Lead Edge's Mitchell Green: vibe coding won't kill enterprise SaaS — distribution, trust, and integration are the real moat

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I love public company CEO.

We have our dear friend Mitchell, Mitchell Greenge, Lead Edge Capital

coming into the show. Let's bring him in.

Oh, he's here. Mitchell, how you doing? You should have had Dar and I on together. We're buddies.

Oh, you are? That's awesome.

Damn.

Yeah, we should if we we plan better. We'll add you both next time.

Yeah.

How's life?

Uh it's good. It's good. Uh u Yeah. Uh it's we're going all over the place today. We're talking about the market collapse, the end of SAS, uh but the birth of uh Agentic Coding and all these crazy things developers doing. Yeah. What's up?

I got a question for you. If everybody, my partner actually came up with this idea. He's like, "So, if all the if all the SAS company, if all the software companies are all going to disappear because you just like vibe code your way to building one of these companies, well, then can't the next AI company vibe code that AI company?"

Yes. Yes. Yes. And I mean, there is seriously a a push in the open-source software community now to loosely vibe code everything you need. Like, you build all your own tools, you build your own all your own software. This used to be the domain of programmers that would stay up all night for months on end to build a little to-do list app. And now it's much more robust, but we haven't really seen where all of this goes. It's still pretty early. And most people are just building like tools that build more tools at this point. But uh yeah, I mean the iron law of the universe, I don't know if you agree, is like if it goes up quickly, it comes down quickly. There's always, you know, you see these amazing growth charts and you get a little nervous because if it easy come, easy go.

Yeah. It's funny. I think people are people are going to be in for a a rude awakening. I think some people

I mean you were calling this you were calling this the last time

Yeah.

The last time you were on the show, you were kind of more just kind of skeptical a lot of these valuations. So

yeah, I was No, what's funny is is like public market software is not cheap. We're buying it. Like we think companies like work there are incredible businesses. Company like Transfer Wise in the payment space. remittently toast has been crushed. We're not in a company called Apploving, but I a huge gaming company. I have a good buddy who's made billions on it and is now rebying at it. Like these things have just like

Yeah. The crazy thing I was like all sent out at the same time. So

yeah. And you I was looking at looking at PayPal. You have a it's trading at seven times earnings now. When I looked this morning, they have half a billion users. It's it's it's a global payments network. Yeah. It doesn't seem like anything you can just vibe. You're not going to vibe your way to money transfer. Come on. We're going to vibe code it. We're going to build it. We're just going to make by the way. Same with Workday as well. We're just going to vibe code our way. You know, only took Workday 20 years to get companies like Nike and Proctor and Gabble to give them all their ERP data. Of course, you know, Mitchell and Jamie, John and Jamie, and we're going to like we're going to vibe code our way.

Yeah. I think I think people are undervaluing trust right now.

Totally. People forget how software companies like building code has never been the actual like hard thing about a software company. It's not like building semiconductor chips. Yeah.

It is like distribution. People forget you build a piece of software. Y

then you have to sell the software. Then you have to maintain the software. Then you have to add features to the software. Then you have to you know you connect it with other systems. Those systems change. You have to have user permissioning. This stuff is really complex. You know, I'm sorry. The dude sitting in, you know, in on in on Silicon Valley in in a shed on, you know, Sand Hill or in San Francisco who's going to vibe code their way. Oh, I'm sorry. How about the other 10,000 software engineers that, you know, Salesforce has or the 3,000 software engineers at Workday has? I mean, are they just like sitting around, you know, on their thumb?

No. Of course, they're going to try to innovate. And what's going to happen is no different than what happened in 99 and 2000.

Yeah. If you look at the top 50 sellers on the internet today of like the largest e-commerce companies like yes Amazon is one but Walmart, Home Depot, you know,

they made it through Macy's businesses really quickly. You can actually test that thesis empirically by looking at R&D spend of tech companies and how much they actually spend of the money they raise before they IPO on software development specifically. And it's shockingly low, way lower than you'd think. you feel like software company's like pod shops and all these hedge fun all these hedge fun guys and by the way the trade I there's a great chart I could wish I could pull it up which is like um you know it's like software

exposure for hedge funds has gone like this semiconductor exposure has gone like this

and you know usually if you do the opposite of what everybody's doing you'll make a lot of money

okay

but like one one you know one one kind of test you could run is like uh if you're thinking about a company like Workday is if you went to all of Workday's customers right now and you said, "Hey, I can I can I can build this for and I'll sell it to you at 20% of the price." Would anybody actually change switch over?

Because it would be like, "Okay, it's going to be cheaper, but

what if it's like way less reliable? What what if I get what if it's so unreliable or has so many issues that I get fired over it?" Yeah, you know, there are like multi-billion dollar revenue businesses that are literally built to sit on top of companies like Salesforce and Workday to help them manage the companies um to manage the software. It's it it's it's now again, so then you think about like I think companies that are like selling to big enterprises

are actually going to end up great. Now again, you might have the Sears and Kmarts of the world that you know didn't innovate or were overlevered. Look, I do worry about some of these private equity software companies that get way overlevered and if they try to drive too high ebaja margins and s and sacrifice R&D. Now, there are other firms like a Vista like what Robert Smith does and he's actively like they're trying to be like no, we need to like double down on AI and like double down in R&D and these things, but I think there will be some people that are just trying to maximize eBay margins that'll be hurt. And guess what? Somebody will go build the next competitor of that. So then you're like, look, we think about like an area that's probably more right for AI disruption is companies selling into like SMBs because the software isn't nearly as complex. But again,

there are company it's not like companies like HubSpot, which is a great business

that sells into SMBs. They're they have probably a thousand software engineers. They're sitting there trying to disrupt themselves constantly. So it's not I don't know. I think it's

Yeah, it's definitely market by market sector by sector cycle for sure. But I think it I think people just don't truly understand how like software companies actually sell.

Yeah.

Um that just say that people are going to vibe code it away. Now what is incredible

is how fast some of these AI businesses have growing that are built off the tailwinds of some of these companies. Even like a company like a click house which just raised at a big round. We were one of the early investors in it luckily totally by dumb luck. Um like you got like you know we have four investors in Graphana Labs which you know this software company but embracing AI and just had an incredible quarter and

plan and so like

you are you are seeing there are there going to be a bunch of companies in software that that continue to innovate.

Could you vibe code uh could you vibe code equipment share? That was one of your They just they just IPOed.

It's funny. I am vibe code. I was going to vibe code uh car uh collection software, but then I decided since I actually have a job for a living, I'm going to hire somebody else to vibe code it for me.

Total software engineer victory.

Still getting another job.

Actually, some some 18-year-old senior at Center High School is benefiting from this to build me software. Yeah, they're gonna have they're gonna have a job forever because they're never gonna stop buying cars.

They're gonna be maintaining this thing for years.

I'm gonna get you guys in on it as well. So,

Oh, I like that. I'm down.

No, on equipment. Equipment chair. Look, I mean, it's up almost 30% from the IPO. It's uh Look, my partners Tim and Zach,

my my partners Tim and Zach led that deal. Uh I take no credit for it. They did a phenomenal job. Um it's look it's benefiting from you know the ongoing there's a massive if you were to isolate you know capex and infrastructure spend outside of like GDP you know driving GDP growth right now I think it's like a very meaningful part um highways energy products data centers um I think another big thing that's going to drive a lot of capex is this this uh you know accumulated depreci this accelerated depreciation

and the big beautiful bill that will benefit people like equipment share And to put it in perspective, I think companies like equipment share you in the S1 uh because they haven't filed results yet. I think last quarter, you know, in the S1 result in the last quarter, the S1 and the S1 was like grow at nearly 30% a year. Yet you have companies like United Hertz and Sunbelt that grow like single digits and yet these things trade at almost similar ebid margins. Now the reality is is people that tend to buy companies like Equipment Share Hertz Equipment are not used to businesses that grow 30%. So they need to just like continue to put up results and I think they'll they'll get the they'll get the multiple expansion over time. But they are it is like a great second derivative play on AI.

Mhm. Totally.

In the public markets when you look at a software company um it feels like a lot of people are looking at you know is topline accelerating that should be happening if you're a true AI company. You're also looking at stuff like are you overleveraged? Then you can also just talk to the management team and if that doesn't sound like they know anything about AI, you could be very, you know, skeptical of the company. How do you think about when you find a new company, uh, what what research, what's your process for understanding how they'll be positioned over the next couple years?

Yeah, that's a great question. I think what we should do is just count the number of interns they have correctly because uh you know 24 year olds and 22 year olds are going to know more about this than 50 and 60 year olds and 40 year olds like myself. No, all kidding aside, we

the way we think about it is we just think of how is this like squarely in an area that could be like very easily disrupted by AI. We we just s and like how deeply is this product integrated? how many people are using the product is it is a result of stuff coming out of do they own their own data um you and I think we just we think about how complex the product is to build um you know like we talked to a company that's growing like a rocket ship

and that makes um like software to help like voices in call centers

and and for us it's grown like a rocket ship we're just like but they sell into call centers

could the call center software companies just build this themselves like and then it's like a function of okay well what valuation then do they want and then you dig in deep and it's like and I'm not saying this one way or another we have do they have like one or two customers that are 30 40% of sales

concentration you know we were we were looking at a company recently where like 40% of their sales is to a company that you know we're pretty skeptical on whether it should exist in 10 years and it's like you know 30 40% of their sales.

Yeah, that makes sense. It's kind of like a dying gasp from that bigger company and they're sort of sneaking the money out the back through this new startup. Uh talk about the IPO window. Uh feels like it's been open. There's a lot of rumors about the big company SpaceX uh OpenAI Anthropic, but what does it mean? I mean, you saw Equipment Share like what what's your take on the IPO market and where it might evolve over the next year?

Good companies can go public at any time. Okay. Except like,

you know, equipment share is up 30%.

Yeah. Like boy, it was a great it was a good deal.

Yeah.

Um I I think I think what's going to be very interesting

about some of these giant I equipped show is like a billion dollar deal.

It's sucking liquidity out of the markets like we're going out and raising $200 billion.

Yeah. A lot of people seem super confident that that uh the the market will fully support SpaceX anthropic and open AI

David Gogggins market. We shall see. By the way, the money has to come from somewhere.

Yeah.

So you have to say, is it going to come out of cash?

Is it going to come out of treasuries?

Is it going to come out of Google, Amazon, Facebook, Microsoft?

Yeah.

Probably the reality is is a company like a SpaceX or an Open AR, an anthropic or a Stripe or let's say let's use like Bite Dance. So B and by the way, Bite Dance trades has massive amounts of earnings. You know, the negative is it's China, right?

Yeah. Um but the positive error is it has massive amount of earnings and you know you can get to a giant number like valued like SpaceX of a fundamental earnings number.

Yeah.

So you're like where is a $150 billion going to come from? And so in that one you probably say well

it would probably attract new money back into China. Yeah. But then might people pull out some pull some money out of 10 cent and pull some money out of Alibaba or Google or Microsoft to get exposure to this thing? I'm sure in the case of a SpaceX, it would take money out of a um

you know it would take money out of Tesla because it's like Elon die hard forgivers. But who knows, maybe he's just going to merge you know SpaceX and Tesla together. They'll have to then change it to the Elon Musk company.

Yeah. Yeah. Yeah, I think I mean I think Tesla shareholders would have been uh very frustrated to get XAI merged in,

but getting SpaceX merged in

and maybe you got a little X.

I know nothing. Would it shock me if it happened? No.

Someone in the chat just said that AC the ticker X just got reserved at NY. So, we'll see what that means.

That's exciting. Uh what do you think of the secondary market? When when I when I moved to Silicon Valley, it was like seen as a total bare signal if a founder CEO was selling stock at the early stage. Now companies stay private for so long. There's mass massive secondary sales. Elon's been a master of, you know, liquidity, keeping SpaceX private for 20 years. How is the secondary market evolving? What are you seeing?

It's definitely evolved uh a lot. When I started working at Bessmer in 2004, 2005,

you know, it was a very, you know, it was very,

you know, world-class venture funds were like, oh my absolutely not. You should not let secondaries and I got into my first investment ever in 2009 in a company called Bizarre Voice

doing a secondary. Uh, now I will tell you most deals have a secondary component. It feels a little bit frenzyish right now like the Facebook Twitter um back then. Uh it it is I was just at an investor conference yesterday uh speaking in in Arizona and it shock I had multiple people come up to me like the institutional investors like like random companies pension funds that were like oh what do you think of anthropic? We're like buying into it here.

Yeah.

Like oh this doesn't end well. Uh not just for like this I didn't mean an

anthrop is one of those signals when like the the person who's not a professional investor is talking to you about things that feel like professional investments.

Yeah. I got even a better one. uh one of my big institutional investors, fantastic guy name will be uh not said, but

he's like we you need to start a micro secondary fund that will buy secondary interests in these tender 30 act funds. Uh you know, you have like you have like the co the new cotu fund and the vista fund and all these and there's a huge wave coming.

Yeah.

And and basically they offer like

quarterly redemptions like you can take out like five or 10% a year. It's what like Bri was, right? And then but occasionally if there's too many people that want to uh redeem, you have to gate them. But you never want to gate.

But when do you think everybody's going to gate? Like everybody's going to all the dentists and doctors are all going to pull out at the exact same time. Y

and my buddy was like, "Oh, you should start a sec a micro secondaries fund to buy out their interests in all these interval funds when they all when they put it when the gate comes up and all of them want out at the same time and they're like, "Wait a second. We can't get out. We're locked up. What do you mean? I thought this was like liquid."

Yeah, totally.

It's coming. Don't worry.

It's Don't worry.

What do you What do you think uh what do you think Ferrari the business is worth?

Oh, boy. I thought you were going to ask me what I thought of new car. Lewis was Hamilton was fast at Dustin at preseason Dustin. Um,

it's an amazing business. The stupidest thing I ever did was buy the cars and not the stock.

Um, I actually have several friends that I race for our challenge with

that bought the stock at the IPO and now they slowly dribble the stock out to buy cars.

Wow.

It's an amazing brand. I don't know what it's

only it only IPOed in 2015.

What is the stock like? I mean, what's what's Ferrari stock price now? Stock's down 10% in the last month. It's a $63 billion uh billion building a Ferrari factory.

The nice thing is you can't uh Yes. Do

you can't vibe code,

but it's up 500% since the IPO.

Yeah. Right when you got into cars, you should have been getting into the Yeah. What what advice would you give to someone uh just getting into venture, private equity, raising a fund, looking at opportunities? Uh we're seeing this like Kshape right now with the mega funds scaling up. Feels harder than ever to start sort of a midsize fund. What what what are you seeing that's interesting that new managers are doing?

That's a great question. I'm going to steal a word. I'm going to steal a line from Jeremy Levine who's a senior partner investment venture partners and probably one of the best venture capital gaps over the last 25 years. You guys could ever get him on. He's incredible.

Um like an amazing investor was like the very early investor in Pinterest and LinkedIn and Yelp and like Shopify that with Alex Ferrar like the total stud. He said to me, I would always complain about what they were paying me uh at the time. And he's like, "But Mitchell, you're learning a lot." And so, the most important thing is actually to go find if if you're trying to get into this industry, and I think there's too many people that are young starting funds and they're going to actually like or entrepreneurs and have actually never really professionally invested. I I would actually tell you you're better off going to find the apprenticeship

and like and literally go find an amazing venture capitalist or venture capital firm that you can go work for. Convince Sequoia or Benchmark or Mike Maples or Josh compliment it first like guys that have been doing this gals that have been doing this Theresa G who have been doing this for a long time and go shadow him for two years. That's how you're going to really that is honestly the best 10 or 10

like so so many

Yeah. A lot of people get into these funds two years later I'm I'm raising my own fund. It's like you haven't seen a full

cycle going like may maybe you're a good investor, maybe you've made some good angel bets, maybe you did a couple years at a fund already, but going and saying I'm going to do the the the path of doing the 30 to50 to 100 million to $200 million fund. Like that is like uh

it's tricky especially where prices

I mean I I give Harry at 20BC a lot of credit. Like he started off in the podcast. He like hustles his way like I'm sure you guys are going to get to start to see like really interesting deals from doing this. And that doesn't mean in like 18 months from now you're going to go start a fund.

No.

Um yeah, I think it's people confuse angel investing and being successful at angel investing with all of a sudden if you get 100 million bucks you'll be really successful. Um, it's really really hard and I think people need to find mentors and go work for people that have that have invested as you through cycles 100%.

What uh what does it take to actually be contrarian because it's it's a it's like whenever you know it's such a popular word in this industry now. Everybody says they're contrarian and yet of course only

that's consensus. consens. Yeah, exactly. Um, and so I feel I feel like it's something like humans have an innate sort of instinct to kind of go with the herd and and% and and so you have to like fight that, but how do you fight?

Steve deep Steve Cohen has always told me if you want to know where the stock market goes, Mitchell, he's like, "Look, he's like you got a lot of smart hedge fun guys in your fund, you know, himself included. Ask us all where we think the market's going. Like eight of us tell you one thing and two say the other. Please call me and say what the two said."

Yeah.

That's where it's going. like the market causes the greatest amount of pain to the you know greatest number of people. Well, yeah. And to be honest, right now the re if you looked at at X, you would say the the consensus view is that AI is in a bubble and then we're going to have this massive correction

and the contrarians are saying, you know, are the runes obviously he's very incentivized. Dylan Patel is saying like people aren't prepared for the load.

Yeah. Well, my view is is my view on all that is good company and good investment can be two very fundamental things. Like you may wake up in 5 years and anthropic is worth 300 $350 billion, right? It's $350 billion. Uh I want to go back to the contrarian thing in a second. Um

people are underestimating over the next 10 to 15 years what AI is going to do. Myself included, every one of your guests included.

Yeah. in 2000. I could have sat on your show if it was around and nobody would have talked about the $3 trillion of social media that's been created value. Um yet people always overestimate the near- term. The bubble will pro whatever bubble we're in will be different than 2020 and 21. It'll be different than 99. There will be some correction. Nobody will be able to predict when it happens and the correction will just happen. But then that is probably the best time to then buy a bunch of these names uh and hold on to a blunt grid. How do you be a contrarian? I don't know. You'd be like Lindsay Vaughn and tear your ACL and try to get now go win an Olympic medal. You you know I I think people that have I think contrarians tend to be people that understand like how to take very calculated risks um and and are are not afraid of doing that. So like what we look for in our analysts that come and work here, you know, cold call companies all day long. You know, by the way, the good CEO doesn't call you back. It's a CEO you call every 10 10 times and calls you back after 10 times. Like that's it's it's like grit, persistence, not being afraid to be different. So like you look for like athletes, I'm sorry, but if you drop the ball at the Rose Bowl like you have faced adversity.

I'm sorry getting a D on a test is not adversity. Like you know, but like that's why I think like a lot we like a lot of like athletes. Yeah. or like people like that were really big in like arts or music or just doing something different. Being a straight A student is not different, especially with great inflation.

Talk about the differences culturally between the hedge fund guys, you know, and the venture capitalists. I was reading uh Dan Wong was talking about how in the hedge fund world, you're wrong five times before breakfast because everyone has a different thesis and then it's immediately proved right or wrong. So you get more used to being contrarian and everyone wants to find that edge whereas in Silicon Valley there's a little bit more in incentive to go with the herd because you can just ride the wave. Um what else have you seen and do you agree with that take?

Yeah. Yeah. So hedge funds it's like I think a very very generalist view like extremely generalist view. Yeah.

Um

broad view. What I would say is I think if you were to take the best hedge fund managers I know

Mhm. and the best venture capitalist I know.

We've been fortunate to like partner with a bunch of people, work with people, have people back us. I would tell you that in three month or six month increments, I think the smart the hedge fun guys are smarter

and like have a better sense of where the world is going. But I think over like a a 5 to 10 year period, the the venture capitalist have a better view just in general like how they think.

Makes sense. Yeah. Kind of aligned with the business. uh contrarian takes. I saw one here. The center of gravity is shifting. More innovation is happening outside of Silicon Valley with countries outside the US producing category leaders earlier in their life cycle. I read that I felt like I disagreed with it. Defend it.

I in a world if you believe AI is coming and it's easier to build software or build whatever. Well, who says you have to be in Silicon Valley where it's really expensive to live? It's really expensive to get talent.

You can be able to build it anywhere. Look, people have built now public companies that are completely, you know, graphed by the way is a big business.

Yeah.

And it's completely distributed. Like there are other big companies like and if you talk to people like Dell and Microsoft, they will tell you that they've they've shut down a lot of like small small regional offices and just have people work remote. So I think in actually the more you believe in AI, the more actually stuff could come out of application layer. I think at the models at the at the model level um it becomes about recruiting the best like you know PhD tech level talent and stuff like that but just to build application companies I think you can build them anywhere.

Yeah. Yeah. That makes a lot of sense.

Jordan, anything else?

Uh this is great.

What uh what's the update on on the racing side?

Did you watch the Rolex 24?

Yeah. Any any reaction?

Watch part of it.

Why weren't you why weren't you racing in the Rolex?

Couple years. Couple years. A couple more years. Um, we need

I uh was so race season we had our first race for Ferrari Challenge kicks off in like the middle of March.

Awesome.

Uh at the thermal club uh outside of Palm Springs where you guys have been.

Very cool.

I'm actually going to race a support race at Lemons this year.

Nice.

I'm going to race the Monaco vintage races in an old F1 car.

Nice.

Great.

My goal is to run Lemons in the next like five years. Okay.

Like 24 hours at lemons.

Wow. That'll be amazing. We'll be

You know you got You know the guys you got to have come on here though cuz you like cars. I don't really know him but George Curts is like he's a sponsor.

He's very good. Yeah. Yeah. Yeah.

Yeah.

No, his his race at at Daytona was insane. I mean from getting taken out in that opening

corner to uh getting the win.

Yeah. Absolute legend. Well

F1's gonna be F1. It was funny. George Russell was talking

that he thought F1 I thought I saw like a interview with him where he thinks it might be a lot closer this year because there's a bunch more teams that could be in the mix. It's still obviously very early on, but like the car that Adrian Newi built at at uh for Aston Martin is totally wild. Yeah. So, it'll be fun.

We're putting we're putting together a market map of F1 teams based on the tech companies that are sponsoring them. So

that's that's amazing. By the way,

because there's I mean I think uh

the easiest way to understand motorsports are definitely a beneficiary of the AI boom so far.

You guys got to come to you got to come to an F1 race.

We're excited. Yeah, we we were in Vegas. It was fun. Well, yeah,

I'm assuming we'll be at all three American races.

I hope so. I hope so.

Cool.

Anyway, have a great rest of your day, Mitchell.

We'll see you soon, Mitchell.

Cheers.

Goodbye. Let me tell you about Graphite