Will Open-Source Threaten Anthropic's Business & Do Margins Matter in a World of AI | Matt Murphy

Matt Murphy: got on the phone with Daario and Tom the next day and I, you know, I personally was like, 'All right, I'm in.' ... at the time you have like a $600 million venture fund. You kind of try to average 15 million into into a company and along comes a company that's like pre-revenue and, you know, uh and wants a $4 billion plus valuation. Too early for our growth vehicle. ... But you know the easy part was okay OpenAI is absolutely ripping the chat GPD taking off but Daario was the creator of that within OpenAI as you know the reason why he left is because basically he's like open AAI is doing too many things this is the one this is the one big opportunity so you had that kind of like unique insight knowledge conviction around this opportunity ... all the benchmarks you could see that they were kind of better or at the same level of performance as as chat GPT at the at the time and they'd spent like I don't know a 50th of the capital. So these compute multipliers you're like all right there's something special under the hood technically

Matt Murphy: They do a lot and and you know what we're we're in this kind of like tricky period as investors where right now a lot of great companies have uh low margins and you know let's say like 20 to 30% margins and you know they've all they they all probably have a path to get to 60 or 70. Well, you know, a lot of companies just because the cost of comput and inference, it's harder to say you're going to be an 80 90% gross margin company anymore. But, you know, uh great companies are, you know, 60 70% gross margin. But, you know, the path to get there is like, hey, I'm going to do some optimizations. uh you know I don't I'm not completely tied to you know uh to to to inference around you know my cost structure and I'm probably going to do something complimentary to the to the leading labs with my own data and build a model that kind of gets my gross margin up.

Matt Murphy: Yeah, I mean it's tough. I mean, you nailed it, but I mean, what we're doing is a barbell strategy right now, right? So, it's like, hey, when when when is a certain company in a category establish themselves as a leader because, you know, in that kind of 1 to three, you may not even know who the competitors are yet, right? And you're going to pay as if they're going to be the winner because that's just the way the valuations are in that kind of let's say 1 to 10 range. So, we've moved our, you know, we have a fund called inflection fund and we always called it early growth. The real early growth to us meant like 3 to 10 million of ARR. The reality is like for the good companies that window used to last like a year year and a half. Now it lasts like a week or in the case of Max and Lora that's what they do in a day. So uh you know like it's just that that was a hard strategy to keep pursuing. So that's kind of like the menlo inflection classic kind of investment. But really, it's been more to these outliers where they've completely, you know, broken out somewhere above 10 or and that's kind of like market specific where you feel like um they've been anointed the the winner or you believe they will be. But to your specific question around series A, that that's the other side of the barbell. And so what we've done is gone, you know, much earlier.

Matt Murphy: You know, I think Menllo has always had a challenger mentality since myself and Venkey came over a little over 10 years ago and kind of Sean Carolyn came back and and you know, Mark Seagull was the partner who was there who kind of put the band together and ever since that moment about 11 years ago, it's just been a grind, a fight, uh a a build, exhilarating to kind of get to this point. And I feel like everyone we've brought along has kind of felt Menllo move up that stack and be more and more successful. So I think what's driving us is what you would expect less about that monetary outcome. And holy [ __ ] we've put oursel in a place to be one of the hopefully leading firms in AI and how do we really compound and double down on that advantage. And that's the energy I feel every day certainly from myself and all my partners. And I I just can't see that going away. It's kind of like it's kind of like we arrived. We're here. what we what do we do with that? And you know, the money's great, but that's not what that's not why we did all this.