. And we're talking about what I think is a bit of investment bubble in the private markets. Clearly, there's a little bit in the Palantirs and some of this other stuff in the public markets. But kind of

Like lay that out for me, why you think Wall Street has this investment cycle, at least in the near term, a bit wrong and why you think it's maybe a little bit different this time.

time? Well, in general, I would just say there's been a ton of skepticism about AI. And for anybody who's in our world in Silicon Valley, whether you're an entrepreneur or a CEO or an investor, you're in the middle of it. You're seeing it every day. You're seeing the impact. You're seeing the progress of the technology. You're seeing all these companies come through our doors, pitching just amazing concepts and ideas. So we always have a three to five year lead on, you know, sort of main street investors. And I would put most of Wall Street in that camp.

The thing that has surprised me is over the last year, the skepticism about the value of what Microsoft, Amazon, Google, Meta, what these folks are spending money on in terms of CapEx. And obviously the amounts they're spending are, we've never seen anything like it.

But I think that if folks understand why they're spending it, they see this coming, they see the revenue opportunity, they see the growth. And I think one of the reasons there's a gap is so many of these companies are staying private. I really think that's the issue.

If Anthropic and Databricks and OpenAI and a bunch of these other companies that we're so excited about, Cursor, were public, you'd have a lot more excitement on Wall Street to see the revenue flowing from the infrastructure layer up to the application layer. I mean, ChatGPT is the fastest growing consumer application in history. It went from zero to $750 million in annual revenue in less than three years.

Facebook took 10 years to do the same. So, I think folks are just underestimating the growth that's happening because they're not seeing the numbers, they're not seeing analyst research, they're not meeting these companies, they're not doing roadshows with Wall Street investors. And you take a company like Anthropic, where we're investors, Anthropic went from -- it took them 21 months to get to $2 billion of revenue, it took them three months to get from $1 billion to $2 billion.

It took them one month to go from $2 billion to $3 billion, and now they just announced they're at a $4 billion run rate. So, it's one of the fastest-growing companies in history. And when they raised money last year at $60 billion or $65 billion,

People said, oh my gosh, valuations are crazy. This is nuts. But how do you value a company like that? I mean, we literally don't have, the average software company that's public today is growing at around 10 or 15%. So we don't have anything like this in the public market. I think it's just hard for people to get their head around. Well, all right. So Anthropic, $4 billion in revenue. So in the public markets, Palantir, which is kind of an AI darling, if you will, but you could make a lot of arguments that half that business is not particularly interesting.

As it relates to some of the most innovative things that are going on in the private markets as far as AI, right? I mean, and I'm not asking you to opine one way or another, but this is a company that is expected to do $4 billion in sales this year, growing at 25%, and it has a $330 billion market cap. And every time I talk to a brilliant private tech investor like you, I talk to Josh Wolfe,

A few weeks ago, and he was talking about he invested in Andrel in the seed round, and he was talking about the revenue run rate and the way that they're skipping from a billion to two and this and whatever. And I keep saying, well, that's the best pairs trade I can think of in the century is buy Andrel at 30 billion and sell Palantir at 330 billion, right? There does seem to be some disconnects.

Well, I think what you're seeing is there's such a limited selection. I mean, if you and I walked into a store, we're making dinner and we say we need 15 steaks and there's 15 other people there that want 15 steaks, but there's only five available. We're going to bid up the price of steak. And I think that's what you're seeing happen. You've got Palantir, CoreWeave on the crypto side. You just saw Circle go public.

hard to justify that valuation based on any math, but there's so much demand for such a limited set of companies, investors are desperate for ways to bet on this concept. And a lot of folks just aren't, right? It's very hard to get access to these private companies. You have to know somebody or know somebody who knows somebody. And so, it's a relatively inefficient market. They're not liquid.

Although they are liquid, you mentioned Josh, the seed investor in Anduril, they are liquid for early-stage investors in these companies. They're able to sell shares on a pretty regular basis, which is a relatively new development in our world and is creating a lot of new liquidity for LPs, which is desperately needed in our industry. But I just think what you're seeing is a tremendous amount of demand for a small number of companies. We need more of these private companies to go public. To me, that's how you unlock the value. But to your point, does that mean

Does that mean Anthropix should be worth $300 billion? I don't know how you, you know, either Palantir's overvalued or Anthropix undervalued. But I think what you're seeing is people waking up to the idea that they want to bet on this opportunity. They understand it's a generational opportunity. It's going to be bigger than internet, bigger than mobile, bigger than cloud. And there's only a small handful of names for them to bet on. All right.

All right, so just let's take a step back for a second because it seems to me that there's more than a handful in the private markets. As a venture capitalist, what percentage of the investments do you expect

What are you expecting in the AI space? Because some of these valuations have skipped along. I've never seen, you leave Google, you leave OpenAI, you leave Meta, and you could raise like a billion dollars like that, pre-product, you know what I mean, that sort of thing. So what percent do you expect to actually really hit? And do you expect there to be a time where, you know,

there's just going to be a lot of unsuccessful companies that they either need to merge or they need to just close up shop. And are you seeing that right now? One of the challenges of venture capital is that's always the case, right? The majority of companies don't work and it's a very small percentage that drive all the value. So we kind of have in our industry right now a little bit of a tale of two cities. There are companies that raised tons of money in 2021-22 that were sort of pre-GPT. And then you've got 23 to today, which I would call sort of the post-GPT era,

Those companies look different. The post-GPT companies are far more efficient. They're growing faster. A lot of them are tied to infrastructure and areas that don't need huge sales and marketing spend. Those companies are having no problem raising money, and many of them don't need a ton of capital. They're taking it because it's available. And then you've got the companies from the prior era. I think there were 1,400 "unicorns." And many of those companies have stalled out and aren't growing at a meaningful rate today.

One of the challenges in our industry, not to get too esoteric, is without an IPO market in '22 and '23 and '24, frankly, have been some of the worst two- and three-year periods for tech IPOs in history. We're now starting to see that come back. So, the last 20 tech companies that have gone public have traded up on average 70%, on average. Some of them are well over 100%. And these include companies like Reddit and Service Titan. These are not heavily pegged to the AI trade.

CoreWeave obviously is and Circle is tied to the crypto trade. But I think what we're hoping to see now is a little bit of we had a record M&A, so the highest level of M&A in the first half of this year that we've had since 2022.

So, you get a combination of a healthy IPO market plus a healthy M&A market, we should start to see some of that liquidity that LPs have been so desperate for start to make their way back. And then you look at the secondary sales, I mentioned earlier, the secondary market, capital markets are efficient, there are large pools of capital, whether it's a Fidelity or a T. Rowe or others who are willing to buy into these companies at $40 billion, $50 billion, $60 billion, more than happy to buy shares from some of those early investors.

Between the secondary market, the M&A market, and the IPO market, we're starting to see a much healthier exit environment for VC-backed investments. But we have a lot of work to do. And then to your question, in any given fund, if you assume a venture fund might make 40 or 50 investments, there's usually about 10% that drive all the returns. So four or five companies will drive all the returns, and then you've got a segment that sort of returns capital, and then you've got a segment that don't return capital. So

You know, the crazy thing about our business, we spend a ton of time trying to help those companies that are just going to return capital. We work our ass off to try and make them productive and try to find buyers for them or try to find a way for them to get to an outcome. The ones that are in the first camp, the 10% generally need the least help, right? They're growing quickly. They're building great teams. They're attracting great board members. They have an easy time raising capital. And those are the ones that generate the biggest outcomes. We had a company that was acquired earlier this year by IBM called HashiCorp.

It was acquired for $8 billion, returned over a billion in capital to our LPs. Those are the meaningful kinds of investments that you need as a venture capital firm to generate returns for your LPs. I think what has us all excited right now is the outcomes for that 10%.

are going to be much larger than they were in prior cycles. I mean, we didn't have private companies like OpenAI valued at $300 billion. We didn't have companies like Anthropic that were hitting $4 billion of revenue in a small ARR in a small period of time. So, I think what a lot of folks are excited about is that we may see bigger outcomes, that 10% driving even better returns for the asset class. And then something you and I have talked a lot about is,

These companies are staying private longer. So, so much of that value is accruing to the private equity firms, the crossover firms, and the venture capital firms that are investing in these companies. And they're not available to ETFs, mutual funds, or retail investors. Yeah. And that's a great point because Circle and CoreWeave, because of the limited supply,

they became meme stocks. I mean, like that's exactly what happened. And so when you talk about like, you know, the returns of those two, that's driven by retail. I mean, you know, listen, Circle's a great example. I mean, the lead underwriters came out and they initiated with like neutrals and maybe even some had like cells on it. You know what I mean? And like, and if you're the company and,

and you sold stock at 31 to investors, you know what I mean, on your IPO and the stock's trading 180 a month later, well, you're pissed off, right? Like, I mean, come on. And then the underwriter throws a neutral or a sell on it. You know what I mean? Like, I just think it's kind of interesting. I mean, as you know, there's always a small float when a company goes public. And so you get a lot of volatility in the first six to nine months. I think

Who knows where those will settle out over time? I'm a big believer that great companies eventually create their own value in the market. When Palantir went out, people thought it was overvalued. It had a dip down to 10 or even single digits, and it's come all the way back to where it is today. Again, you and I talked in April. I actually went back and looked at it. You asked me for ideas and I said CrowdStrike and Snowflake, not exactly undiscovered names,

CrowdStrike is up 35%, Snowflake is up 53% since that conversation, and they're both up 70% to 100% over the last 12 to 18 months. So, I don't think these are undiscovered ideas. And in fact, a lot of folks in our industry are in, you know, we're in Databricks, you know, I personally own Snowflake. I think the whole category is going to benefit from this wave of AI. One thing that has been a little surprising to many of us is the rise of things like Oracle.

I mean, Oracle was kind of a left behind in the cloud era. And at least it looks like on its surface, what Larry Ellison and the team that have done there in playing a role in this new build out of infrastructure for AI has been pretty impressive. And you're seeing the stock go up and you're seeing people put out buy ratings.

I probably have to send Brad Gerstner from Altimeter a text because he and I had a discussion in, I want to say it was late January. It was kind of after the Stargate announcement. And I was like, that's total bullshit. And, you know, and I went on to say, you know,

OCI is like 15% of their revenue and yeah, it's growing fast off a slow base, but like at best they're going to be a number four player, which, which is obviously true. But you know, are they taking share from GCP or Azure? Probably not. Right. And the deal that was announced earlier this week, which isn't even a deal because we don't know who, you know, it was like a $30 billion 20 fiscal 2027 sort of, um,

you know, AI deal, you know, for their cloud. I mean, who knows if we ever get there? A. B, they've been spending $25 billion a year on CapEx, which is dwarfed by what Amazon, Google, Microsoft, you know, Meta are spending. So for them to actually build

build the infrastructure or the capacity to take that on over the next two years, they're going to have to spend a lot of money. And so in the near term, that might not be great for a stock that's actually gone parabolic. It was trading in early April at $120. Today it's trading at $220. I just think that's where I think is a lot of hype. This is a stock that traded at a discount to its peers in the market. It was a value stock.

Yeah, it's value stock. Same with IBM. I think the other thing I would just say though is what that signals to me though is that Larry Ellison understands the breadth of this trend. This is not a one year, two year, three year flash in the pan. It's going to impact every part of society. I mean, you're, you know, the number of companies that we're seeing in healthcare and legal and building construction and I mean, small business, you know, is one of the categories I love.

It's 42% of US GDP. We haven't even started to talk about what AI is going to do for that segment of our economy. And I just, the trend here is so big and so hard for people to comprehend. I mean, let's wind back the clock to 2000 when we had the internet bubble. There were 200 million people on the internet in the world. Today, there's 7 billion. So the pace at which these technologies are going to get adopted is going to blow people's minds.

And the one area that we haven't necessarily seen huge impact in the public markets is on the software application layer. And I think it's coming. Two areas really, I'd highlight software application and consumer. We haven't yet seen the DoorDash, the Uber, the Airbnb of this era. Those companies all came out of the 08, 010 kind of iPhone cloud era.

Those companies are coming. They're being incubated. They're being started. Obviously, ChatGPT is a consumer application done, you know, fastest growing company or, you know, product in history. There's more of those coming. We just haven't yet seen them kind of hit mainstream. And I would, you know, Morgan Stanley, Goldman, all the forecasts have, you know, sort of this trend with enterprise software revenue where the actual seat license revenue declines, but the agentic revenue goes up.

And then on the consumer side, over the next 10 years, you see an even bigger TAM than you do on enterprise, and that's just getting started. So if you were to ask folks in my seat, what are we excited about? You mentioned defense tech where Josh and his folks are playing. We unfortunately don't do a lot of investing there, but the infrastructure layer we've been investing in, cybersecurity is an obvious one, CrowdStrike, Palo Alto are the examples there in the public market.

software applications, and then this consumer bet. You're going to see some wild stuff come out on the consumer side that's going to be a lot of fun.

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All right, so you were an operator. You started two companies in the 90s, right? And you sold one. I don't know what you did with the other. But, you know, back then, and this goes back to just kind of the environment for...

I mean, these companies went public with like tiny market caps and really small floats. And at the time, like you said, in the late 90s, there were probably like 75 million people on the planet. So what would you say, putting your operator hat on

And, you know, you raise money from venture firms. If they said to you, some of your portfolio companies, hey, we want to go public right now in this environment. Like, are you gung ho for it? Because, again, you need to kind of recycle some cash, I'm sure, in your funds. So the idea of, let's say, some great companies going to the IPO market fairly quickly would be like a start of a trend.

Well, I think it'd be great for the economy. I think it'd be great for more people to have access to these companies. So at a broad level, in terms of caring about America and our financial system, I think it'd be a good trend. The counter to that is it's very, the private markets have filled in the gap

that essentially was sort of created with Sarbanes-Oxley and made it harder for companies to be public. And so there's so much capital, so much liquidity available that it makes it hard for a company to choose to go public. Having said that, we had a couple of companies go out in Q2 that were around $1 billion to $2 billion market cap. And so it's a promising trend. I mean, you mentioned back in the day, 1995, Amazon went public with a $500 million market cap on, I believe, about $50 million of revenue. I mean, today that company is raising a Series C.

So I think it'd be a great scenario. And I was just telling a founder this morning, a story of HubSpot. I mean, HubSpot went public in 2014, I believe at a $700 million market cap on about 90 million of trailing revenue. Today, that's a $30 billion company.

So, you can go public as a small-cap company, and times were different then, it's harder to get analyst coverage, large funds will complain that there's not enough float, but I'm a firm believer that really good companies can go out and do great as public companies. The challenge is, if you're a $100 million ARR business growing at 100% a year, and a banker says to you, "Hey, we can take you out at $5 billion," and the private markets say, "Well, we'll just give you $500 million in cash."

close in two weeks, you don't have to do a roadshow, you don't have to deal with Sarbanes-Oxley, you don't have to deal with all the complexity. It's hard to make that argument, but I think every founder would like to eventually have a public company. That's how you build enduring value. It's how you create value for your employees. It's very hard right now when the counterbalance is

a lot of liquidity in the private markets. - All right, so Andreal, Anthropic, these are likely to be $100 billion valued companies, let's call it, I don't know, in the next year or two, whatever, you know what I mean? Like that's gonna happen, especially if they are in the private markets

and there's anticipation they're gonna go public in the not so distant future because the idea of kind of unlocking that value, I think is probably something that ultimately a lot of these CEOs would like to see. But my question is how do

you bring a company like OpenAI public, by the time it's even thinking about an IPO, it could be like a trillion dollar value. I mean, think about that, right? And right now, there are only, I think, 25 companies in the S&P 500 that have market caps of over $250 billion. You know what I mean? So this is going to be different this time. I just can't even conceive of how that happens. How does that happen, Jeff?

Well, it's, it's, I mean, look, on the one hand, it would solve the problem that people complain about with small cap IPOs, which is if I can go out at,

$500 billion or $600 billion and float $50 billion of stock, there's a lot of liquidity there. Now, will you be able to fill that demand? I don't know, but I think you probably will. It's going to be interesting. I mean, if these companies all stay private and all go out and the combined market value, let's say you took the top 10 private companies today, Stripe, Databricks, Anthropic, OpenAI, there's a longer list there.

That probably is trillions of dollars of value. That's a lot of liquidity to soak up in the market. But I think what you've seen from CoreWeave and Circle and these other companies is there's a ton of demand. But let's not forget, one of the challenges for us as early investors is, when these companies go public, there's a lockup. And one of the challenges that happened in our ecosystem in 2021, you know, we had 17 companies in our portfolio go public in 2021.

they were all locked up. So as the market came down, the NASDAQ, the S&P 500, everything came down in the first half of '22, which we all remember painfully well, it was very hard to exit those companies anywhere near the value that they had gone public at. So I think one of the challenges is going to be what is the cyclicality of this market and how long in duration do we have

an upward trend with low VIX and highly favorable conditions for companies to go public. Right now, we clearly have that. But if you're not ready to go out, if you haven't spent the last six months preparing for that, you're not ready. I do think you'll see quite a few companies confidentially file and go out in the back half of this year or the first half of next year, knock on wood, assuming conditions stay positive.

What are the key metrics and what are the run rates, I guess, that you would say to one of your portfolio companies, like you're ready to go? And have they changed over the last few years? Oh God, they've changed. Yeah, I mean, it used to be 100 million was the cutoff. And then the bankers upped it to 200 and then they upped it to 300.

And now you're seeing companies like when Service Titan went out in December and we were an investor there, it was over $700 million of annual recurring revenue. So, I think what most investment bankers would say today is you need to be at least $200 million or $300 million. You know, ideally have some Rule of 40-type metrics, which is a mix of growth and profitability. Clearly, there's appetite to fund growth with companies that are still losing money.

But they want to see that the businesses actually have underlying fundamentals in the business in terms of, you know, if you're on the consumer side, your CAC, on the enterprise side, your gross margins, how much are you spending, you know, to generate those sales in terms of sales and marketing expense. So, the metrics have changed a lot since 2021. I would argue 2021 was a fairly liberal market in terms of allowing people to go public that didn't have great underlying metrics.

I think that's changed. I think you're going to see a higher bar for companies going out now, but we do have quite a few that fit that profile and a lot that are in that 100 to 200 range that could hopefully go out next year as people build appetite for these stories. And then hopefully there's a tailwind as well with those companies that were even pre-GPT companies have now done enough with their product strategy that they're really

incorporating AI and AI is a big part of their story. It's driving growth, it's driving margin, it's driving value for their customers. And I think you'll see those, hopefully some of those companies test the water early next year. I want to talk about agentic AI. This is something I know you are very well versed in. And, you know, I want to start with a,

the Bill Gates quote about overestimating the near term and underestimating the long term, right? And so, you know, in the near term, there seems to be, and this is how our conversation started last week, a lot of enthusiasm about a handful of names in the public markets.

And then obviously a lot of enthusiasm, as we just talked about in the private markets. And so when you think about how do we get away from maybe what is perceived to be a little bit of a froth in the near term and then get to this kind of like framework for the longer term where value is really created. And, you know, so this is where like agentic AI comes, the application layer that you just mentioned. So.

When it comes to agents and everything I read about it, it really is going to come down to trust, which is not too different than a lot of the answers that we get from these chatbots. And the smarter they get, the more we interact with them, we're going to trust them more, right? Like that's the idea. Agents to me, almost every example seems a little bit further away than where we are right now.

or where some in the tech community or the analyst community think we're at. Does that, I don't know, am I thinking about that incorrectly here? And I just, give me a sense for that. No, I think you're right. I mean, as what happens in every cycle is, well, first of all, agentic AI is not overhyped. Let me just start there. It is...

going to massively transform the way we work, the way applications work, the way consumers work. I mean, Apple is sort of notably behind on this, but I thought by now you would have an agentic feature on your phone where you could simply just say into it,

you know, "Hey, Siri," or whatever it is you'd say, "I need to book an Uber at 3:00 today and then I need a reservation for dinner at 5:00." It can basically handle all those things for you. There's a bunch of reasons it hasn't happened. One, you mentioned trust and security. One of the big issues is we think about agentic commerce. So how do I say, "Hey, I'm 6'5", 205, I need a pair of jeans, go find them for me and buy them and ship them to my house."

The entire web over the last decade has built itself up to prevent bots and agents from basically conducting fraud. Now we're saying, hey, we want good agents to be able to conduct transactions on the web. So this is a huge opportunity for cybersecurity.

for identity. So you'll hear a lot of people talk about identity and that's one of the key unlocks with the Gentic AI. So the reason you're not seeing it in the consumer world yet is because we still have some things to figure out in terms of how it's going to work with e-commerce, credit card transactions, the payment rails, identity. On the enterprise side, it's just early and no CIO or CTO wants to let agents run wild inside their organization without understanding exactly how they work, what they're going to do and what they're going to interact with.

with. So all the controls that have been put in place around security, both on the consumer side and on the enterprise side, are sort of making this move at a methodical pace. But you look at the innovation that's happening within the software side of this, the people who are building the technology, it's close to ready to go. We just invested in a company called Browserbase,

early stage company, amazing team. And they launched a product called Director.ai, where right into your browser, you can build agentic functionality using MCP. So there's all these things that are being built right now. All the rails are being built for this to be a huge success. And then to your point, why does it feel overhyped? Because you have the legacy players. Microsoft launched Copilot years ago. It's a big fanfare.

The dominant platform in companies today is not Copilot, it's Cursor. So the big companies sort of evangelize the market, explain what's going to happen. They don't really have the product or the innovation or the technology. And then the startups come along and fill in the gap. And we're just in like the first inning of that. But within a year or two, you and I will both think agents are fairly commonplace.

I don't know how far along we'll be on that e-commerce curve just because so much of the infrastructure around payment, card not present, people like PayPal, Stripe, others have to kind of help figure this out along with players like Cloudflare and others who are trying to secure the web. But it's coming and all the pieces are being put in place right now. So my guess is

agentic AI on the consumer front is probably a 26 topic where you and I are going to be talking about amazing companies that are putting things out there in the wild and saying, oh my God, I just started using this in my personal life. It's amazing. On the enterprise side, I think it'll just be a relatively slow burn, but then it'll overtake the enterprise. And in some ways it'll replace what we think of as seat-based software in many cases. That's a great point. So Salesforce,

is not participating in this rally right here. As you think about the NASDAQ 100 is back to its all-time highs, driven by the performance of a lot of those names in the Mag 7, X Apple and Tesla. Adobe seems like it's a total casualty, right? Of not being able to buy Figma

And then, you know, a lot of the advancements are really coming at what they do best. ServiceNow, Workday, these are stocks that are still all down on the year, well off their, you know, all time or 52 week highs. Which names do you think are being disrupted now in the public markets? Because there seems to be nothing in the public markets that are pointing to Salesforce. We're coming at you. You know what I mean? It seems like it's somewhere in Notable's portfolio or something like that, you know?

Yeah. Well, first of all, I would say all the companies you just mentioned. I mean, there are thousands of companies going after each of those market opportunities, but it's also why I think you're going to see a wave of M&A in the back half of this year and into next year. I think what's happened is those companies spent 2024 and the first part of 25 thinking, oh, we'll build this internally. I think they're going to come to the conclusion soon, if they haven't already, that they're going to need to acquire it and they're going to need to acquire the innovation, the teams. I mean, look at how much money...

Meta just spent to acquire scale $15 billion, basically to acquire the team. And I think that's a sign of what's to come. You're going to see more of those types of acquisitions where the companies you just mentioned acquire a company that is an up and comer in their space, make that person the chief AI officer or chief product officer and ask them to go off and scale what they've already got. Because if you think about it,

What most of these companies, these startups have is great technology and great product, what they don't have is distribution. So, if I can plug a great product and a really innovative team into my distribution of thousands of sales reps and tens of thousands of clients, there's a lot of value to be unlocked there. So, I think you'll see some M&A and frankly, I think it would positively impact the stock price. I mean, obviously, on the one hand, somebody could argue, gosh, this is a mission that our internal innovation teams haven't worked.

But on the other hand, it's an admission that we're going to play in this next wave of what's coming because the companies that don't are going to get left behind. It's going to happen pretty fast. Well, you're seeing it with Apple. You just mentioned it. I think on Monday, there was a headline that Apple is considering anthropic or open AI technology to power Siri. And I thought that's what they were talking about at WWDC in 2024. But for whatever reason, they were unable to kind of ship Apple intelligence and they

it's just funny to me, like, okay, like if all these models are being somewhat commoditized, you know what I mean? And you just talked about distribution. Well, Apple with, you know, a billion and a half installed base, or maybe it's higher by now. That would be a great way. I think open AI, that was their thought process in 2024. It's like, okay, fine. You know what I mean? Like it, you know, have, and you just mentioned this when your Siri was talking to you, it probably got like all that a little rainbow on the outside. And that was meant to be,

it's taking you right to open AI to do that search, right? But that is squarely in competition with Google that has paid $20 billion a year for exclusive search on Safari on iPhone. So it just seems like Apple, they're going to be tripping over themselves left and right, no matter what they do. Is that fair? Well, it's the classic innovators dilemma for any of your listeners who haven't read the book. It's one of the classics by Clayton Christensen. And

You know, what happens inside these companies is they have a product and a strategy roadmap and something like AI comes along and they say, okay, we need to adjust. And the teams that have been there for 20 or 30 years say, great, we got this. And what those teams don't realize is how big a paradigm shift this was. I mean, the interesting thing about the cloud migration was it took a decade.

right so salesforce was kind of the early pioneer public company that was doing software as a service it took a decade for other companies to go public and and you know deliver that kind of infrastructure to large enterprises this is happening much faster this is happening in a very short window and so if you think about the way that cycle that conversation plays out 23 hey ai is coming we need to get serious 24 the internal innovation team at big tech company says we got this

25 is the year where the CEO says, "We don't got this." And they're going to have to go acquire some of these privately held companies. The challenge they're having now, the privately held companies are getting big fast. When you first had Arvind from Perplexity on a year or so ago,

you know, maybe an Apple or a Google could have acquired that company for single digit billions. That's probably no longer the case. The value of these companies is accelerating rapidly and the acquisition price is getting high fast. And so I think that's why there's a little bit of a, you know, an intersection of time value that is kind of the sweet spot of the back half of this year and into Q1 of next year, where I would guess the corp dev teams at these large companies are working overtime right now, trying to figure out

What can we do? And again, I go back to the point I made earlier. If they go to a company and say, hey, we'll buy you for 10 billion and the company says, well, I can raise a billion in the private markets in two weeks. Why would I sell for 10? It's going to be a challenging motion for some of those larger companies. It's going to require outsized offers like the one you saw Meta make for scale. I think a lot of people were surprised by that headline number total of, I think, 29 billion or 30 billion.

But when you think about that confluence of events where scale is saying, gosh, we're growing like crazy, we don't need you. It's going to take an outsized offer for us to take us out of the market. I think you're going to see that play out over the next six months. Well, it's funny. Go back to probably 10 years when Meta tried to buy Snap, right? Like I think Zuck said to Evan, I'll give you a double what I paid for Instagram or something like that, you know, or no, I think it was like $4 billion or something like that, you know?

And he rebuffed it. And, you know, with the market cap where it is right now, you know, it hasn't been a great trade, you know, over the last, you know, 10 years for Snap. You just mentioned, you know, how you think about for your portfolio companies and IPO, you know, strategic M&A, there's got to be the right time and the right price, right? And do you know, like, it's going to be hard to figure that out right now.

Right. Because some of these deals would no one can buy Anthropic. OK, let's just be clear. Like, you know, it last raised at sixty five billion dollars. You know, Amazon, Google, they're both investors in the company. Clearly under the old administration, there was no way that was going to happen. I don't even think it happened under this administration, but you'd have to pay one hundred billion dollars for it.

Right? Yeah. I think what you're seeing though, we just had a company called Neon, which was acquired by Databricks. My partner, Glenn Solomon, led our investment there.

relatively early-stage company with amazing technology and an amazing founder. I think the headline price that was announced was around $1 billion. What you're seeing is Databricks run this playbook. They're identifying the companies that matter early and going and acquiring them. Probably fair to assume that there were other public companies that would have been interested in that company.

But they moved quickly and aggressively and have a legendary founder and CEO who's playing to win. I mean, he wants to build a trillion dollar company. And thankfully, we now own stock in Databricks. We're going to hold it for a long time, I hope. So I just think it's a it's a the corp dev teams that a lot of these big tech companies went through a phase where they thought everything was overvalued in the 2021 Zerp era and kind of took their foot off the gas and said, you know what?

We're doing great. We don't need to acquire these companies. And then you have this new wave of AI companies come along. I just don't think they were ready for it. And then I think you have that lag between when the internal team says, hey, we got this to 12, 18 months later where the CEO realizes we don't got this. And now you probably have boards of directors weighing in saying, guys, what's the plan?

We're clearly not winning in our category. There are tons of small companies eating our lunch. I mean, if you just look at the payroll HR space, Rippling and Deal have taken a couple billion dollars of revenue out of a market that was owned by ADP and Paylocity and Paychex.

very boring, old school industry with very little innovation for decades. And those two companies came in and just nabbed several billion dollars worth of market share. So I just think we're in an interesting time window. And, you know, obviously these large tech companies we're talking about, it's not like their stocks are cheap. They can afford to go do this M&A. I just don't think they thought they needed to until

until right now. Literally most of these folks a year ago would have said, Dan, we're good. We got this. Well, this could be an existential threat for Tim Cook's job, in my opinion, because, you know, it was amazing what he did since taking over in 2011. I think, you know, it's probably easily 10x, you know, since then they've given back like a trillion dollars

I think, to investors through buybacks and dividends. But the next 10 years might be a very different thing. All right, last question I have for you. It's the first few days of the Q3, second half of the year. It was a pretty amazing ride for at least the last few months. The S&P is up 5%. The NASDAQ is up 5% in the year. The S&P is up 10% from the April lows. The NASDAQ is up 17%. And we just ran through all the innovation and all

all of the opportunity that these private companies have to really disrupt a handful, well, dozens of companies in the public markets here.

How do you think about this now? Because you just mentioned about the Mag7 valuations, they're rich. You know what I mean? Now, it's only going to matter if you see some sort of economic downturn or some sort of bear market that's kind of sniffing out a digestion phase of this AI trade. But how do public market investors, do they just keep doubling down on the things that have worked?

It just seems like a really hard place to be, don't you think? As far as if you want to get exposure to this trade and you can't access the private markets. Yeah. I mean, look, when you have a session like we've had since early April, what's the Nasdaq up 30%. So as you said, it's not like we're finding bargains out there in the market. I think

The only thing that -- you know, I have a lot of people that I talk to and we exchange investment ideas. My advice always, the default is like, buy QQQ. Like, you're going to own the companies that are winning in tech and the most innovative companies. You're going to have some volatility based on the overall market, but you're going to catch the winners over the long run. And then I think look for the generational trends that haven't yet seen -- you know, the only thing I have bought in the last 90 days is Uber.

Why? Because I feel like self-driving is here. Waymo is here. Tesla is obviously going to be a player in that space as well. But I think Uber is a beneficiary. I already own Google. But it's hard. I mean, things look expensive. They're not going to look expensive in five years. So the question is, how much can you handle the inevitable ups and downs over the next 12 to 24 months, which some of that will be tied to geopolitics and budget bills and things that are out of our control?

but I don't think there's any question in anybody's mind that revenue growth, earnings growth, those things are going to be here over the next three to five years. So for the most part, for me, I'm sitting tight, letting these things do what they're going to do. And then if we see another dislocation in the market, which we may,

we have a fairly volatile political environment and we may see some dislocation look for those opportunities april first week of april was a generational buying opportunity well it'll be interesting to see what trump does as we kind of get maybe this tax situation behind him um you know we have the s p at all-time highs maybe he thinks that he's got a little room to play harder on the trade thing again like he did in early april but you know i think that

because we know the taco trade, I don't know if that's something that was prevalent out there in Silicon Valley. It was something that Wall Street thought was pretty interesting. I think that's going to kind of be worked in the psyche as it relates to kind of tough talk on the trade front. But we will see. Jeff Richards, I really appreciate you being back here. Thanks so much. Great to see you. Thanks for having me.