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.
There are weeks where it feels like the world has changed.
And sometimes, you know, world history does transpire in a week
and other times feels like we can get very excited about
something and then it's it's less exciting than it seems.
And I think that is the story of Deep Seek, the Chinese AI
company that many of us hadn't heard of.
You know, I'd probably heard on tech Twitter for a little bit,
but certainly wasn't front of mind story until the Chinese
tech company devastated the NASDAQ and devastated Nvidia's
stock price in particular. NVIDIA shares plunged 17% on
Monday. It was the largest market cap
loss for AUS company in one day, close to 600 billion in value.
Of course, that's back up now. The NASDAQ fell 3.1%, or 612
points, but now it's only down 1.8%.
So it seems like the the freak out of everyone discovering this
over the weekend is now people know what it is.
It's out there. It's a little bit, it's calmed,
it's cold. But yeah, it's it feels like one
of those weeks where all of a sudden the game has changed.
Yeah. I mean, I think, you know, some
things have changed, right? I mean, I think 1 and this I
think has been talked about less.
It's like, you know, it's Cerebral Valley in November is
like, is there a wall? Is there a wall?
You know, is AI going to improve Well, you know, deep seek isn't
the only one changing the game like yes, there if you can be
smarter in a more cost effective way, then yes, the game is
definitely changing. It feels like certain that we're
going to see serious AI development this year.
So I I think that's clear. It underlines, you know how
important open source is. I think people pay attention.
You know, Llama and others were already sort of doing credible
things. And then 3rd, on the technology
side, obviously, it just reminds us that China is serious.
It's a major global power. You know, it could be during the
Trump administration that we sort of wake up and say, oh man,
China is surpassing us on some things.
And we can't just sort of pretend like American tech
giants are the only source of activity in the world.
I mean, I think honestly in self driving cars, you're seeing a
lot of Chinese cities deploy self driving cars, even though
in the US we mostly talk about way MO.
So, yeah, there's definitely a lot of areas in AI where China
is doing stuff that I guess our markets probably don't quite
appreciate yet. Totally.
I think one part of this too is that in the model race leaders
have been saying for months now that the next breakthrough is
always, you know, just the next model release away and
competition can be really fierce, right?
Like open AI has had the industry lead for a while.
But as new developments come up, I remember, you know, when
Anthropic dropped computer use that was is the agent that
products that just, you know, took everyone by storm at that
point. So it's not really a given that
it's just going to be an American tech giant that's going
to take the whole industry. Yeah, I don't know.
Coming out of this whole experience, to me my initial
reaction was vindication for the application thesis.
We've been platforming people with the application thesis
since Cerebral Valley, New York last June.
Right. I mean, this idea that a lot of
the value is going to accrue to people building use cases,
whether for consumers or enterprises.
It's the relationship with the customer, understanding how to
sell it to people. And sort of the more traditional
things around software businesses that would again
differentiate AI companies and that foundation models were
potentially spending a lot of money to build a commoditized
technology. Certainly deep seek made that
seem even more likely. I will say that, you know, as
we're recording this podcast now, the Wall Street Journal is
reporting that open AIS and talks to raise $40 billion in a
$340 billion valuation from SoftBank.
You know this, so you know. Investor appetite has not
slowed. Sounds like they're going to do
OK right now. Right, right.
It's not as damning. You know, SoftBank clearly still
a buyer for open AII. Mean now, you know, obviously
open AI has a direct consumer product and there's part of the
value proposition for them is that even if their technology
gets commoditized, they are the Google, the iconic brand of the
category. And so consumers will always
flock to them. Right, like you could say that
they really are the 1st to build a killer app so far.
I mean, they, they have the app we talk about a lot about where
the companies are going to come at the application layer, but
they have an application that million like 300 million weekly
active users as of last year. You know, like they have it.
So it doesn't the the real value coming from applications also
doesn't necessarily count out open AII.
Think the thing that is muddled? A lot of takes and honesty makes
it even hard for us to opine on some of it.
Is this debate about how much deep seek is sort of a psyop or
like how how honest are they about their access to NVIDIA
chips and how much money is being spent?
You're this is really where journalism fails because you're
seeing a lot of narratives have to get written where it's like
you classic journalism, you pick one side or the other of that,
like either they had a lot of money or they didn't, but then
you know, you don't know for sure.
And so you have to sort of thread to competing narratives.
So I do think. Yeah, the waffling is pretty
apparent everywhere. I mean just because we need more
information. We will not participate in that
as talking heads. I think it's it's an open
question. I think what's clear, you know,
it's clear that they have NVIDIA chips, but there are, you know,
things beyond H1 hundreds. And it's not clear exactly the
mix and how high-powered their access is and whether it
represents this sort of random company and a hedge fund or if
this is part of the Chinese government's real sort of bet
here and they're sort of backing that we don't know about.
And then there is, I think more certainty that what Deep Seek
has released can be run on a pretty cheap, in a cheap way,
like you can reproduce it, you can run the model.
And so certainly doing the thing they have done can be done
cheaply and that will be important for AI.
What is less clear is the amount of investment it took them to do
it, which is people are sort of comparing apples to oranges
where they're like, Oh my God, our foundation models spent so
much money and they at the end of the day have produced
something that you can do cheaply.
But obviously if you just like follow everyone elses research
and then do something at the end like it'll, it'll be cheap.
Of course, that's cheaper. Yeah, jumping in in like the
last mile to say and build something a lot faster with your
Sprint certainly looks faster than doing the underlying work,
right? I mean, there's been a the juicy
irony, I think, you know, that the media class has enjoyed
that. It feels like open AI is like
how dare you copy our technology?
You know what? What?
You can't inhale everything in the world.
Only we can inhale everything in the world.
The irony is not lost on those of us who create original
content that has become, you know, the high quality training
data that these models use that now open AI and and you know,
these these closed models especially are getting very
angry about something being trained on top of them.
Yeah. So I, you know, I think open
source remains super powerful. I think Anthropic and Open AI
are really going to have to work to show that they can stay
ahead. And so this is going to put
pressure on them to release new versions faster.
And I think we've seen what you could fairly call defensiveness
from both Open AI and Anthropic. Dario and Anthropic wrote a long
note on sort of a tangential point that I think we can talk
about, but sort of, you know, responding to everything that
was going on. Open AI has been tweeting about
this. You know this, this is the new
world where everybody, like you don't ignore your competitors
like big news. You sort of like get in the
Twitter trenches. You have to.
Jump in with your take. Yeah, exactly.
What did you think of the reaction?
Found the reaction from the little tech boosters actually to
be one of the more positive sides of this.
Alex Rampell over at A16Z called this a Sputnik moment, but also,
you know, compared that to how Russians getting ahead of the US
and the space race led to like a massive wave of US innovation
and space technology. And so I think there's a lot to
be said for this really opening up the application layer.
If foundation models get cheaper, there's a ton of value
to be added if you can build killer apps for it.
So I don't really see this, you know, as like a death knell for
the venture space that's gone all in on AI, if you will.
I think there's plenty of funds that have much to invest in on
the application layer that this actually opens up a lot more
opportunity for founders and investors to really get into the
space. If if this if the foundation
model layer is where it is now and everything's open, you can
build on top. I like I like the Andreessen
Horowitz Impala essay. I know the Sputnik moment was
smart. Madeline, you've been talking to
investors all week about this. What's what?
What's your read from them? I mean, a lot of them are kind
of taking, I think some of them can get credit for this, some of
them can't. But a lot of people are saying,
you know, we always knew that the value really wasn't going to
accrue at the model layer. You know, it's really at the
application layer. We knew this the whole time.
So I've gotten a couple, you know, takes of people maybe
talking their own books a bit about how smart they were about
this whole thing. But what?
What firms are most expensive those two foundation model bets?
Well, certainly Thrive is pretty exposed.
They've just given so much and invested so much into open AI.
Menlo Ventures is probably is one of the largest backers of
Anthropic outside of the big tech companies like Google and
Amazon. A16Z obviously has backed a lot
of application companies, but they have.
That's the opposite. That, but well, they've written
really big checks into Miss Straw OK open AI through the
secondary sale from employee tender.
So they're kind of wrapped up in.
Everything, yeah. Exactly.
Yeah. So they're they're kind of on
the application side and the model layer.
So they're and maybe that's a too big to fail situation, but
they have a lot of exposure. I know Sequoia and Tiger Global
also bought in the open AI share, so share sales.
So we're going to see, I mean the big firms obviously do have
a lot wrapped up in this. So maybe this is, you know, the
little tech victory lap, if you will.
This should almost go without being stated, but I think I need
to say it. It's like AI being better and
cheaper is obviously good for AI.
Broadly construed right? Bad bad for people only
differentiate by having the smartest and fastest AI in town.
But in the fact consumers are more likely to use something
that is better and cheaper to use and so I do think some of
the whiplash confusing reactions.
And yeah, isn't this the the Jevons paradox point?
Yeah, Something gets cheaper, more people use it and demand
goes up. I mean, I feel like that's also
been just seen with, you know, different service adoption for
tools throughout startup history.
Yeah. So it was an interesting, it was
a market test. It was definitely, I think
Silicon Valley was rightly like by the dip, and I think we're
seeing that borne out. It was sort of like a freak out.
Felt like outside of Silicon Valley, even though Silicon
Valley reacted, it was like an interesting cultural moment.
Well, I think it's important to circle back to Dario's point,
all really being about export controls and how the leadership
here isn't isn't necessarily a given that America will have
this leadership. And obviously he's team safety
with anthropics whole, you know, safe AI controlled top down kind
of strategy. But he's saying, no, actually
the export controls are working because I didn't get quite as
many chips. And if we, you know, get, you
know, strengthen control over this part of the stack and keep
it really in the West, then we can stay ahead.
And I feel like in this sort of open opening up moment and, you
know, big, you know, revoking of the controlling Biden AI
executive order that, you know, the administration's doing
everyone's all, all in EACC all the way, you know, like like at
this top down kind of safety mindset isn't necessarily.
Right, well there there are two pieces of this like you know,
the export controls. First of all, it's hard not to
read his talking his own book right.
Like certainly open AI and Anthropic would benefit from 1
less major competitor in if we deny China NVIDIA chips, they'll
have a harder time being competitors.
Therefore we have less competition.
Great for us very anti free market capitalism, but but
potentially, you know, I mean, I, I, you know, probably agree
with the export controls just in the sense that like everything
with China seems to flow one way where they get to take all our
stuff and then our companies can't operate there and they
they, they benefit from our work.
I mean, that said, I do think the open source nature of this
makes things a little different because, I mean, deep seek is
giving it away, you know? And like, that's the ultimate
sort of good thing. Ben Shapiro had a terrible tweet
where he's like, the deep seek surprise is a fantastic reminder
that our enemies are motivated and aggressive and that our
technological security is not guaranteed, I guess.
OK, that's a fair take. But Bill Gurley, I thought, had
a very moving response, which was, why are they enemies?
No one that works at deep seek is an enemy of mine.
The fact that they love open source makes me think I would
gel with them quite well. And I mean, I, I think, you
know, the right China message is that troubled by Chinese
government's obviously free speech policies, control and
then also their industrial policies.
But Silicon Valley probably has more in common with the average
tech person in China than they do with the average American.
You know, like that's, that's the ongoing contradiction.
Like while deep seek was able to operate fairly under the radar
as like, I don't know, hardcore technologist and then give it
all away. Yeah, they're they're very In
Sync with a lot of I was like. That's like the the classic
Silicon Valley story. That's the classic Silicon
Valley ethos right there. But you know, then as soon as
deep seek becomes, I don't know, China's most important AI
company, then it becomes about sort of nation states competing
and that, you know, these things get complicated.
We also worth mentioning that now Alibaba is like coming in
claiming that they have like something even better.
So it'll be interesting. Again, we don't know what's
happening in China. So it's like, is this all like,
oh, they're ready to like announce their sort of big hits
to make a message or who, who knows?
But I agree with Gurley fundamentally that if they're
giving it away, how, how evil could not be, you know?
Yeah, I mean, I was talking to LON at basis set yesterday who
just said the best line to me, which was, you know, people to
make this too much of a big deal because they told you the
recipe, just take it and make the dish, like, right, they gave
it away. You know, why?
Why are we spreading over how it happened?
And they've given us a gift. We can build on top of it now.
Right. The other piece of Dario is that
say, you know, the safety ISM. I mean, I probably would have
agreed with him. I probably agree with him.
But like, man, that feels like a lost a lost fight.
You know, it's like if we can't even keep the executive order or
this sort of the idea that we're going to like hold on to AI,
keep it in sort of a tightly held set of hands and make sure
it doesn't get out of control is feeling less and less likely.
I mean, I do think there's a world in which we look back at
100 years over this time and we happened to build AI in this
very anti elite moment, which meant it was totally ungoverned
and we sort of let it run wild. And we're like, Oh my God, the
one time we should have been sort of more sort of top down
and sort of thoughtful about how this all came out.
We just happened for totally other cultural reasons to be in
a like, you know, let everybody do everything wild moment and
like so we create, you know, the all powerful AI that that
destroys us all. You know, hopefully that doesn't
happen, but but it certainly makes it a little more likely.
It's feeling very science fiction novels.
See what they did take, you know, prediction but.
Exactly. Yeah, you get right exactly.
It's classic that you get sort of destroyed by your vice,
right? Your vice, you know, it's like
we're in this sort of like burn it all down mode.
And the thing that destroys us is the thing that we didn't
quite appreciate coming that needed a little bit more of
collective control. Marc Andreessen would hate that
take with all of his being, but. This is not the Marc Andreessen
podcast, so we can. Escode it freely well.
Moving on from China and deep seek and the crumbling of the
American empire, let's talk about fund returns.
Let's talk about funding data. Eric, you got an exclusive
report from Angelus this week. Wasn't the prettiest picture,
right, of the venture market? I I don't know if this is moving
on from the crumbling of the crumbling of the American empire
at all. You know, I mean, you know,
basically, yeah. Angel List gave me their annual
report, which I find super useful on the state of venture
from their platform. You know, obviously some of the
firms on Angel List are smaller, but they see more and more of
the sort of market and generally have a good sense that I think
matches with what everybody else sees.
And you know, one big take is that basically if you wanted to
mark up your venture capital firm, you needed to be active in
2021 and the time around that like everybody got their markups
then and then it's been flat. If you started after 2021, you
basically don't have many markups.
And if you started before it, you had all your markups, then
you're sort of killing time. I think the other big take for
venture capital firms is it they have, you know, TVPI, they've
they've marked up their holdings, but they don't have
much DPI. They don't have distributions
and you know, you can't eat TVPI.
Ultimately, LP's want DPI. And so I called this year a
Crucible year. You know, it's because one of
two things is going to have to happen.
Either those marks turn into exits and they can pat
themselves on the back or, you know, they're going to have to
eat crow at least to some extent and say, oh, you know, we
thought they were more valuable, but actually they're never going
to turn into distributions. And if they don't turn into
distributions, you know, that's potentially going to undermine
LP's view of the the venture capital model.
So we really have these two forks in the road, which is some
of these holdings are valuable around what the VCs say they
are. And we get some exits or we
don't. But it feels like it's been
going on long enough that 2025 should be the year where we have
that reckoning. I'm skeptical that these.
Yeah, I was going to say yeah. Distributions.
Yeah, I was going to say how, what's your take on this?
I mean, obviously there was some startups that also kind of, you
know, scraped along and if, you know, tried to hold off before
raising again just because due to the poor market conditions,
like are there many signals that you could see us, you know,
moving into a better exit year this year?
I mean, the IPOs that we've had so far not been promising.
Yeah, I mean everybody thinks we're getting better M&A.
So maybe you know we'll see some activity there and like that
could help, you know your billion dollar company could
sell for 500 million though with preference tax and anything as
we've talked about on other episodes.
You know that's not necessarily a good outcome.
IPOs so far haven't looked good. I mean, basically, you know, if
you hold data bricks, you know, open AI stripe, you know, the
big winners and so those. Those funds, you know, firm, you
know, LP's can see that they're fairly liquid.
They do secondary deals like I mean we talked about in your
Utemco piece, which people should subscribe to newcomer for
and go check out. You know, Thrive is doing well
partially because they're doing these late stage deals where
they're raising again and they get to mark them up.
But like if you're a firm that's not in one of those big names, I
don't think people are very optimistic that the random, you
know, $3 billion Unicorn is going to deliver for you.
And obviously a couple of them will, but I think a lot of them
won't. Yeah, it seems kind of like the
power law, but on steroids, if you will.
Right, Exactly right. Yeah.
How little DPI is like, I don't know on some of these funds,
like even like the 75th core percentile from their oldest
vintage funds, 2017 has only returned .64 X.
So you don't even have all your money yet, like eight years
later, you know? Yeah, if you're going on a 10
year cycle, that's not feeling right.
I know nobody wants to be on a 10 year cycle anymore.
So you know the only other, you know, AI, obviously lots of AI
deals. There is the counter intuitive
point that valuations are basically like 10% up, but you
have to remember that's because fewer people are raising
starting companies and raising money.
I don't know what was your biggest.
We've done 2 Utemco pieces. What was your top take or one or
two takes from those pieces? The biggest take away I've
found, at least from, you know, doing this last year and then
now doing it again a year later to look at this data is really
just that the market downturn like is much more visible now.
And obviously you can see exceptions, but it's people who
are doing things a little bit differently, like thrive, like
getting into these growth stage rounds and not performing like a
traditional venture firm, if you will.
And otherwise like, you know, kind of doing these more growth
stage deals to where it their returns look better faster, you
know, I. Think your take, your take was
just going to be Union Square Ventures is a singular firm.
I don't know. You look, you look at the Utemco
performance and they're just like they have so many good
funds like you just wrote about Blue Yard, a great firm that has
a really strong fund that's competitive with USVI.
Think they were in the creator of Filecoin.
Kudos. And it seems like they're doing
well their 20. 16 fund is great. Yeah, right.
It's. But USB, it's just like hit
after hit, like, yeah, 2004 is the best one on our chart.
I think what USB opportunity from 2011, looking at it might
be the second best on our chart. You know, it's just like they
are, yeah. They're pretty strong.
It'll be great, yeah. Well, I was gonna say also I
will say New York based IA Ventures also incredible
returns, not quite to the level of USV on the charts per
Utemco's internal calculations on IRR, but still really
consistently up there with each of their funds.
And so maybe this is big New York, maybe that's my other
take. You know, I'm actually, I'm
calling it now bullish on New York, IA Ventures and USV most
steadiest, biggest returns in the UTEMCO portfolio.
Turns out financial mind is still valuable when making
investments and not just like, yeah, well, yeah, definitely
worth subscribing. Yeah, check it out, Check it
out. Cool, cool.
Our deal of the week. Deal of the Week What's?
Our deal of the week. The deal of the Week exciting
deal of the week 11 Labs finally closed its own funding.
You know, we're big fans over here, Voice AI, although
different voice AI companies to be fair, but.
No, I think volley volley, you know, our partner is Ruble
Valley of my good friends voice games.
I think they use 11 labs or they're I think they're bullish
on them. I don't think it's.
Awesome. It's then it's all love.
Fantastic 11 labs raised 180 million series C round which
raised its valuation big up round to 3.3 billion and it was
Co led by iconic growth and A16Z yeah voice AI is hot lots of
market opportunity. 11 labs is growing quickly, doing well.
Big up round. That's our show.
We had what, a couple weeks ago? Red Note taking over the US App
Store. Now it's deep seek.
Deep seek what? What Chinese app are we bringing
to you next week on the show? We'll wait and see.
All right, see you next week. See ya.