Tom published his first post Tom Newcomer byline How does it
feel? Feels like I'm born again.
One of our mutual friends, I think Corey, the information was
like, I'm going to call it Doe Tom whenever you're right here,
it's like Tom a newcomer. I don't know it's.
Funny, yeah. We haven't discussed branding on
my stories, but if we could have some sort of like a hover
graphic or something, we're like if the mouse goes over newcomer,
like my name kind of fades in, flashes in.
Yeah, let's talk about it. I'm willing to work it into comp
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solutions. Your piece was basically markets
collapsing, but otherwise it would have been a great business
news period for the foundation model companies, which is not
your disposition. I feel like almost like I didn't
order you to come in and say like tell everybody how AI is
doing great. It's like you would be the guy
to like, be like, I don't know, I'm worried about everything.
Eric's hitting the techno optimism whip like you got to
publish a positive story. Right.
I wish you'd come in negative. So it didn't sound like, oh,
you're writing for us, the AI conference people, You're going
to give a booster take What? What convinced you that like
things were going well in Foundation model?
Work. Yeah, I really wanted to come in
with a negative piece and then quit right after that and say,
like Eric rejected my my contrarian take, my contrarian
market take. Spiked.
Yeah, exactly. Immediately, like this is who
pays the bills here at Newcomer. No, On the contrary, Eric.
He wants harder hitting stuff than what I'm delivering.
I'm actually very worried. I was talking to some people and
I just wanted to get, you know, a dipstick test of where AI was
at the moment. And much to my chagrin, much to
my disappointment, it was a very strong start of the year.
You know, like I, I have this quote in the story, but I was
talking to an investor who was telling me we all had in mind
this idea that competition was the most important thing and
there were only going to be a small number of winners and we
needed to back those winners. And, and everyone else is going
to be shit out of luck. And at least so far, it turns
out that like the market size is large and there are enough
people on the consumer and business side who want to pay
for this stuff that the businesses, you know, and we
were looking mostly at foundation model companies.
So the ones that have raised the most money, but are building the
tech that's powering almost all the applications.
They had really good quarters and their business grew
substantially. And, you know, in certain cases
above initial projections, basically things are going very
well in AI right now. And the only thing that could
maybe derail it in the short term is the economy collapsing
is the markets, you know, shitting the bed and, and
everyone realizing that they're going to pull back on their
spending because right now at least they're buying into the
hype. And and so, yeah, that's the
backdrop of it. It's like we've got all these
numbers, we have these exclusive figures on, on how all the
foundation model companies are doing, yeah.
Give us a give us a tier ranking like who's who's doing the best
of these foundation model companies right now for your for
your numbers. Good, good week, bad week, good
good quarter, bad quarter. It's kind of hard to dislodge
open AI right now. They're really, they're really
killing it as much as it kills me 'cause it's a much better
story when they're not. I'm sorry, but you know,
relentless product roll out pace, Yeah.
We're gonna talk about O3, which I'm extremely excited about.
We'll talk about the actual tech after we talk about sort of the
business, you know, revenue. Right.
So, so the the product stuff which we'll get to the revenue
stuff which they are projecting that they could get as much as
12, you know, almost 13 billion in revenue this year and that
seems very plausible based on their user growth.
You know, Sam had this. I hadn't watched it until I was
doing the story. Very funny interview at the Ted
conference where he kind of let slip that their users doubled in
the last couple of weeks and, you know, back of the envelope
you could. Thanks.
Studio Ghibli, right? I mean, it's got to be mostly
right. Like I that's got to be a lot of
it. I feel like the yeah, the image
generation has to just be overwhelming demand coming from.
That nothing like a product. People actually like that.
It's like, oh, let me show off using it to everybody.
It's not like a social feature. It's like literally something so
cool that it becomes like marketing for your product.
But your Anthropic was doing well too.
It is not just open AI. Right, Yep, Anthropic, which we
really dove into their numbers, they finished off 24 with like
950,000,000 in revenue. So very solid year.
And you know, already at the beginning of the year they're
tracking to do annualized 2 billion, well over 2 billion.
And by the end of the year, if growth continues to pace, it
could be as much as 4 billion. So that's still, you know, 1/3
of open AI business, which is interesting, you know, and I
think we're paying attention to the fact that one is like head
and shoulders above the rest. But like Anthropic is really
established itself as the enterprise AI model maker of
choice. And if when it comes to coding,
Claude is sort of where it's at. What's interesting with that is
as I was doing this piece, like literally we were going to, you
know, getting close to to putting the last touches on it.
News breaks that open AIS and talks to acquire windsurf, which
is this big AI coding. What big?
But they're like, you know, a, a somewhat positive.
Codium until like a couple days ago.
Yeah, I didn't even know about windsurf, to be honest.
Windsurf was the product you know they can be with cursor
which is called any sphere. But for some reason, this
category is full of companies with products that are more
famous than the underlying companies Anyway.
Yeah, Open AI is supposed to be buying it for 3 billion, which,
you know, will scare the shit out of every application
company. Or what do?
Yeah. What do you guys make of that?
I mean my first take on it 'cause I actually did not
realize this until I was, you know, digging into Anthropics
numbers. But those coding application
start-ups, the any, What the fuck is it?
Any sphere? Any sphere?
They should. Just change that.
Everyone calls it cursor and podium anyway guys, I I think
generally across. AI so there is a company called
Any Scale and you know, I'm like, I do all this conference
organizing and like we we did this enterprise 30 list.
So I accidentally emailed like any scale about any sphere and
like they both ended up on the same thread.
So I was on this like comical thread where like both of them
were replying and I wanted one of them.
I ended up talking to any scale just because it's like, oh, now
we're on a thread. You're another interesting
company. Like let's do a call.
But yeah, it's extremely confusing.
That's that. That's your growth pitch to
these people. It's like since we're on the
phone. Yeah, since I mistook.
You for another company. Way it's like now that you've
wasted our time, like you at least need to hear our spiel,
you know, like. Anyway, we should have a whole
episode on the shitty naming across all of AI.
Like why O 4 is the less powerful to O3?
Absolutely, yeah. I would say I feel like
honestly, any sphere, any scale has become like a recurring
character on this podcast to this point.
Just like pick a name. Yeah, any, any port in the
storm. So their acquisition of them is
actually could be hugely problematic for Anthropic
because one of the, you know, significant drivers of business
for Anthropic are these coding startups that incorporate
Anthropic's models into their application and that that powers
the whole thing. And you got to assume if open
AI, you know, continue like, like, like gets this acquisition
across the line, they're going to cut out all of Anthropic's
models. And I don't know exactly how
much revenue I should look into that one, but it's certainly an
offensive move on, on on open a is part.
So that's something that to to watch that deal aside,
Anthropic's in a great place and there's a huge amount of
confidence there. And again, for the second place
player to be in a good space generally means good things for
the health of the sector. I I don't think it's just that
Anthropic could lose the revenue.
I think what matters is that Open AI is going further into
the application space, right? It's not just chat.
ChatGPT is their application. It would seem they want to
provide other applications, which means anyone built on top
of Open AI has their ears justified.
I can reveal here for the first time that one sentence in Tom's
story was written entirely by O3.
You can pause here to go see if you can identify it.
But it it was any AI app acquisition will jolt the
remaining independence, confirming their fear that Chat
GPT's parent won't settle for being just the brains behind
everyone else's software. I had the one convoluted
sentence and it rewrote it and you're like ChatGPT is better.
I want to let listeners in. OK, You kind of got to behind
the scenes here. This is a line that Eric wrote,
not a line that I wrote. Because.
Anytime anytime I put my language into ChatGPT and I say
can you make this sound better? They say I can't.
I truly can't. This is this is peak human
intelligence, and it would be foolhardy for me to suggest
anything. It just shuts off.
When you try, yeah, I actually get a call from Brad Lightcap
every time I put my wording in there and say we'd actually like
to refund you $20, Sir. So it's the program. $200 now,
yeah. Yeah, this stuff's getting
better. I, I think the, the market right
now is, is really is really strong and it pains me to say
it. Well, what about, I mean, even
in kind of apps you you looked into perplexity too, right?
Like how are they doing? Briefly, we did, yeah.
Good. You're doing good.
Good. Yeah, I mean the CEO of
Perplexity, you know, Arvind Srinivas, he's out there a lot.
He likes promoting the company. And so he he tweeted out that,
you know, they had reached 100 million in ARR in March.
But digging a little bit deeper into them, I found that, you
know, there's from the investor side of things, they're
expecting that to almost double by the end of the year, so they
feel really strong about stuff. You talked about opening eyes a
big player. I mean, Google's Gemini 2.5 is
hitting a bunch of benchmarks too.
But meta seems like kind of fell off with Llama, like it's been
doing nearly as well. I know obviously there's reports
of engineers taking that they worked on the latest model off
their LinkedIn or clarifying that they did not work on the
latest model on their LinkedIn because it's just not.
Doing the The accusation is that what Llama for was built to do
well on the test, but not necessarily that big of an
improvement. Yeah.
I mean, first of all, I relate. There are certain jobs that I've
had that I've taken off of my LinkedIn as well as I.
Never know. So it's nice to know that, you
know, you know, AI researchers are just like us.
Llama's a kind of huge question mark right now.
People were very impressed with the earlier iterations of it.
I mean, this was like a high quality open, you know, or free
to use, you know, thing that basically became the standard
open source model. And then Deep sea came along
and, you know, had deep reasoning capabilities, which I
think really appeal to a lot of people.
And then Llama 4 was supposed to come out and blow everything out
of the water and they had, like you were mentioning Madeline.
You know, these benchmarks look very impressive, but when people
were using it, like when developers actually were trying
to apply it, they were like, man, this sucks.
You know, it's like very verbose and it's answers are much worse
than, you know, what the competitive ones are, are
offering. And it got to a point where AVP
of AI at Meta had to get out there and say like, well, we're
working through some bugs right now.
We're trying to make sure that everything works for our for our
users. And these accusations that we
were training Llama on the test set so that it could perform
well on the benchmarks is totally unfounded.
And look, I don't know yet and I'll look into it as to, you
know, what true or isn't true. But once you're doing that kind
of damage control, you kind of already lost like it's a it's
APR game to a degree. And so much of open source is
like, hey, we're cool in the space.
We're going to attract engineers.
I mean, to some degree, Mehta's just trying to kneecap everybody
else and be like, we give it away for free.
You know, there are fewer giant tech companies.
And if DeepSeek is playing that role, you know, Mehta still
wins. And sort of making it hard for
for everybody else to compete. But yeah, llamas need to, you
know, need to rebound, I think on the next one.
And I'm kind of, I'm, I'm sympathetic to them because
these models like you do these training runs and you, you're
kind of get what you get. And if it's not good enough, you
do another one And, and either you release it or you don't.
And they're clearly, I mean, if it truly is as bad as some
people are saying, you know, there was a lot of pressure on
them to just release something and, you know, they put out
something that maybe wasn't very good and like.
That's the beauty of everybody's competing.
We should be happy, you know. I do feel like separate from all
of these numbers on how these companies are doing, looking at
the technical specs, like people are really excited about 03.
It's like some people are saying we're hitting the AGI moment
right now. Eric, you were AGI momenting all
over Twitter this week. You're like, oh, yeah, you.
I was up. I was declaring on Twitter like,
oh, history will reflect. This is a huge moment, but the
headlines are about everything. But you were.
In our slack last night at like 9:00 PM just being like wow, how
did it do this? You were.
Like I told you guys, you're not obligated to engage with me when
I'm just like slacking away. But Tyler Cowen said AGI,
seriously, he really thinks his AGI.
I was getting some pushback from AI diehards that are like, OK,
O3 isn't so much better than Gemini and Anthropic, and I
guess I'm not a student of which one is better.
I think what's amazing to me about O3 is how great it is like
searching and sort of pulling a bunch of stuff together along
with reasoning, I think. And we're going to make a
concerted effort to prove this true.
I think we can get a genuine scoop thanks to ChatGPT, which I
think would be a landmark moment from reporters.
I don't know how much that's sustainable versus like there's
a lot of stuff that's sort of like on the Internet, the search
isn't as good at finding the now ChatGPT, with its ability to
analyze stuff, can sort of put pieces together.
I don't know how. Exactly.
I was going to say scoops were like the, I mean, scoops are
like the the one thing that AI doesn't have on writers, right,
you know? Right, exactly.
If they can do that, then it's AGI.
That's what I'm saying from my perspective.
I actually don't think that they will be able to turn out scoops
because you pay $200 a month for ChatGPT and that's much less
than you're paying me for scoops.
And I'm very concerned that you think $200 a month equals the
scoops that I could be able to give you.
So by that metric, I do not believe.
That they're able to get scoops says otherwise.
You're yeah, right. Just that's true.
But investment? Wise speaking, it's just not
possible because otherwise you would just pay for that and not
me. You know, it's, it's common for
you, you know is what. Yeah, I believe that's not true
and I believe it can't do that. And there's a huge amount of
value for paying people to write scoops, Significantly more,
significantly more than the $200 a month that you were paying
for. For cheek it is.
Partially tongue, tongue in cheek, but like, I mean, I do
think there's a reality that like lovable can code, but like,
I'm not a coder and so I'm not seeing it through.
And there's going to be the same way that Chachi BT can do some
of these things. But if you're not like a
craftsperson, you don't really have the taste for it.
You don't know what to look for. It's sort of like it's hard to
really extract it. And so I think some of the
threats of job replacement in these sort of areas where
there's a lot of taste and you have to know all the sort of
steps, even if it does some of the steps well, it's, it's only
going to be a tool for the craftspeople.
Yeah. I mean, what was interesting
with the stuff that you were, you know, going on about on
Slack, basically? You know, it can find filings
for like venture Performance. So we hadn't found it right, It
can find. It can find unlisted links that
are listed by, you know, like these venture the LP's and the
endowments and, you know, pension funds where they have
these filings already on the web.
But you have to know the URL to find the specific filing
document. So it's not, you know, fully get
guarded, but it's, you know. And it and it analyzed some
filings from Amazon. I don't think we would ever do
this story. It analyzed some findings from
Amazon that broke down the nature of Amazon's investment in
Anthropic that, you know, Reuters or wherever who had
written the story hadn't really gotten the full breakdown.
And so it argued that there were like nuances of how the
investment was structured, that it caught on to that, that
reporters hadn't yet found which.
So it's already doing like incremental scoops.
It's already doing, you know, like actually this is new
information. It's arguing with its editor.
It's the needle, you know? That's honestly the strongest
case for AGI I've seen yet. If it's already like a very
self-conscious in, you know, sensitive reporter that's trying
to say, no, this is new Intel, this is good stuff.
Why? Why do you think this is just
the same thing Reuters did? I've never more deeply related
to an AI. No, I, I seriously though, I, I
think there's an interesting case to make that if this
somehow does get more wrapped up into the reporting process and
the pulling of public documents or semi public documents is
something that like O3 or O3 Pro can do pretty well.
I think it puts more pressure on the aspects of reporting, which
is gathering information from human beings.
And it's not just document diving which is value.
Like I feel like one of those woke people I need to be
snapping to you. I couldn't agree agree more with
what you're saying. Yeah, that's why we're video
too. Exactly.
I mean this is about the. People.
AI is about the people. AI makes us more.
Human there's 2 levels about it. One like people, the the sort of
like what people are like isn't really like on the Internet.
Like maybe you see YouTube videos, but it's like hard to
it's not a big data problem. It's like a small data problem
where you need to, you know, talk to people, interacting with
people. So getting the story of what
people like and how organizations are working there
isn't like the data for the AI to consume.
And then obviously humans are just better at understanding
like what's interesting about a person and like telling a
personal story. So I totally agree with you.
Like AI will be better at solving data stories and stuff
where it's like pulling together what's what's happening with
like money and numbers. And reporters are going to have
to focus on people like more than ever.
It's interesting to see how this tech will be incorporated into
newsrooms because there's a desperate move by all top
people. And I know this from my time at
the Wall Street Journal to force down the newsroom's throat AI
and into the process because it makes you seem futuristic in
advance. And you can pitch to, you know,
your non journalistic business execs that were embracing AI.
And so far, that's mostly meant using like AI generated talking
points or like bullet points at the tops of stories, which at
best maybe removes one person whose job was to write those
things. But it's not AI.
It's not actually disruptive in the in the flow of news or
reporting. So maybe what you were messing
around with Eric will be closer to it and that can actually
change things. But aside from that, it's been
pretty, I think. It's a good sounding board, good
proofreader. I mean, we still pay a
proofreader, but you know, it's not.
It's going to be more and more helpful.
But I agree that the heavy-handed attempts to to use
it can be heavy-handed. Do you think O3 and similar
models represent AGI as Tyler Cowen seems to say, or as crank
Gary Marcus? Please, this is nowhere close.
Can't even do math with decimal points.
It's idiotic and there's a propaganda machine and.
I, I don't know, man, I don't know that the bar is always
moving. I don't really know what it
means. I mean, there's like financial
definitions for it. There's philosophical
definitions. I have a feeling that like this
back reverse engineering of AGI and say like we've actually had
it for the last couple of years of the last year or so because
of reasoning models that's weak. I'm sorry, Like I, I want a lot
more than that. Like AGI to me needs to be like
in SIM City 2000 when like a headline in the newspaper said,
like nuclear energy exists and you're allowed to like build
nuclear plants and and and. I'm most sympathetic to that,
that it hasn't produced any real innovation or new ideas, and
that is some barrier. But yeah, is does that mean that
the threshold for AGI has to be novelty?
Because I feel like while I'm as a creative person would love to
say yes, that's the threshold and therefore you can't do what
I do, There are plenty of things that it can do.
And if your definition of AGI is to replace someone in the
workforce at a competent level, it's getting closer and closer
to being able to do that to the point where like this could be
the AGI moment. Like I think what you were
working with Eric just for it pulling up filings and things
like that. Like it can do stuff that
analysts can do just hands down already.
I, I think it's safe to say I know a lot about venture capital
and I think open AI knows more than me.
You know, it's just like it can, it can pull all the world's
information and sort of synthesize it.
It makes an occasional error, but so do I.
Like I think even now in areas where I'm an expert, it has more
context and information than me. I mean, I, I, you know, I, I'll
be honest, I've known Gary for a while.
I've probably muted him at this point.
And that's more just out of like respect for him as a person
because I like him, but he's so fucking annoying on X and I'm
willing to keep that in the pod like he just is, even though I
think he's a really smart guy. But I've seen some interesting
stuff on there. Just pointing out like it's
inability to do what would be basic logic that a human, you
know, average and even maybe slightly below average
intelligence could do. There was this one picture, I
don't know if you guys saw it, of like these curvy lines
pointing from a name to like a stick figure.
And it was saying like it, you know, it put the image into O3
and asked it to identify the person with the color of the
stick figure that it was pointing to.
And it got it wrong, completely wrong.
And that's something that probably 1/3 grader could do.
And I think those sorts of mistakes are meaningful.
Like sure, it has research tool capabilities.
And I think, you know, this gets into like the copilot versus
agent debate, like is it something that works as an
assistant or is it like autonomous?
And I think those mistakes, until they're fixed on a regular
enough basis, stopped me from getting too excited about like
human level intelligence. It just doesn't meet.
It just doesn't meet that. All right, we've looked at how
foundation models have been doing really well.
Madeline, your story for Friday looks at RVC is reacting to
market force. Well, they love to say that they
do not react to the markets, right, Eric.
They love to say that they're, you know, thinking of the future
and that the markets now don't really interplay with what
they're doing. True, true or false?
Or what do you? What have you found?
Charles Hudson, a precursor, told me best and said the
tailwind of AI is overcoming the headwinds of the market at the
late stage. They're delayed IP OS.
We cannot disregard that. Obviously that's happening.
I would not say that late stage is 100% affected.
I'd say that there's more of a pause there.
But like at early stage deals, deals are still flowing.
Companies are getting backed. I most of the investors I talked
to had not, you know, increased the pace of deals that they plan
to do over the next few months and by the end of the year, but
most of them also had not slowed down.
The money is still flowing. It's just, of course, you know,
the classic AI versus everybody else story.
Do you think they're in denial about how bad the economy could
get? I mean, Ryan Peterson, who
everybody in Silicon Valley trust we had on the podcast, is
like, if these tariffs don't get reversed, like tons of
businesses are going to die. Like we're already seeing, you
know, companies sell to their factory in China.
Like, obviously those aren't tech companies.
Those are like, you know, T-shirt manufacturers probably,
but that could have a huge impact.
Or like, how much do you think they're in denial about how bad
the economy could get? I mean, I think that the early
stage investors, it's not as much as they're in denial, they
just like are looking at a 10 year horizon.
So like in their mind, maybe the economy's fixed in 10 years, who
cares? This is going to be the next
generational wave of technology and we got to get in it right
now. I'd say more at the Series B
plus level, there's a little more doom and gloom.
It's not entirely rosy. I've heard a couple rumors of
term sheets getting pulled for companies in logistics, chip
making tools, anything like kind of that touches things that'll
be heavily tariffed that are raising right now.
I don't think they're it's not that they're not going to be
able to raise. It's just looking a little
tougher. Anything in retail not looking
so great. So yes, there are carve outs
where there are like things that are not doing well, but there's
also like the Consumer Packaged Goods companies like the D2C
marketplaces that were like really big in the boom times.
They haven't been doing super well honestly for a while.
And this is just kind of like nail in the coffin for them,
unfortunately. You know, if you're sticking to
like VC, like software company, AI engineering, AI application,
those deals are fine. That has not slowed down at all.
No one, especially in early stage VC is like worried about
the markets right now other than just like when you get to that
sort of mid stage is when people start to like slow down a bit.
If you had to do business, tech is where you'd want to do it.
You know, the least physical goods possible.
I mean, obviously what Tom you, you've touched on the fact that
software is not just ones and zeros.
There is like a hardware component that influences the
cost structure. What's your view on how much
worse things are going to get for the tech industry?
I mean, I feel pretty good right now.
Patriots are in control. You know, we've got the All In
podcast, people mostly running policy.
It's kind of hard for me to feel more confident than that.
It seems like everything's gone according to plan.
So I don't know where any of this doom and gloom is coming
from. I mean, look, if you want to get
things done, you've got to do things.
It doesn't matter what they are. You just got to do things.
And I think we're in the era of doing things.
And I couldn't be more impressed with the administration's do
things, whether the thing that they do undoes the previous
thing doesn't matter as long as it was a thing that was done.
And I also want to say I'm very impressed with the number of
Twitter ads that I'm seeing that then have community notes saying
this is a scam propagated by a drop shipping company.
Well, they're. All I think drop shipping is
getting killed. You're literally seeing tweets
of like Donald Trump. I I voted for you, I love you, I
worship you, you can do no wrong, but you're killing my
business. Please.
Yeah, yeah, Trump's completely turning his back on the whole
drop shipping community I think was a huge mistake.
Granted, these people don't seem to have money or it's not
denominated in dollars, it seems.
But I'm, I really think like Trump versus the drop shippers.
Like I don't want to make any predictions, but like I I, I, I
make sure I keep a close eye on the drop shippers if I would
farmers. Are going to get a bailout.
Maybe they'll do a targeted bailout on the drop shippers.
If there's a if there's a drop shipping bailout, that would be
incredible. Drop shipping Bailout.
I we're we're cooked. It's over.
I'm sorry. I want Liberation Day 2 is going
to be a huge press conference where like everybody that's
selling, you know, stuff that was a drop ship from Vietnam is
that that is the end state of America that I've been very
excited about. So.
I. That's as much as I can offer on
this one. Well, with that last little dash
of Tom nihilism, I think we pretty much covered the whole
gambit of news this week. We got, you know, the foundation
models crushing it in terms of business.
We've got VCs excited, markets be damned, except maybe a little
bit worried, but we won't talk about it now because we're still
doing deals. Eric, you had a nice chat with
Kyle Harrison about VC Polyamory.
How did that go? Yeah, he he did great thought
leadership. He made it a viral image on
Twitter. The ultimate influencer.
That's like a research report in venture anyway.
So Kyle Harrison at Contrary friend of the pod, came on to
talk about venture capitalists investing in many, many
foundation model companies in his chart of all the
incestuousness in venture and foundation model companies.
So it was a fun coda to Tom's reporting on the state of
models. Kyle and I talked about how
venture capitalists are playing all the money flowing into
foundation model companies. Give it a listen.
Hey, it's Eric Newcomer. I'm here with Kyle Harrison of
Contrary, former investor at Index and CO2 Thanks for joining
me. Thanks for having me.
We we are here to talk about one specific thing, infidelity among
venture capitalists. Where you, you had a viral image
in tech world that shows all the different investments that VCs
are making into foundation model companies.
And you know, a lot of the VCs are making investments into
competitors. So fun topic.
Do you want to just start off like the impetus for making the
graphic and and then sort of walk us through what you found?
It was kind of a vibe that I had been noticing over the course of
several months where I would see these fundraising announcements
and it would be a big firm talking about, you know, I think
it was XAI. I was the one that really
triggered me where I saw people that were like, you know, we're
so excited to back you on again, you generational company
building all that. And it was all this like stuff
about how great the business was.
And I was like, weren't wait, didn't these people invest in
opening eye or in traffic or whatever?
And I went and looked and was like, oh, they did like, oh, I
guess people are making a lot of cross multi layered investments
and stuff. And then and then in a non
account that I really like, who's one of the best LP
accounts on here? Is this guy endowment Eddie?
He was like, OK, wait, is backing competitive companies
allowed now in venture? And I was like, let me go look
at the cross section and it's like, yeah, I guess so.
Yes, clearly is the answer. Do you just want to walk us
through it like Andreessen? You have SSI, Ilya's company,
XAI, Open AI and Mira's Thinking Machines.
What are some of the other interesting ones?
Yeah. I mean, I think the biggest
thing was that you've got, and I think even some of these I
missed, like this was not necessarily a purely academic
exercise, but what's crazy. Is you made a screenshot, now
you are the scholar on. This.
That's right. That's the level.
So it works. On the Internet, this is much
more baked than most VC takes with just a screenshot anyway.
Go ahead. Yeah.
No, Harvard sent me a degree in the mail.
Yeah, exactly. I, I feel like the biggest thing
is like, you can kind of clearly see, and I think somebody
actually retweeted this and pointed this out, that it's like
a very specific strategy where like the one who's most active
is Andreessen, which is consistent.
Like Andreessen is super broad and investing in a lot of
different. Martine Casado, who I love, set
on stage at Cerebral Valley when I was like, how do you know
which segment of AI to invest in?
He was just like, why not all of them?
They're they're like openly going for coverage at this
point. And apparently even in the key
categories with competitors. Yeah, that's Andreessen.
So Andreessen I think is everywhere.
You've got Sequoia who is, is also quite active, a little less
than Andreessen. So a little bit more, you know,
demur or whatever. And then I think you have firms
like. Sequoia just did it to I mean,
Sequoia's interesting because they obviously what Affirm and
Chlorina, they have these famous ones where they've done both.
They try, I think, to be loyal, but they would have more of a
story of like, you know, I don't know, it's getting pretty broad.
They're in a lot of them. I was going to try and do some
spin that it's like, oh, they they're an X in that sort of
relationship with the rule off world, and then they invest in
the leader, which is clearly open AI in my opinion.
I don't know. But yeah, what it was Any
Sequoia analysis? I think cuz it's also, you think
about the story of like, I don't know if you remember this, but
they invested in Phoenix back in the day on the payment side and
Stripe was pretty upset about it.
And so Sequoia was literally like our bad keep the money.
We won't take an equity stake. Like it's just a donation, you
know, right. So they're definitely more
thoughtful about where they're investing.
I think to Sequoia's credit, one of the things that they've been
very deliberate about is that they are more selective in the
earlier stages. And somebody else I think
pointed this out in a retweet where it's like once it gets
into the later stages, you're largely just, you're garnering
exposure to assets. Like it's not as much once these
guys are raising, you know, $10 billion plus rounds or whatever,
it's like you're really just getting exposure.
I think Sequoia is a little bit more protective of their
reputation at the earliest stages.
Lightspeed is another one. I mean, anthropic is going to be
one of their biggest positions overall.
Like because you know, I dug into their returns and that was
like an totally didn't realize that.
And then they're in Mistral NXAI.
I think they're also in one other, somebody else, I can't
remember which one, but somebody pointed out that maybe there is
one of on here that I missed. And because Lightspeed has also
been super active. And I, I would argue that I
think Lightspeed has been playing not necessarily like
catch up, but they're, they're really trying to like
deliberately demonstrate that they want to be in this bucket
of like the Andreessen's GCS of the world, like just be very,
very active. What's funny, where is GCGC and
NEA like? If you're going to do the
Andreessen style blast them all approach, shouldn't you be in
the defining category of our time?
Yeah, it's a good question. And I I will.
I will defer back again to the lack.
Of my they. Might be they might be in five
of these and I just didn't want to look up another crutch based
profile. Look up everyone.
OK, they'll they'll they'll be like, no, we're we're sluts in
this ad. Who?
Who are the serial monogamists here or who who do you think of
the sort of big brand firms has sort of stuck to one bet?
Well, I think that and now it was actually a sort of oversight
on my side like in making this chart because originally it was
supposed to show the cross section, but I kind of just
started at the bottom. I said, OK, open AI, who's in
that boom, boom. And I worked my way around with
the companies adding firms as I went.
And what I realized when I get when I posted it and it kind of
popped off is that I had left founders found on there despite
the fact that they are actually monogamous in this in this
particular strategy. And the other one that I didn't
put on here, but that that called it out is Thrive.
And I think that again, going back to this like this actually
pretty indicative sampling of different firm strategies.
I think that Founders Fund and Thrive are famous for being
really dedicated to running an incredibly concentrated
portfolio and just like doubling down, tripling down into their
winners. And founders fund, despite being
like perceived as like, I don't know, perceptive and early, you
know, Airbnb was like series C. Some of these they're like, what
is the momentum company that's going to define the generation?
How can we like back up the truck into it?
And you know, clearly they, they see open AI here.
Well, and I think that's one of the reasons why they're not
afraid to admit when they did, even if they didn't get there as
early as possible, right? I think that and probably in
that in that vein of monogamous, I think Khosla is another one
where they've been all open AI all day for AS.
Long as possible, like you roll that company in just right.
Jesus, right? Yeah, that would be insane.
I think to diversify away. It's one thing, you know, I
think a consideration for a lot of these is they're getting an
open AI. It's such a high price that it
fits into the growth story where you're talking about where they
were like, not traditional venture investors in open AI.
They're just like we can't miss the company of our generation
and then they're like, well, let's try and do real venture
investments in other model companies if we get a shot at.
Yeah. So I think the and so, but I
think to founders funds credit, even if they're not there at the
earliest days, they're willing to acknowledge that like, hey,
listen, this is clearly broken out as a category definer and
they'll say that too. Like I've heard Trey say this
multiple times where they talk about, listen, like our
perspective is that there's one company and like, if you're
going to invest in space and you didn't invest in SpaceX, you
probably lost money. If you want to invest in defense
and you didn't invest in Anderol, you probably are going
to lose money. Like they, that's their thought
process. And so even if they're getting
there a little late, they're going to back up the truck.
And that's Peter Thiel's like, you want to be a monopoly
business. It's sort of like you don't.
You don't want to be in a company that's creating a
category necessarily, because then you have all these
competitors. You want to be the company in a
category that chokes out all the oxygen for everybody else.
That's right. I, I, I also think that there is
a narrative here, we can talk about this if you want to, that
there is increasing differentiation.
It's very subtle and it's, and it's going to start overlapping
again, but there is some semblance of different companies
trying to prioritize different places.
We can talk about that if you want to, but.
No, I think, yeah, let's let's talk about it, especially in
light of Opening Eye potentially purchasing windsurf, formerly
known as Codium, that that speaks to them, you know,
demolishing everything, but also speaks to the idea that if
you're an investor, it's hard to know where these companies are
going to go, right? They're sort of going to lean
into where they're successful foundation models in particular.
It's like you could become an application, you could be
infrastructure. You know, it's hard, hard to
know. So are you really?
No one is saying VC shouldn't invest in windsurf.
And if windsurf is part of Opening Eyes turf, then it's
sort of like, you know, the floodgates are open.
Or what would you say about that?
So I think that the, it's actually very, it's very, very
similar to what happened with the hyper scalers where you look
at like the Amazons and Googles and Microsofts of the world.
The difference was that they're sort of amalgamation of a bunch
of different faces happened long after they had been founded,
long after they'd gone public. The difference was it's not a,
it's not necessary because even like think about like open AI
launching a social app and, and I had a friend of mine tweet and
say, so are just like our network effects dead, Like
there's nothing mean anything anymore.
All the businessy stuff that we've learned is, is nonsense.
And it's like, if you think about it, it's not that any of
the fundamental principles have changed.
It's that the velocity or like speed of the thing happening is
just so much faster than it's ever been before.
But at the end of the day, like if open AI does launch a social
app and it does turn out to be successful, it's going to be for
the same reasons why when Meta launched threads, they also got
up there pretty quick is because they have a big broad
established installed base they can they can benefit from.
So it's exactly the same dynamics, but they can play into
different strategies. And, and so when I think about
like each company, each each for a model company, I feel like
they are trying to carve out their niche in the universe.
Some are fuzzier than others, but I do think the clearest
distinction is when you look at the projected revenue of a
specifically Anthropic versus Open Eye.
I think it was like 2027 revenue estimates that that somebody had
leaked or put out or whatever. But it was basically like, hey,
by 2027, Anthropic believed that they would have I think like 5X
the API revenue that Open AI was projecting for.
And it wasn't Anthropic crapping on Open AI.
It was Opening Eyes forecast for 27 compared to Anthropic's
forecast. And Anthropic assumes they're
going to have five times as much API revenue than Open AI.
And it becomes really obvious that Open AI, whether they meant
to do this or not, is going to become largely a consumer driven
business. Like ChatGPT is their cash cow
right now. And whereas Anthropic is trying
to squarely plant itself in the API where it's sort of the B to
B world. That's a clear distinction
that's defining a lot of the decisions those companies are
making. You know, I love, love Anthropic
and they're very competitive, but there is the, the sort of
infrastructure API business is like under threat from open
source in a way that having a dominant consumer application
is, is a type of Moat that we're all all familiar with.
It feels like besides open AI, having a lot of users, everybody
else is sort of like we need to run faster than our competition
to have sort of incrementally better stuff.
Obviously over time you build customer relationships, sales,
sort of product differentiation. But it is totally, if I mean
that's absolutely the the bear case on Anthropic is that
progress is just too quick for you to get in and establish any
real meaningful like enterprise install base.
Whereas I think on the consumer side that's different because
when you see these surveys that say something like 6575% of
adults in the US like not in tech, but like period, everyone
has used an AI product. The vast majority of them are
ChatGPT. And I think about this all the
time that like when we look back at the end of 2022 when Chad TPT
came out, What's so interesting is when you talk to the people
who are the sort of experts in this world at that point in
time, that was not a technological breakthrough.
Like it wasn't, that wasn't something that a lot of the
companies who were operating in 2022 couldn't have done.
Like they could have put a chat interface on their model, but
they didn't open AI put out it as like almost an experimental
tool to say, hey, in this neat, you can kind of play around with
it. And it exploded because it was
people's first direct experience with generative text.
Everybody was too afraid of their tails, and only open AI
was willing to unleash AI onto us all in a cavalier way.
Yeah. Yeah, well, I think they even
think it was an accident, right? They like they didn't expect it
to do that either. Right, But I mean, clearly, I
think some of the break of anthropic was, you know, the
roll out of Chachi BT and everything.
I, I do think there's a lot of room for consumer adoption just
because I, I feel like I'm begging people to use open AI or
to use Chachi BT in some case. I'm like, like my family members
are like, it's crazy. I'm like, you know, super
excited about O3 spending a lot of time on it and it it's, you
know, people, these companies clearly need to find ways to
bring the product to people in a way that doesn't take as much
work. And that's going to be a huge
build up going back to venture because that's really the focus
of this conversation. Do you think what we're seeing
with the models is playing out in other categories or do you
think this category is unique where VCs invest all over the
place? So I had one of my much smarter
than me friends kind of articulate this analogy of like
when you think about the.com, there was sort of, you know, the
almost the three layers of what was happening.
And that really drove like the distribution of the Internet.
And you basically have there were folks on the infrastructure
side you're building physical, you know, almost like compute
and stuff like that. Then you have the networking
where it's the Cisco's of the world getting to broaden out and
get access to the underlying tech.
And then you had the applications, right, the
pets.com and stuff like that. The difference there when you
think about like how that is similar to today is that you
should you look at the chips company and chips company once
again are ripping, right. The sort of underlying
infrastructure is still powerful regardless of what's getting
built on top of it. That's very powerful.
And so I think that segment has more problems with, you know,
geopolitical stuff than it does like distribution.
But what's what's really unique about this point in time that
makes it really difficult for venture investors is that in
the.com you had networking companies that were like, we're
just trying to get this out into the world.
And then you had applications coming and saying we're going to
get this package and deliver it to people as a service.
Today you have the networking layer, which is effectively the
model companies also building the application.
So it's effectively as if Cisco was launching pets.com, it would
be really difficult for pets.com to compete with that.
You know, and you know, maybe it falls apart because it wasn't
the underlying thing. But today it is like AI is the
underlying aspect of that product.
And so when you see folks like open AI buying Winsurf like that
is a it's a perfectly logical extension, right?
You see this? To reframe what you're saying a
little bit, you're saying the non monogamy or the polyamory
with foundation models, it is polyamory with everything
because the models sort of are competing with everything that's
investable and interesting right now.
And so it's like, yeah, if you're doing applications,
infrastructure, whatever, inevitably you're going to be a
collision course with your model investment.
That that seems OK. It's just I think it's just the
pure model on model that feels like, Oh my God, like whatever,
you know, how many, how many closed source models do we need?
I guess is a backdrop question. Well, and I guess the question,
I think the, the thing that people are sort of struggling
with is that like the, the not just the progress of individual
companies, but the progress from model to model.
I mean, you look at like people's reactions from Claude
3.5 to 3.7 and it's like that's a miss.
That's a misstep that that like could make or break the game for
a while, right? Like that it can happen that
quickly. Or like, you know, I think
somebody else tweeted this of this like constant like we're so
back. It's so over cycle of like, oh,
like I actually think, you know, 4.5 is not very good.
And then it's like 03 is incredible and like it's so
quick with each model that it's so much harder that like at the
end of the day, yeah, if you're a massive multi billion dollar
firm, you've you've got to go get exposure to everything
because you don't know what's going to come out on top.
This is what we want from capitalism, isn't it?
Everybody's competing, lots of money flowing into an
interesting space. And like, yeah, you got to be
the best of the best if you want to extract value.
I don't know. I'm not.
And it's a category where I'm like happy for the world to burn
some capital, you know, trying to crackitsoidontknow.com
theproblemwith.com was like there was no distribution.
It's like they didn't they you couldn't, there wasn't the
customer base when you set up the Internet now in all the
other bubbles, it's like, well, there's still a distribution to
quickly get a bunch of customers.
I mean you, you invoke.com, are you, are you worried about like
a big bubble? So I my biggest concern is this
idea of like, like hype cycles are built on momentum value
cycles, if you will. Like actual value creation
happens when you're able to push through all of the hype and all
the excitement, all the experimentation and get to the
actual creation of business value.
And if there is underlying business value that's consistent
and replicable and changing the way an organization works, then
you can capture some of that value.
My sense is that the volume of capital and the volume of hype
is not commensurate with the our ability to articulate and
execute on actual business value like that.
Does not those feel wildly? And part of what made that
possible this time is every enterprise in the world was
willing to spend money initially to say, oh, how do we figure out
AI? But that could be a sort of
false signal on how much they stick around when they don't get
the value. And that goes back to your
question about like, you know, we, we the, the biggest thing
that we have to unlock is we have to figure out how do we get
people to use this more consistently in a way that
creates value. That's not just true of like you
and I trying to convince our mom to use ChatGPT or whatever.
That's also true. Yeah, we look too similar.
We can't be saying something like that, but like that that
kind of stuff like it's from the consumer side is also true on
the business side. And I think all the time about
like, yeah, we've seen crazy like Rev scale UPS, right?
But it's like, OK, what are probably the three companies
that have made the most money from this this pop?
And it's like NVIDIA, which is like, OK, demand, demand, people
need it, whatever open AI, which is like innate offering it to
people to play around with and use.
And then like Accenture, who's like making an ungodly amount of
money helping people figure out like, what do what do we do with
this? Like, how does this actually
impact our business? But like outside of that, like
there haven't been a ton of case studies, at least that I've seen
of like, oh, like John Deere is suddenly ramping up.
You hear some stories like I think it was the what the Klarna
story of like. Yeah, Klarna and Shopify, but
some of it feels very aspirational, like they want to
be seen as getting it. Yeah, but it's like.
I want, yeah, totally. Listen, I would love for that to
happen. Like I think that like, yeah,
the fears of like job destruction and stuff like that.
Like I agree that it's the same as like Willy Wonka or what's
his name Charlie and the talking factor.
He's dad getting displaced by a robot and then getting a job
fixing the robot that took his job.
Like there's there's lots of opportunities for evolution.
I'm not afraid of that. I want that to happen.
The question is just is it capable of doing that?
And I don't, I don't know that we're there, which could set us
up for a very painful pop. But like you look back at
the.com and like Amazon and Google camethroughthe.com, like
there will be businesses that get built that are still
generational businesses despite the fact that they will
participate in short term pain. Sam Allman, Opening eye, did
reportedly try to scare investors off investing.
You know, he had that list that was reported.
You think that was just like a total failure or any
observations about that? Well, So what was interesting is
if I remember correctly, one of the biggest sort of stinks that
was made about that list was Glean was was not people not
investing in Glean and an open AI.
And here's the thing, like, so to go back to the question of
like you're not as worried about the infidelity for between like
the model and application layer. Like I actually don't think that
you can distinguish because it, it at the end of the day, it
increasingly it seems that it is going to be the same thing
because you're not like the again, like your point, like the
API revenue, it's really difficult to believe that that's
long term defensible. Like I thought it was
fascinating when I dug into all of the Cogen agents right where
you look at like the cursors and windsurfs and Lovables and bolts
and replics of the world and stuff like that.
They're all using Clod. Like they at the time they were
using clod 3.5. This is a couple months ago, but
they were all using that model. But it's like tomorrow we can
all switch over to this one because now Gemini is the better
code Gen. model or whatever like that.
Progress means that it's going to be incredibly difficult for
any of these companies to justify their existence at the
model layer, which means that, well, where do you make money?
You go pay $3 billion for windsurf because that's where
you're going to make money because people want to have a
thing that they use. The bigger question there then
for, for windsurf users is like, OK, wait, but am I going to be
stuck now then on GPT models? And it's like not if they want
to keep their that installed base like they're going to have
to let people use different models.
And on that acquisition, there is people are like, oh, you can
also train your models on the behavior on windsurf.
So there's an argument that, you know, you could be open AI,
leave it, leave customers allowed to use whatever model
they want, and then learn a lot to then make your model better
so that eventually they want to use your model again.
Yeah. But if I think about like, OK,
if I'm open AI and I want to rule the world and I'm not
because I do think also like again going back to this, like
some of these companies will differentiate.
I think that SSI is going to be sort of go off on this like AI
safety, like let's save the planet stuff.
And it's like, let's see how that goes.
I don't know what that's going to evolve to look like, but it's
clear that open AI is not, you know, again, maybe the narrative
and the marketing is making AGI accessible for everybody or
whatever. It's like, right, They want to
own the world and they want to make a lot of money and they're
trying to be a for profit so that they can raise more money
to make more money. Like they're clearly trying to
own the world. It's like, OK, if I'm open AI
and I need to justify a hundreds of billions of dollar valuation,
how am I going to do that? It's not going to be, I promise
I'll keep making the next best model and like a constant, you
know, a hamster wheel, it's going to be, I'm going to be the
thing for your workplace and I'm going to be the thing for your
planning and your personal life and your AI agent and whatever.
I, I was going to say initially, open AI is a uniquely
problematic juggernaut from an investor perspective because it
is a non profit and you know, because it had the ousted CEO
and everything. It's like, I can see why you'd
want to sort of hedge your bets that maybe it's sort of like a
shakier dominant player than in past generations, but then you
reflect and you're like, wait, Uber add the Travis stuff like
Facebook. Mark Zuckerberg was like firing
his whole executive team and had to like pivot to mobile in some
ways, like the juggernaut says company was never like so
clearly anointed as we we write the story, but you know, going
through it, you're like, man, opening eye could totally failed
to become a for profit and then I better have an investment
somewhere else. I wanted to ask and I guess let
this be sort of the last question.
What without talking your own book, what should a founder do
based on this information or like, what do you think?
Like if everybody's investing in everybody, like to I need to go
to a CO2 and thrive or it's like I need to just accept it or
what? What do you What advice would
you give to a founder faced with this polyamory?
So increasingly, and I don't know that I'd go so far as to
say that polyamory is rampant in every category forever, at every
stage for every firm. Like everybody's, everybody's
different. But what we're seeing here is a
symptom of something that you and I have talked about a lot
before of this like sort of capital agglomerator, like rise
of the, you know, the black stones of our industry, right?
Like that's what's happening. This is a Subs.
This is a. For lack of a better term.
Yeah, like this is a sub system of that.
And I think that in in thinking about that because it is true
that they're going to do more, there's going to be more
applications that they're investing in that may be
competitive and whatever because they're just trying to play
capital. What founders need to understand
and what I've spent three years writing about on my on my sub
sack, is that increasingly venture firms, at least the
business model venture firm has increasingly become more focused
on asset management. That's not the marketing.
They still market themselves like they are the scrappy, you
know, John Doors of the world from the early 2000s or whatever
and the benchmarks and stuff like that.
But that's, that's the marketing.
The business model of most of these firms has become asset
management. And if they're going to build
themselves as asset managers, you as a founder need to treat
them as asset managers. They are not your, even if
they're on your board, they are not.
Just because they're on your board does not mean that they're
your buddy. It does not mean that they're
your therapist or your sounding board.
There are firms and there are investors that you can go get
who will be your confidante and your friend and support and
whatever. And their firms are set up more
aligned with your outcomes. These larger firms are not that.
And so people need to take a, like a crash course in how
public companies manage the asset managers that buy their
stock, because that's the way you need to treat some of these
firms is like that. And that goes to like things
like information rights and strategy and, and how and who
you let into what round and what percentage of ownership and how
much they control of your parata and your, you know, majority
voting rights and stuff like that.
Like you need to manage them as the asset managers that they are
and be very, very careful. It's not bad.
It's a good weapon that you can use in a in a in a big fight,
but you have to be really careful.
Kyle Harrison Contrary, thanks so much for joining us.
Thanks for having me.