This Week in Startups
00:43:38 · Ben Black, S0, Dave McClure, D.A. Wallach
[00:43:38] S4: You know, look. I say, like, I don't wanna listen to what people say. I I wanna look look what they do. Alright? [00:43:44] S0: How many darts did you rip before this [00:43:48] S4: It's a [00:43:49] S0: Russell Crowe smoking darts in between takes on, Gladiator. Go ahead. [00:43:54] S4: Yeah. I I remember remember... One part of this business we haven't talked about at all is the cost of compute and all these long term and how important that go... Goes into the actual sort of fee... Like long term business model here. And, yeah, I have to remember Dario giving a very public scolding to Sam Altman for being irresponsible about all of his compute deals. Yes. Because Sam almost like [00:44:17] S0: Pull up that cliff, guys. It's when he said you can run off a cliff. Basically, you buy too much compute, you go bankrupt. It's the [00:44:23] S3: No love lost between those two folks at all. [00:44:25] S2: No love lost. [00:44:26] S0: These guys left OpenAI Yeah. Because they didn't trust Sam. That was what they said. Yes. Yeah. [00:44:33] S4: And then... But guess what? Sam was playing this game to win. And when it became clear that Sam was right, that you had to have compute locked up to win the business game, what did Dario go do? [00:44:44] S0: I mean, he's a rationalist. He's a rationalist. I mean, he's definitely not dumb if you build [00:44:49] S3: And by the way, that's why Elon is also winning too.
00:44:49 · Dave McClure, Ben Black, S0, D.A. Wallach
[00:44:49] S3: And by the way, that's why Elon is also winning too. [00:44:52] S4: He's realized that he is behind the eight ball and that and had to catch up. And that... I don't wanna hear you talk about him being a religious zealot because, I mean [00:44:59] S0: I mean, he listened. Jesus turned over the, the the the the tables at the bazaar. He was like, I'm... That's it. I'm taking over the bazaar where I'm gonna be the marketplace. [00:45:10] S4: Just the same, he's competing hard and he's got a very softer veneer about him and you know. [00:45:15] S0: It's really interesting. If you do an alternate history, D. A, I think you are, you know, as an artist and somebody who appreciates art, like the alternate history genre, perhaps under recognized in its time. But if we did an alt history here, I got Lon's attention now by saying alt history. You do an alt history here. If Sam Altman was 20% less chaotic in his approach to business, I mean, it's like he is a bit chaotic. You know? You remember he got fired, he came back, all this stuff. He probably would not have lost Dario, and there might not be an Anthropic. [00:45:55] S2: I mean, by the way, he might not have lost Elon. [00:45:58] S0: Right. [00:45:59] S2: You know, these are all Elon's children. Wow. And, know, and the godfather is still looking like the godfather right now because even though he got into this also out of his religious solitary... And, you know, Jason, you know, he he believes this. [00:46:13] S0: Right? He's been he's been very public about it. Had this conversation many nights.
00:46:13 · S0, D.A. Wallach, Lon Harris, Dave McClure
[00:46:13] S0: Right? He's been he's been very public about it. Had this conversation many nights. [00:46:17] S2: Okay. So Elon's really good at business, but we've also stayed up all night talking with Elon for the past ten years about how he believes this is gonna take over the world. So, you know, it's like he believes this too. So the... These guys were all one, like the father, the son, and the holy spirit. They have now fractured. [00:46:37] S1: It's a schism. [00:46:37] S2: Okay? And and and and and and, basically, what fractured them was that Sam had to [00:46:43] S0: be the guy. Yes. [00:46:44] S2: You know? But but, know, you can't... You you gotta respect the sensei. You know? The the student can't overshadow the teacher. And then and and then Dario looked around. He said, oh, wait. These guys like money? I thought they were just here for the religious idolatry. And so I gotta go do my own thing. So the the the genealogy of this whole thing begins with this religious fanaticism. [00:47:09] S1: Right. [00:47:09] S2: And and the non profit a non profit. It will not... Unless unless they are right that this is software Jesus, this will not end with religious fanaticism. This will end with normal business. It will probably end with Microsoft and Google being much bigger. Maybe Oracle will even win. Maybe Larry Ellison's swan [00:47:34] S3: That's a long shot. [00:47:35] S2: Will be the greatest [00:47:36] S3: That's a really big one. [00:47:37] S2: Riskiest hand that's ever played putting
00:47:37 · D.A. Wallach, S0, Dave McClure, Ben Black
[00:47:37] S2: Riskiest hand that's ever played putting [00:47:40] S0: 400,000,000,000. That's a very good point there, D. A. He's 400,000,000,000 into CapEx spending being essentially [00:47:48] S2: balls out, dude. And the guy's... He's 80. Shaky, man. Yeah. I mean, could we imagine taking that kind of risk when we're [00:47:56] S0: 80? And, by the way, spending another whatever... Putting whatever tens of billions on the rest to buy every dying media asset. No. You had [00:48:03] S3: to put it [00:48:04] S0: on the same charge. Giving it to your son. [00:48:05] S4: I mean Mhmm. [00:48:06] S3: Yeah. Son's doing the same shit. [00:48:08] S0: They are spreading the treasury. There... It's it's the treasury. This, I think a lot of empires spread the treasury a little too far and had too many conquests going on at once. Let's talk about who won here. Lon, we have to get two things before we wrap up. Number one, who won? Sure. Who won in the old venture capital game here at This Week in Venture Capital? Then number two, convertible notes hitting public markets for the first time in a in a in a significant way. Go ahead.
00:48:44 · Lon Harris, S0, Dave McClure
[00:48:44] S1: Yeah. Alright. Well, we'll start we'll start with that one. So, Anthropic, lot of headlines were saying they burned $80,700,000,000. That was the net loss for the first half of twenty twenty six, but 72,400,000,000 of that comes from just one line, quote, change in fair value of convertible notes, derivative liabilities, and safes. In this case, it was mostly convertible notes plus derivative liabilities that were tied to Amazon and Google note purchase agreements we were previously discussing. Anthropic elected to carry the notes at fair value instead of splitting them into debt and equity pieces, or every reporting period the company now remeasures these liabilities. If its value has gone up, the shares owed to investors are worth more, hence more liability. The increase is recorded as an expense on the income statement then added back onto the cash flow statement as non cash. So this is raising a lot of questions about which of these numbers matters, which doesn't, and how do you all think private markets are going to... Or public markets are going to learn how to interpret these, numbers. [00:49:47] S0: Dave. Yeah. This is your wheelhouse. You just net out that 72,000,000,000. [00:49:51] S3: I think my partner did the analysis of this. And again, I think they're in fine shape on a profitability basis. There's some, you know, noncash expenses here that people are are looking at that are worried about too much. But on actual cash out the door, they're they're doing fine.
00:49:51 · Dave McClure, Ben Black
[00:49:51] S3: I think my partner did the analysis of this. And again, I think they're in fine shape on a profitability basis. There's some, you know, noncash expenses here that people are are looking at that are worried about too much. But on actual cash out the door, they're they're doing fine. [00:50:06] S4: Yeah. But I I heard though... I mean, that that there is a negative kind of implication that that those notes... A lot of the notes were due to their Amazon deals with a... AWS and were basically subsidizing their compute costs. They gave lower cost. They gave they gave lower compute compute costs. So this goes back to the point of, like, do we really understand cost of compute here? Because that's my understanding of it.