This Week in Startups
00:50:06 · Ben Black, S0
[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. [00:50:28] S0: Well, here's the great news. Sunlight will figure this all out, and we're about to have essentially two of the three, the the father, son, and holy holy ghost here. We're about to figure this out. Once they're public, then we just have to somehow pencil in one hand of poker at the table, which is what cards are Sam Altman holding. We know what cards Elon's holding. We understand his compute costs. We understand what he's building. We have perfect insight into that. We know what Amazon's doing. We know what Oracle's doing. So really is just going to... And we know what NVIDIA's doing. When we get these two companies public, we're going to know the answer to all these questions. We'll keep at it there. Then let's talk about the winners. Sure. Dave, you were kind of rolling your eyes there, I'm assuming because this is off balance sheet loans and stuff like that.
00:51:17 · Dave McClure
[00:51:17] S3: Yeah. Yeah. Yeah. I I think what we're not able to clearly understand right now is the amortization of that cost of capital. Like, you're putting a shit ton of money out there on CapEx, and the question is, though, how quickly or how not quickly does that CapEx, amortize, you know, depreciate over time? If you're talking about chips, you know, people are saying, hey. These chips are gonna make money for us for four or five, maybe even six years. For the neo clouds, I don't know if that's, like, completely true. I think they're spending a lot of money, and those, you know, things that they're leasing and buying may be making money in the future, may not be making money in the future. I think we saw from, SpaceX q three earnings, SpaceX is in great shape. Like, Elon's, you know, payback is less than twelve months. He thinks he can get to six months. And, you know, I think made some analysis about, like, all the other neo clouds in trouble because their payback was not, anywhere close to that. Was two or three years, maybe not even. Yeah, but
00:52:16 · S0
[00:52:16] S0: I mean, two or three years seems completely reasonable as well, D. A. And when we look at the history of compute and the amortization of computers, we see a couple of observations here. I want your comment on D. A. You're Google or you're Amazon, you have new technologies emerge and optimized software. So what was used as a frontline computer eventually becomes used for, I don't know, cold storage, background jobs. And then eventually, the equation is, in a data center, is this providing enough value in your eight, nine, or 10 of serving web pages or Gmail? Is it worth sending a human to pull this out of the rack or should we just let it keep grinding and the average lifespan of compute at like other data centers? We're talking about seven, eight, nine, ten years for some of these servers, And it's only the human cost of swapping it out that becomes the cost. I think these machines are going to be doing reasonable things in years seven, eight, and nine with optimized software, you know, to move them to inference, to move them to storage jobs, background jobs, etcetera. What's your take on how long this compute has a lifespan I
00:53:34 · D.A. Wallach
[00:53:34] S2: am relatively confident that the hyperscalers are behaving rationally. They can get money at six or 7%. And if they can earn 10 to 14% returns on it, it's a great financial decision. They create value for their shareholders. So I don't... And and by the way, if this whole thing blows up, they just stop spending the money and it was a bad couple years and whatever, they move on. So they're fine. This entire circular economy of the labs, the cloud providers, the hardware providers, I'm convinced that it makes sense within itself as one organism. But the only question that matters over the next decade is whether that organism can find enough nutrients in its environment. And the challenge here in parsing all of these financials is that yes, sunlight's the best disinfectant. As these companies go public, we're gonna see a lot about where they're spending money, but they are not gonna tell us all that much about who's giving them money, what their customers are doing, who their customers are. And unfortunately, our best source of information for that is probably gonna remain the investment banks who have this capacity to integrate the financials of every other company in the economy. So what we need to do is stop looking at the AI guys so intently and spend more energy looking at everybody who's supplying their revenue. Right. That's where we're gonna see how this story evolves. And as long as as long as that demand's growing like gangbusters, the organism's gonna be fine.
00:55:15 · S0, Dave McClure, D.A. Wallach, Ben Black
[00:55:15] S0: Yes. You might get some people who get ahead on their skis, who maybe act irrationally, and then they have to cancel or postpone, or, you know, one of their real estate providers says, hey, I'm not letting you off the hook. You gotta give me money. And they say, don't have money. And then that company goes out of business and somebody buys our assets. And the question is, does it become a dark fiber like situation where there's no buyers in your analysis as a biotech investor? The nutrients are just not there. You don't have people providing Yeah. Good. [00:55:47] S3: I'd love to hear Ben's position on this because he's, you know, sort of a retired secondary investor. Now he's managing a public, you know, traded portfolio of, you know, private companies about to go public. [00:55:58] S0: What are the top three holdings in there, Ben? Top three holdings in your public private... What do they call this? Is this a closed end fund [00:56:05] S2: or something? What do you [00:56:05] S4: call them? End fund called Powerlaw, SpaceX, OpenAI, and Kalshi. [00:56:11] S0: SpaceX, OpenAI, and Kalshi. Okay. But open... But SpaceX is already out, so you you We're you keep it in [00:56:17] S4: in we're in the process we're in the process of of Got it. Of selling that down. [00:56:22] S0: Got it. When did you buy your SpaceX? How how many years before, it went public? [00:56:26] S4: It wasn't that long ago. It was, like, early twenty five. [00:56:29] S0: So you got a 50% lift on that, something to that effect? 50%? [00:56:33] S4: No more than that. We got about a 3x.
00:56:33 · Ben Black, S0, Dave McClure
[00:56:33] S4: No more than that. We got about a 3x. [00:56:36] S0: Oh, 3x, fantastic. 3x in two years is great. [00:56:39] S4: Awesome. Yeah. Looked at all of the private, know, neo clouds and yeah, mean, think the hyperscales are totally fine. I think they're so dominant. They can always adjust. They have they have so much negotiating leverage in all their deals that, you know, I'm not I'm not worried about them. You know, I I don't love companies as an investor where there's just a lot of factors out of your control. And with all the NeoLabs, your cost of capital is out of your control and also how long it takes you to implement your projects is out of your control. And when you put that those two things together, I've stayed away from all of them. I'm sure that maybe I certainly missed CoreWeave for that reason, and you know that's on me because that was a great deal if I had done it. I missed a big one, but I just... I like to sleep at night. That's why I do growth stage instead of early stage, and I can't take businesses that are are built like that. [00:57:39] S3: I think what you're talking about is a lot of debt capital and I think Ben Horst... [00:57:42] S4: Well, debt. Yeah. It's debt and it's timing. [00:57:46] S3: Right. [00:57:46] S4: Right. Like, you know, that is your ability to build. [00:57:49] S3: Yeah. [00:57:49] S4: Right. You know, your bill... Your ability to build. Oh, and by the way, if Jensen gets mad at you, forget it. They're all sorts of trouble. There's just so many things out of these companies control. And I don't like that as an investor.