Rippling vs. Deel Lawsuit: WTF Happens Now? The Future of the Late Stage Private Market

Summary

• Chime’s IPO reprices the entire late stage. The company is genuinely good — $1.67B 2024 revenue growing 30%+, 8.66M actives, two-thirds using it as their primary account — but with the last private round at $25B and a likely IPO valuation “plus or minus 10 billion,” it’s going public roughly 50-55% below the last round. The caveat investors should clock: 75% of revenue is debit interchange riding Durbin amendment arbitrage through sub-$10B partner banks, and “if you’re Jamie Diamond, you wake up every morning spitting mad.”
• Ratchets mean the 2021 vintage never raised what it thought it raised. Rory’s framing of mandatory-conversion price protection: “You didn’t raise money at 25 billion. You thought you raised money at 25 billion. But in fact, if you go public at 12, you raised money at 12 and you just didn’t know it” — the true cost of that capital was double what the founder believed. Fully protected late-stage investing becomes “the world’s best business”: the only risk is overpaying, “and now it can’t go wrong anymore.” Harry’s conclusion: “seed is for suckers.”
• The IPO decision is purely a cost-of-capital decision. Lenders and financial players should go public because they need continuous capital access; Stripe, SpaceX, OpenAI and Anthropic have “infinite private capital at dirt cheap rates,” so why bother. Meanwhile the LP pressure is building — a retired LP described as one of the top 10 of all time told Jason flatly: “These guys just got to sell or go IPO. It’s just time” — and that cascades LP → GP → CEO.
• This is not the M&A year. Two of Jason’s portfolio companies got $500M offers; both acquirers walked rather than step up, one buying a ~$100M smaller competitor instead. Rory’s darkest line of the episode: “We make an embarrassingly large percentage of our money once every seven years when you’re in the white heat of must-acquire must-own high growth venture assets… That’s probably not this year.”
• Top exits grew sharply — but only because companies stay private longer. The VenCap (likely) analysis shows 99th-percentile exit value growing from $1.4B (2005-09) to $10.2B (2020-24), yet Luke’s read is it’s “just math”: compounding plus dispersion. If Google had IPO’d one year later, the record 2004 exit would have been ~$140B, not $23B. The actionable version: statistically 80% of the time you should sell at the last round price, but the 20% covers everything — and Luke’s new seed-manager rule is “at 2 billion, sell unless you’re 100% sure” it’s a SpaceX.
• Rippling wins the Deel lawsuit — and the counterclaims signal it. Luke puts it at 100%; the others agree Rippling likely prevails if it goes to court. Luke’s litigation mechanic: counterclaims work as damage offsets even when they couldn’t be brought alone, so “all those counterclaims, ironically, are a sign they’re going to lose.” Rory’s universal litigation advice: lawyers change their tune “right around $2 million of legal expenses,” so “settle this thing by Friday” — especially with allegations that “could be interpreted in a criminal fashion.”
• The AI trade: own the anchor tenants, fear the database-ification of SaaS. Anthropic’s run rate went $1B (Q4'24) → $2B (Q1'25) with customers up 8x; OpenAI will burn “at least another 44 billion” to profitability in 2029; one growth investor is trying to buy “every employee’s options” in Anthropic with $5B of LP supply. Meanwhile if MCP really works, Box, HubSpot and Salesforce “just become databases” — though Rory says the replacement cycle runs 10+ years, and Oracle proves a database can mint 43% operating margins. Chegg — $12B to $95M — shows what happens when you’re on the wrong side.

Deep dive

1. Chime goes out at half its last round — and it’s still a great company

• The market backdrop that makes the timing rational: despite “the weirdest market ever,” stocks sit only 3% off all-time highs after “the fastest bounce back in the last 20 or 30 years” — up 17-18% in two or three weeks. Jason credits Chime for shrewdness: they kept the S1 on file through the chaos, effectively saying “weird shit happened, but it appears to be over. Proceed as normal.”
• The business case: internet-cost banking lets Chime skip overdraft fees and monthly nickel-and-diming, making ~$250 per client per year, with 75% of its money coming from debit card fees. The numbers: 8.66M active users, two-thirds with Chime as primary account, $1.67B 2024 revenue growing 30%+, after “a very consistent plan for 10 or 12 years.”
• The one asterisk — Durbin amendment arbitrage: around 2009, banks over $10B in assets can charge only ~50bps on debit; sub-$10B banks charge ~1.2%. Chime partners with small deposit banks to capture the higher rate on identical product. No sign of change, “but I got to believe if you’re Jamie Diamond, you wake up every morning spitting mad that these dudes are able to take your customers.”
• On price: the last private round was $25B; Rory thinks the Information’s $7-8B estimate is low, but “plus or minus 10 billion” still means going public 50-55% below the last round price.

2. “You thought you raised at 25 billion” — ratchets and the true cost of late-stage capital

• The term that decides who eats the markdown is the mandatory conversion clause in the articles of incorporation — the IPO equivalent of liquidation preference in M&A. Rory’s larger point: a late-stage company almost never blows up, so the only risk is overpaying — and if you negotiate price protection, “then it’s the world’s best business. There’s only one thing that can go wrong, and now it can’t go wrong anymore.”
• The founder-side lesson, verbatim: “You didn’t raise money at 25 billion. You thought you raised money at 25 billion. But in fact, if you go public at 12, you raised money at 12 and you just didn’t know it.” Harry extends it: the cost of Chime’s $25B raise “was twice as high as you thought at the time because you didn’t give away 4%, you gave away eight” — and the whole late-stage market may be misjudging its cost of capital the same way.
• Rory refuses to moralize about ratchets: if Sequoia (Capital Global Equities), SoftBank, Tiger and Dragoneer (likely) came in at $25B and Chime ratchets to $10B, the founder takes ~3% dilution “but you still won the bet because you got the money.” He’s so resigned he’s stopped reading late-stage documents: “I just sign them and it doesn’t matter what I think.” Harry’s takeaway: “seed is for suckers — you can overpay by double and still get your 1x protected.”
• What late-stage investors actually risk is IRR, not capital: at that stage “90% plus of their deals should be a 1x plus IPO pop,” but a 2021 investment distributing in 2027 is “six years to a modest return.” Rory pinpoints when IRR-thinking takes over: the hedge-fund crossover crowd “literally use different language — they say I want to return 30% a year,” roughly the last three or four years pre-IPO, when the alternative use of capital is public stocks.

3. The IPO decision is a cost-of-capital decision, and the LPs are losing patience

• Jason resists reading Chime as a window signal for everyone: this is “a top-of-the-line revenue scale company” bigger than maybe 90% of talked-about IPO candidates — but the billion-plus revenue cohort now clearly has a choice, and each must wrestle with “did I give away price protection? Did I raise at a high price? Am I willing to take that kind of hit?”
• The lender-versus-Stripe split: a lender at scale “should go public much sooner than OpenAI or Stripe because they need access to continuous capital” — especially with growth decelerated to 13% (per Harry’s partner Paul’s analysis) and borrowing costs way up. The anointed don’t need to: “there are more options for cheap private capital if you’ve got the sex appeal of OpenAI than if you don’t have the sex appeal of buy now pay later.” Harry: “most companies are more like the lender than OpenAI.”
• Jason’s field report carries the pressure signal: a retired, legendary LP went through his portfolio at EF’s demo day and said “these guys just got to sell or go IPO. It’s just time” — from someone who pioneered going long. “When I hear that from one of the top 10 LPs of all time… it may trickle down to the CEOs.”
• Luke’s structural answer for why the best stay private: “People respond to price signals. CEOs respond to cost of capital signals. And there’s no doubt that bizarrely enough, the cost of capital in the private markets remains cheaper than the public markets.”

4. M&A: acquirers aren’t stepping up, and venture’s money comes once every seven years

• On the apparent contradiction between Orlando Bravo’s “cold quiet year” and Salesforce buying Convergence (a London company less than a year old, for nine figures): both can be true. Rory: “prognostications of what’s going to happen in the future are pretty worthless, including mine.” Small AI acquisitions by scared incumbents will keep coming; PE buying venture portfolios won’t — “they’ve got a fair amount of indigestion from the stuff they already have.”
• Jason’s tell from inside the portfolio: two companies got $500M offers from tech leaders who “could afford infinity” — one just above the last round, one just below — and both buyers walked rather than step up, one buying a company that had raised $2M for ~$100M “because it was just easier.” “To make money in M&A you need folks really stepping up… they’re like, ah, Rory did the last deal at 700, I’m going to pay 2.1. If that don’t happen… it kind of collapses a little bit, venture.”
• Rory’s framing — worth keeping whole: “We make an embarrassingly large percentage of our money once every seven years when you’re in the white heat of must-acquire must-own high growth venture assets. And the trick in the other six years is surviving and keeping all the little companies alive and growing nicely so that when that moment comes you have inventory to sell. That’s probably not this year.” The exception proving the rule: Wiz “created all the leverage, played it perfectly.”
• The fund-returner riff: Jason averages ~10% ownership in those two companies, and still — “A fund returner is not enough, man. We don’t get out of bed for a fund returner. A fund returner just returns the fund.” His alternative benchmark: a fourth house among the Marylebone carriage houses. Luke: “Then you should start a podcast, buddy.”

5. Top exits grew sharply — but it’s just the math of staying private longer

• The analysis Harry raised (from VenCap, likely — Luke emailed “David” for the underlying data): 99th-percentile exit value grew from $1.4B in 2005-09 to $10.2B in 2020-24. Luke’s first correction: it’s not a clean linear trend — the 2000-04 period’s 90th-percentile exit ran as high as $3.3B, so exits dipped for a decade before exploding.
• The mechanism is unglamorous: “It’s not that things are getting better… the longer you hold the company, the more compounding takes place, the more dispersion takes place, the big get bigger and the shittier ones are crap. It’s just math.” His counterfactual: the biggest 2000-04 exit was Google at $23B in ‘04 — “if the Google CFO had had a heart attack” and the IPO slipped a year, Google’s ~$140B end-of-‘05 market cap “would be swamping the entire data.”
• What it does and doesn’t prove: “the bigger your fund, the more imperative it is you have to be in those six deals, which explains why capital is so easy to raise for those companies” — but it does NOT show all the mega-fund math works. His test: 2020-24 had two exits at $65B+; “if there’s not four exits above 65 billion in the next five or seven years, then the people who bought Stripe, SpaceX, Databricks, OpenAI and Anthropic are screwed. So I don’t think they’re screwed.”
• Harry’s unease survives the exchange: “there’s so few companies in that 99.9 percentile. It’s a world of concentration unlike any that I—” — and Luke concedes the point: the direction of travel is clear, “does that translate into all the funds making enough return… not as clear.”

6. Hold or sell a unicorn: the 80/20 math and Luke’s $2 billion rule

• Luke imports Mary Meeker’s old IPO analysis wholesale: “private late-stage companies in 2025 are just the same asset class as IPOs in ‘95 to 2005.” Statistically, offered liquidity at the last round price, “80% of the time you should sell… but 20% of the time will cover all everything else. Compounding is a very forgiving thing.” If you can’t pick, “it is a matter of mathematical truth that the second best alternative is holding them all, provided you have one of the good ones in there.”
• Luke’s counter-rule for seed managers: “at 2 billion, sell unless you’re 100% sure you shouldn’t… unless you’re sure it’s a SpaceX. Being in that 80% is not so great, is it?” He agrees the private-for-longer era “made it harder for most investors and most funds” — you may still have to double down 10-12 years in, with smaller portfolio counts than the math wants, which is why “the whole push towards taking money off the table as a secondary is just smart.”
• The portfolio-company hold-side exhibit: the investor owned 30% at IPO — worth $2.4B against probably a $250M fund — LPs were mad they held, and today the company is worth $40B by Luke’s telling. “Created billionaires by holding. But how do you know?” His honest answer: Peter Gassner “was like fucking off the planet in terms of quality as a CEO” — but “I didn’t have the numbers.”
• Luke’s real-time realization about why dead IPOs poison capital allocation: publicly, the GP distributes, holds their own, and LPs choose — “choice leads to optimal outcomes.” Privately, “I either have to sell now, which maybe is not what I want, or ride it out for five years, which is maybe not what my LP wants… that’s inducing some tension in the system.” Harry adds taxes alone push GPs to hold.

7. Fixing public markets: time-based voting, and why the fix won’t come from rules

• Luke’s one structural idea: time-based voting (floated for a new Texas exchange) — share weighting partly based on how long you’ve held — to blunt short-term arbs piling in and forcing short-term decisions. On quarterly-call anxiety he admits defeat: “I’ve never found a way. Google for a long while did that by simply not doing them.”
• Harry’s pushback — is it really so broken? Aaron Levie suffered “huge headache” activists at Box, but Brian Halligan told him being public at HubSpot’s $30B scale is “not that much more work.” Luke’s concession: “your point is actually the right one, not mine, frankly” — though “the companies that do precisely the best are precisely the ones who are in a position not to do it at all.”
• The bottom line loops back to economics: “If the capital were more expensive in the private markets than the public markets, then most CEOs would go to the public markets.” He predicts no return to $100M IPOs, but “more of a normalization on your choices between public and private” once ratchet-inflated private prices get marked honestly.

8. The predictions-marketplace round: OpenAI’s nonprofit, GPT-5, and why Deel should settle by Friday

• Will OpenAI stop being a nonprofit? Harry’s skepticism is about power: “The folks I’ve seen on nonprofit boards, they’re not going to give up this power… there’s no money in it. So it’s all about the power.” Luke disagrees on the diagnosis — the nonprofit halo was deliberate talent strategy: “it’s no accident that the two companies that have been most successful, OpenAI and Anthropic, embraced that… the most important audience was talented AI engineers” who “shared the religion.” His bet: yes — Brett Taylor untangles it into a PBC with the nonprofit one level up, via “some half-ass cobbled compromise” and “a wild and wacky journey.”
• GPT-5 revealed this year? Luke says no — despite talent that’s “so next level” and the consumer logic of merging models (“I can’t even tell them apart”), “it wouldn’t surprise me if it pushes a year or longer.” Harry takes yes.
• Rippling v Deel: Luke at 100% — “They stole trade secrets. This is a classic case. They’re going to lose.” His litigation mechanic worth saving: counterclaims can offset damages even when outside the statute of limitations, so “you put everything in a counter claim… All those counterclaims, ironically, are a sign they’re going to lose.” The innocent-CEO tell: you do what Sam did with Elon — “Sorry we misunderstood each other, Parker. Happy to have a beer” — you don’t flee jurisdictions. Harry’s disclosure, on the record: he’s a Deel shareholder, Alex is a dear friend, and “Alex has actually been abroad for many years.”
• Rory’s settle-everything sermon, from experience: your lawyer says the case is great, then “right around $2 million of legal expenses” the tune changes — “the day before court they’ll be saying, ‘Remember I told you it was a 50/50 bet.’” With allegations that “could be interpreted in a criminal fashion,” his hypothetical move as Deel CEO: “how much money does it take to settle this thing by Friday?” His wife, a criminal defense attorney: “the worst defendants are defendants who start talking about principles.”

9. The SaaS event’s happy grim reaper: AI replaces the bottom 30% and nobody mourns

• Jason’s read on the event: “50 times more energy than last year… the end of the Debbie Downer era” — helped by banning the past across all 300 sessions (Harry’s idea): AI today and tomorrow only. Harry’s historical rhyme: after the dot-com crash, even survivors were so scarred they “lacked the capacity to think big again — and many of those companies as a result didn’t make it.” The mandate: “This whole ‘SaaS is dying’ is bullshit. It’s changing and you better be AI forward or dead” — 2025 has to be about reaccelerating growth.
• From the CMO event, the quote investors should sit with: everyone recognizes “20 to 30% of their team’s going to be replaced with AI and they’re happy for it… no one was regretting the impact on culture. They were embracing it: how soon can I deploy tools to migrate out the bottom 30%?” Harry’s tag: “it’s not just that he’s the grim reaper, he’s the happy grim reaper — I love my work, let’s do some reaping” — while noting the benign spin (grow 30% without adding headcount) “won’t actually happen that way.”
• On Microsoft open-sourcing VS Code, Jason reads it as relative weakness, not strength: “if you had dominance already, you wouldn’t feel the need to — they’re not going to open source Windows.” For Cursor and Windsurf, Harry says: “you got to give yourself an attaboy. You punched hard enough on a $2-3 trillion market cap company that they felt the need to make this move.”

10. Wedges, moats and the model layer: apps risk becoming “just databases”

• On AI SDRs, Luke separates the questions — do they work, then where does value accrue, “in roughly that sequence.” What works now isn’t the marquee email but “all the work you should be doing but you never get around to” — the trade-show leads nobody follows up. That alone is “a 50% idea.” His portfolio-wide rule: vendor and customer need “a mutually agreed figure of merit on what success looks like… if not, at some point you’re going to churn.”
• The crowded-category tension: Jason counts over 18,000 note-taking apps (per CB Insights, as he tells it — he’s personally in seven), yet Otter just crossed $100M revenue. Harry’s answer is the Gong template: voice as wedge, then forecasting, CRM updating, a stack — while Luke’s run fast deals thesis is to operate on the assumption that three to five years from now the core thing you do is going to be commodified, and use the magic moment to get the distribution. Luke’s self-deprecating warning against TAM snark: “I can remember being a snarky little 30-year-old VC making snide comments that Amazon was just a bookseller.” And the live portfolio dilemma from his partner meeting yesterday: a commodified market with lots of revenue and 10 named competitors versus a high-IP, no-revenue N-of-1 — “I don’t want to wake up with every deal being GPT-plus and 27 competitors in three years.”
• Behind the app churn, the model providers are “the best businesses,” right? Anthropic run-rate revenue grew from $1B in Q4'24 to $2B in Q1'25, 100,000+ customers up 8x — “a distant number two in some ways” but jaw-dropping. Jason relays a growth investor already holding Anthropic: “I’m trying to buy every employee’s options… I’ve got supply from my LPs for five [billion].” Luke: “I don’t buy the commodification argument. There’s going to be two or three of them, not 10… they’re the anchor tenants of the AI economy” — the Amazon/Azure/Google Cloud of this cycle. The offset: OpenAI says it will burn “at least another 44 billion” before profitability in 2029 — “the old Amazon thing on 18 doses of steroids.”
• The incumbent question, sharpened by Chegg ($12B to $95M, third layoff round — “why would I pay Chegg when I can literally type it into ChatGPT?”): Jason’s MCP thesis is that if it really works, “I’ll barely even know Box exists… all these apps we think are so great because they’re databases instantly become vulnerable because they just become databases. And I think they know it.” Harry’s pushback — only on the word “instantly”: “assume the replacement cycle plays out over 10 plus years.” On Salesforce he holds the stock: the power of incumbency is Oracle — “not only is it just a database, it is a freaking database” with what Rory thinks could be a 43% operating margin and Larry between the first and fourth richest man on the planet. “We use Salesforce in our shop here. I think I’ll be dead before we whip it out.”