Hi, I'm Eric Newcomer. And I am Madeline Rinbarger.
And this is the newcomer podcast.
Each week, Eric and I discuss the VC deals and the drama that
went down. Let's do it.
Here we go. All right.
Let's dive in, jumping into the deals that defined last week.
AI legend Fei Fei Lee, who's been the huge thought leader in
AI, is doing her own company. Why wouldn't you?
She raised $230 million to build large world models to interact
with 3D space, came out of stealth and raised from a who's
who of venture capitalists Andreessen Horowitz, NEA,
Radical Ventures and includes, you know, big names like Marc
Benioff, Jim Breyer, Ron Conway, Jeff Dean.
Yeah, I'm not going to read them all.
Lots of them. Fundamentally, this is what,
robots plus AI, right, Maddie? I mean, this is a world you've
written a ton about. Right.
Yeah. I mean this is a really booming
space within as a sub sector within the AI funding rounds
that we've seen robotics and foundation models that can help
translate into movement and physical space and understand
the world beyond just self driving cars.
It's something that's been AI has really provided a big
breakthrough for. So it seems like there's lots of
different companies playing in this space.
I will say there's, you know, physical intelligence.
Locky Grooms company alongside some other cofounders raised a
sizable round earlier this year. And then there's several other
smaller ones that are doing more kind of specified in factory
robotics versus humanoid robotics companies that we're
also seeing. And there is kind of a debate
around whether humanoid is the way to go or we should build
different kinds of robots to handle these models since robots
are not humans. So maybe we should, you know,
build things for their specific tasks rather than try to
replicate a human assistant. Although the human assistance,
you know, fulfill a sci-fi fantasy for some people.
So that's cool. It's a huge round, lots of
investors. All right, that was Fei Fei
Lee's world Labs for our second notable deal defining this week.
I think you're going to take us back to my old neck of the
woods. I I use once covered delivery
very fastidiously. Anyway, what's what's the?
Deal Yes, we're jumping back into the heyday of delivery
companies. If you remember in 2021, there
were quite a few of these rapid delivery startups, one of which
was Flank, a German company in the space, and they raised 150
million in new funding from investors.
Bond Mubadala, a Scandinavian supermarket giant, all jumping
into this round. And I think what's most notable
to me is how far the valuation has fallen.
This one places it at just under a billion, but this was a
company that was valued at 5 billion in 2021.
And there have been a lot of competitors that have been
acquired or just fallen out of the space, especially as you
know, rapid delivery costs seem to be it's it's a tougher
business than yes, this is go puff getter that space ultra
fast delivery where they stock warehouses with specific items
and then drive drivers get it to you as quickly as possible.
And it's one of those things that just seems much tougher in
execution when it comes down to it.
But obviously Flink has held on and has still running a
business. But it just seems like the
margins don't look as frothy as they once did, you know, back in
the day. It's amazing how much of the
narrative just forgets about these companies.
You know, I, I feel like they never got to the level of Uber.
I mean, it's sort of like Lime in the scooter businesses where
they seemed crazy. I mean, I, I would say 1
similarity between the scooter businesses and these is they
require actual spending. They're not like Uber was
fundamentally a marketplace with sure, a lot of subsidies and
other costs. It burned through billions, mini
billions, 20 billion plus. But it's still like you could
see how it could cut them all away and have a marketplace at
the end of the day. Whereas if you have to build
warehouses or you have to buy scooters, that's a tough
business. And you know, we don't even know
the terms of this round. It's like under a billion
raising 150 million. I imagine that's it's a tough
round. It'll be interesting to see if
there are any soft landings in this space at all.
It's a tough round for sure. And I do feel like there's been
kind of entrance outside of the US that have gained more
traction. Several of these companies are
based in India as well, where they've seemed to have more
success. So it could be just that it's
not a market for US consumers. And if you take a more global
approach, obviously Flink is from Germany.
So they could have, you know, some staying power in a market
outside of the US and that could be enough to keep it going.
But it certainly is a fall from the the zerp arrow highs.
I'm going to give one sense honorable mention, which is of
course the open AI deal. This $6.5 billion funding round
is coming together. I think the Information reported
the other day that investors had a minimum 250 million
investment. It's going to be bigger than
like all the funding in the startup world, you know, not so
long ago. Anyway, so he's open AIA startup
in the traditional sense. I'm sure people debate, but
anyway, it's it's an epic round and so we'll keep watching that
one. Jumping into our top story this
week, Y Combinators Demo Day is taking place Wednesday and
Thursday. It's the, you know, semi annual
event that's about to happen more times a year.
We get four of them a year now. Yay, so many more zooms to
watch. You really captured what's
happening in YC Demo Day this week, so I won't steal all your
punches, but obviously it remains artificial intelligence
driven, lots of boring enterprise software, but you
tried to drill into some of the areas where there's some new
stuff. What?
What are you seeing with the YC Demo Day right now?
Yeah. So this was the first Demo Day
after they released their latest call to startups that mentioned
defense tech as an area or space tech an area that they were
interested in missiles. I think I mean it's put missiles
in the headline. We had to put missiles in the
headline. It is Y CS first weapons company
period. Not just missiles.
Company came out of this batch. Aries Industries Y CS call for
startups and their batches post that call usually are pretty
reflective of trends are in Silicon Valley at large.
They do lead in some ways on the cutting edge, but they also are
reflective of where VC interest is a lot of the time, and it has
shifted more to hard tech than it's been in recent years.
I, I will say an investor texted me after our story came out.
I think we were somewhat skeptical of Aries in the story
too, but we were, yeah, this person said the company is so
awful. And I was, I said in quality or
intentions. You know, he's a missile
company. I didn't, he said quality.
So I, I feel like there's the investors, lots of Silicon
Valley investors are ready to bet on a missile company, but
we'll see if this is the one or not.
Right. There's a lot will come down
ultimately still to the team, especially with seed stage
investing where the team is so important.
I think also, I mean just in my conversations with some of the
people over at Founders Fund, which have been really heavily
involved in funding and founding Anderl especially Trey Stevens
is a Co founder over there. That company has become sort of
the banner success defense company.
So obviously there is room for more than one, but how many more
remains to be seen at this point.
So they could, a lot of these companies could eventually
become prime acquisition targets for like an and a roll or a
Palantir or something like that or.
Prime. Or Prime Exactly, pun intended.
Another company among the defense tech plays in this batch
was Theseus, which is building hardware and software for
drones. So not necessarily weapons based
drones that could be among their clientele.
And that was a really hot round, highly contested first round
capital ultimately ended up winning that round out from a
couple other Tier 1 investors. So it'll be interesting to see
how that company grows. And our story, besides looking
at the companies, we also interrogated this sort of growth
story of YC. I remember a few years ago I
headlined the profile of YC in the Jeff Ralston era as YC
equals growth. That was during the pandemic
where they could do everything remote and they were scaling and
scaling and scaling. They became a lot more
international too during the pandemic.
Like they accepted a lot of founders that were not based in
San Francisco, based all around the world.
And now that has sharply shifted under Gary Tan.
YC is in person. You must relocate to San
Francisco. It's been this way since 2022,
but they've really honed in on that being the message that YC
is also now very much based in San Francisco.
So we we peaked at 749 companies a year in 2021, fell to 639 in
2022 and now we are at 508 in 2024.
That's part of the new batch strategy is keeping it at that
same size of around 500 where they want to stick, which is
still a lot bigger than what it was pre.
Pandemic almost 5 * 2011 you know 2012 was 1512013 was 99.
These batches that had like the iconic YC companies like Airbnb
in them were much smaller when those took place.
So this is in some ways a way to maintain sort of the point that
they're at now with scaling back a bit from the pandemic, but
then also offer smaller batch sizes.
So hypothetically more personalized time with group
partners, kind of how how to scale while remaining small is
sort of the puzzle that they're figuring out right now.
And investors tell me that. I mean, the batch quality has
been great these last few. It seems like it's paying off,
but we'll see once they add in some more batches.
So there also has been this debate, you know, you look at
why C's winners on their, you know, top companies page within
their directory. And a lot of the biggest
companies that have come out of why C really did come from sort
of this the golden era of the mid twenty 10s and.
Put it another way, when when Gary Tan wanted to talk about
Founders mode, he was still talking about Brian Chesky.
You know, Airbnb from the class of 2009, which still there's
dining out on. Certainly Coinbase is another
top win. DoorDash, Amplitude, Dropbox.
So a lot of sort of old names. I think there's some more
promising companies it up in recent classes.
I think Cruz was AYC company. So I mean, there have been some
bigger wins. That's not that recent to me.
Yeah, but more recent than 2009, let's say.
But that that's a good point that there is still much to
prove in this new cohort. And part of this is also the
world of seed investing. It takes a long time to see Bush
vets take off and these are pre seed companies.
So we should be thinking on, you know, 10 year time frames, but
the size of the batches and potentially the dilution of
quality of the companies that came about during this massive
time of expansion is something that's clearly on the top of
mind of Gary Tan and the YC team going forward.
They want to retain their banner Ivy League brand of startup
accelerators. And for the most part, investors
still view them this way as from my conversations with people who
back YC companies, they do view them there.
But my Combinator is also facing a little more competition from
accelerators that it didn't have in the past.
While Techstars has kind of fallen off, the Neo accelerator
has grown quite a bit and many investors speak to the quality
of the founders that come out of that.
Also, there's the HF 0 hacker house or hacker residency, if
you will. I know that they're sensitive
about that. It's not a hacker house, it's a
real residency accelerator. But those are deep pockets at
that accelerator to fund these, you know, AI forward companies.
So Y Combinator is not the only game in town anymore.
So quality and making sure that the experience is as
personalized in depth and what founders want out of it is
definitely something that's on the top of mind for them.
Our second story of the week Microsoft taps 3 Mile Island
nuclear plant to power AI Crazy. I mean just the future of.
Nuclear It's the 20th century. A sign of how much power
insiders and AI really think it's going to take to get to
what AGI or to get to the, you know, $10 billion compute large
language model. So if Microsoft is saying, oh,
we need to find nuclear power to make this work, I think that's
as much evidence as you need of how consumptive I think these
models are going to be and how much they're going to keep
investing enormous sums. I mean, I went to a tech
conference a couple months ago now, and certainly power was one
of their top concerns. Not to, you know, plug, you
know, Super Valley again, but power was a big conversation
topic at our Super Valley New York event and one of the
discussion groups how we willpower all of the compute
needed for AI to become as ubiquitous as we expect it to be
and need it to be in the future. So I think there's also, you
know, the conversation around clean energy and a lot of the
tech world had been moving climate tech had been has is
still, you know, an investing space that some people are
putting lots of money into because there's, you know, an
economical side to it. We can't have the AI revolution
if we're burning Earth resources.
You know where nuclear falls into.
The green energy debate is also something that has gone back and
forth over the years, but it's certainly not fossil fuels, and
it can be another way to meet the power demands without overly
relying on fossil fuels for AI. Yeah, if this is an excuse to
invest in nuclear or like godspeed to the core idea of
whether AI will require this, I think there are two themes sort
of at once, right? It's like, OK, models keep
needing to get bigger and bigger to get smarter.
And so if you chart that out, you're like, man, we're going to
need a lot of power, let's invest in it.
On the other hand, you're seeing people use sort of like cheap
models and open source models and small models to get a lot of
stuff done. And certainly a player like
Microsoft has sort of a vested interest in believing like, our
big models are going to dominate.
So we're going to need a ton of power.
But there's certainly a world where it's like, what's tech
good at doing? It's like doing things cheaply
and sort of lightly. And like, you know, the returns
from all these foundation models erode so quickly.
So it just leads me to believe, like, are we really on this
escalating sort of power consumption curve or are people
going to find ways to do most of the stuff we need to do fairly
cheaply? As chip competition maybe comes
up more too, when people there's, you know, the shortage
that is slightly easing, but still demand for Nvidia's chips
is really high. But there's all these chip
companies that are pitching themselves to run these models
at a much more efficient pace using a lot less energy.
So I think competition in the market could also just bring
that on the hardware, the demand for energy down a bit too.
Maddie, you want to talk about runway?
Sure, Runway reached an agreement with Lionsgate to
train its models on the studios library of movies and TV shows.
This is the first of its kind of these deals that a lot of these
model provider companies have been making with publications
for the most part. But this is, you know, a video
model that got a licensing deal with a production studio.
So I mean there's some debate over whether or not these
studios are kind of signing their own death certificate with
these deals, similar with news media companies breaking in
these deals with open AI. But I don't know, Eric, if you
have thoughts, I. Mean it's a classic collective
action problem where it's like if I were the monopolist who
totally controlled the movie industry certainly I wouldn't
train my potential disruptor to create movies with models.
But if I'm just one studio among many that has earnings pressure
and wants to make money today, and if not me, you know, my
biggest enemy, then sure, I'll strike a deal with Runway to let
them train and make the money now and hope that I'll figure it
out down the road. So this is just sort of, yeah,
it's business incentives. Same thing we're seeing in
media. And fundamentally, I think it's
good that Runway can take a crack at building models.
And do so, you know, licensing with the licensing agreement to
where it's not scraping these kind of movies to train on, you
know? Right.
As long as the argument isn't, well, we'll seal it if you don't
give it to us. Certainly, right, That that's
always the other tension with this, Like they're going to be
rogue, actors are going to train and then you'll see them in a
decade, you know? Absolutely.
I mean, the other funny thing is, you know, just runways.
CTO Anastasis spoke at Cerebral Valley New York in June and he
was the one who was sort of saying, you know, we're going to
have full AI movies on runway like imminently what, like two
years or something. And our very AI friendly
audience was like laughing at him fundamentally.
So I love Runway, I really like the team there.
But they certainly are projecting this sort of
revolution in how movies are created that even some of their
fellow technologists seem skeptical of.
So we'll we'll see what they can make of this.
Well, I've obviously they've been used in production with a
24 movies before with Everything Everywhere All at Once, Yeah.
Yeah, but they're not like, you know, they're sort of promising,
like the whole movie, which is narrative.
It's like, I don't think anyone doubts like you're gonna do
special effects stuff with AI, but I do think if it's just
special effects, my wife is a documentary and filmmaker.
I don't know. I'm pretty bullish on Adobe, a
company that really understands creators and can plug into
creative tools they're already using.
So you can see why there's pressure on a company like
Runway to offer sort of the full answer, because that would be
truly disruptive and not something maybe that Adobe is
prepared to do. Yeah, that's a good point.
So it it seems like with runway there is also the pressures on
to be able to deliver a quality full AI made film, whether short
or feature film that people will enjoy watching.
And so training on, you know, narratives that people have
already enjoyed certainly will help with that.
But it remains to be seen if that really is within, you know,
the next two years or four. It's going to take a little bit
longer to get there. Our last story of the week, more
lighthearted or or sort of sad, I don't know, depending how you
look at it. Comedian John Mulaney, who I
love, was I think the closeout speaker at Dreamforce or sort of
helping wrap them up with entertainment.
And he just sort of roasted the audience, pulled a couple of the
quotes. Imagine me as John Mulaney.
I'm not. I'm not a person impersonator
here. You look like a group who looked
at the self checkout counters at CVS and thought, this is the
future, Mulaney said. If AI is truly smarter than us
and tells us that humans should die, then I think we should die,
he said, looking out to the crowd from center stage.
So many of you feel imminently replaceable.
Can AI sit there in a fleece vest?
Can AI not go to events and spend all day at the bar?
I don't know. What do you think?
I mean, well, it has flashbacks of when TJ Miller hosted the
Crunchies and insulted everyone, for sure.
I think it's a little more light hearted than that, to be fair.
And I think John Mulaney as a comedian tends to land a little
bit more softer. But it was not exactly a
receptive audience perhaps at at in the same way.
Although, yeah. What do you think, Eric?
I mean, I'm also a huge fan of John Mulaney.
Honestly, I do find these bits kind of funny.
He's got much darker. I saw that TJ TJ Miller Sketcher
referencing which I'll touch on. Oh, right, you were there.
I mean, it's some way Salesforce is an event of saying what you
do matters to all these people who do fairly boring stuff.
You know, it's like, I'm Marc Benioff, I'm going to donate a
lot. We're creating a culture here.
We have all this sort of entertainment and it's party and
we connect with each other. And this is more, you know, in
some ways it's a whole event oriented around justifying
people who are doing important parts of capitalism, but not
necessarily the most, like, glorious and celebration.
And. So I get there, you know, they
get paid for it and like the money is reward that the whole
like Mad Men clip. But I I feel a little bad for
them that come on, this is their their event to sort of celebrate
themselves. I get you're hiring John
Mulaney, but I think a lot of people think of, I don't know,
the prehab John Mulaney, who is a little more upbeat.
Yeah. So I don't know.
I'm I I feel on both ends. So the TJ Miller 1, you know,
this was at TechCrunch Crunchies, which were these
weird awards where, you know, they'd give out trophies to
companies that the real award was like going public and making
a bunch of money. But it'd be like best startup
and Stewart Butterfield would go up and collect for Slack or, or
Travis Kalanick would go for Uber.
So it was super, super weird. It was to me one of the last,
like, Silicon Valley is really small where it's like, oh, we
can have this. You know, and it was so on
Hollywood and really uncool. And, you know, VCs are the
celebrities. And so they bring in TJ Miller
and like, he's like, really. Like, I mean, it felt like, is
this guy drunk? And he was just shitting on
Silicon Valley? I think he also called Travis's
girlfriend at the time a bitch, which obviously soured a more
progressive audience. So there are lots of layers to
it. I mean, I, in some ways I
thought it was funny because it was like, so hostile to the
crowd that people were like, ready to leave that as a bit
that he was just sort of at this awards show turning on the
audience. Like, I was laughing a lot, but
the crowd was not laughing very much.
But I can see why. You know, it's like part of
hosting the Oscars is finding the right balance between how
much you shit on Hollywood and how much you don't.
And some of these comedians feel like they don't appreciate tech
at all. You know, at least if you're in
Hollywood cheating on Hollywood, there's a level of like, I'm in
the industry, obviously I have some fundamental respect of what
you guys do. Whereas I feel like for tech, it
can be pretty disconcerting when people come in and it feels like
they have no love for this industry and they're just taking
the check and going to sort of hate them to their faces.
And yeah, it's it's somewhat distressing.
It's not the same as, you know, as sort of the the inside we're
all laughing at ourselves kind of way that it takes place, you
know, at these at the Hollywood awards shows.
Like it, it does feel a little bit more like people coming in
from the outside to say like really just lean in and roasting
and insulting people to some extent, despite some those
insults being funny, to be fair. So, yeah, I think potentially
not the right crowd, but John Mulaney's still a good get.
I'll give them that. I mean, like, can AI sit there
in a fleece vest? To some degree?
It is sort of like you're a loser, you're not cool.
Like, I don't know, it does read as a little like bully to me.
You know, it's the classic, like, are you punching down or
punching up? And I think Hollywood often has
this sense that you're always punching up a tech because
they're the real rich people. But then Hollywood is sort of
all things cool and tech is all things not.
And so that if you're like, you're a loser wearing a fleece
vest, like are you punching up or punching down?
And I think part of this is that the constant who's more
powerful, Hollywood or tech? On the one hand, tech has all
the money and they're the ones sort of, hey, hey, monkey, come
dance on our stage. And then the monkey sort of like
mean. So it it's they're, they're
weird power dynamics. And I think that's part of what
we're seeing here. Well, looking forward to the
next week, I mean, Demo day is happening Wednesday and
Thursday. I will be tuning in among
hundreds of seed investors. So excited to be in the Zoom
audience for that. But what other stories are you
looking forward towards, Eric? I'm interested to see this open
AI round come together. Who's willing to fork up the
money, who gets in and certainly the how, you know, the continued
evaluations of Strawberry remain interesting to me and sort of
where where we are on improvements in open AIS tech.
I have some interesting off the record events this week, so
we'll be inhaling information from investors.
We will not be discussing those, but I know.
Sometimes my schedule is not fun to preview because I'm like, oh,
that's secret. So.
But that's our show. See you next week.
Bye.