The Twenty Minute VC (20VC): Venture Capital | Startup Funding | The Pitch
00:49:05 · Harry Stebbings, Brendan Foody
[00:49:05] S1: Okay, next frontier of model development. If I listen to everything that you just said, I would draw two conclusions. One, shit, we should just invest all of our money into OpenAI and Anthropic. And then the realization dawned on me that the majority of startups, and you can shoot me down, again, shoot me down, is the majority of startups, say, especially on the West Coast, use frontier models to see where they can go and how far they can push them. And then they use open source, often Chinese models, to get as close to that as possible at a much better cost basis, in which case OpenAI and Anthropic are inherently challenged by that much more cost efficient open source model, right or wrong? [00:49:41] S0: I think both are true. There's going to be many orders of magnitude more demand in five years than there are today, maybe four or five orders of magnitude more demand. But there's also going to be increased competition with people just distilling and having fine tuned open source models that accomplish their workflows. Ultimately, I think OpenAI and Anthropic are incredible investments, and it seems like they're starting to be consensus around that in a way that there wasn't just a couple of years ago. But at the same time, I think that majority of inference in five years is going to be using a open source or custom fine tuned or distilled model, not using a frontier model. Okay, interesting. [00:50:23] S1: You said they're obviously incredible investments. Where will they be in five years time? [00:50:28] S0: Valuation wise, That's revenue
00:50:28 · Brendan Foody, Harry Stebbings
[00:50:28] S0: Valuation wise, That's revenue [00:50:30] S1: on valuation wise. Valuation wise, wow. If we put them both at a trillion stake, give or take. [00:50:34] S0: Yeah. This is hard to imagine. [00:50:36] S1: This is one I'll play back to you in five years' time, and we'll both look back [00:50:39] S0: and go, oh, either we were very prescient or just completely wrong. I could definitely see one of them being a $10,000,000,000,000 company, maybe even significantly higher. It feels like the opportunity associated with being the frontier model is so large. It will just eat up so much of the other demand within the economy, because that also means when you have the frontier model, you can use that as a teacher model to distill your own models, to have the best small models, etcetera. So I would guess at least one of them is worth more than $10,000,000,000,000 [00:51:10] S1: My next assumption was when you talk about orders of magnitude more when you talk about spending more on compute than you will on salaries, why didn't we just put all of our money in NVIDIA? I know it
00:51:10 · Harry Stebbings, Brendan Foody
[00:51:10] S1: My next assumption was when you talk about orders of magnitude more when you talk about spending more on compute than you will on salaries, why didn't we just put all of our money in NVIDIA? I know it [00:51:20] S0: sounds supercilious and glib. I think it's not a crazy idea. NVIDIA is obviously a phenomenal business that will continue to execute super well. The only caveat is that it feels like we're starting to move towards a multi chip future, where obviously Cerebras is executing well. I'm good friends with the etch guys. Most of the labs are building in house chips. And so I would guess that in five years, it doesn't feel like NVIDIA has quite the same monopoly, but that's okay, because even if they only have 30% or 40% market share in the largest market in the world by far, that is the world's most valuable company. [00:51:57] S1: Speaking of the world's most valuable company, you're seeing this concentration of value towards the top eight names more than ever before. 84% of the year's state rally was driven by the top 10 names. Do you worry about the concentration of value to such a small number of players?
00:51:57 · Harry Stebbings, Brendan Foody
[00:51:57] S1: Speaking of the world's most valuable company, you're seeing this concentration of value towards the top eight names more than ever before. 84% of the year's state rally was driven by the top 10 names. Do you worry about the concentration of value to such a small number of players? [00:52:12] S0: Maybe to some extent, I definitely worry about how do we smooth out the benefits to society? Like how do we ensure that every enterprise and every individual is able to reap the full benefits of AI rather than just like a handful of people in San Francisco? But ultimately, I also think that there is some natural dynamic associated with capital allocation where it is going to be more valuable to give the compute to an anthropic where they have the marginal demand and can use that right away versus a less successful company that might not be able to create the most value with that. So I think that it's probably good from a capital allocation and efficiency standpoint, so long as we are able to manage the societal implications of increasing inequality. Speaking of increasing inequality, you wrote an essay about, and this is taken from your Twitter, how we should eliminate income tax for the bottom half of Americans. [00:53:11] S1: Talk to me about that.
00:53:11 · Harry Stebbings, Brendan Foody
[00:53:11] S1: Talk to me about that. [00:53:12] S0: Well, believe this very strongly. I actually wrote this essay as a research paper when I was a freshman in college. It was one of the few productive things I did in college. And essentially, the thesis of this was that the largest positive externality in the economy is jobs, right? People talk about all of these economic theory of how we have negative externalities like carbon, or like smoking, or whatever it is, we should tax those. But on one hand, the largest positive externality is jobs. Yet on the other hand, the way that most economies structurally collect income is by disincentivizing jobs, both on the income tax side by taxing the individuals, as well as on the payroll tax side of taxing the companies. And as we move towards a world where there's increased job displacement, increased uncertainty around how many jobs are there gonna be, especially for the bottom half of Americans, I think that this is going to become extremely problematic. And so I would suggest that we move towards a paradigm where we instead focus on taxes of things that aren't necessarily going to have a negative impact on incentives in the economy. Like one great example is capital gains, where I'm going to invest money in assets regardless. And so if there's higher capital gains tax, it's not like I'm just gonna not invest, right? And so I think that taxing capital gains, especially short term capital gains, which I
00:54:37 · Harry Stebbings, Brendan Foody
[00:54:37] S1: think is probably not as beneficial for the economy as long term capital gains, would probably be structurally much better off than taxing income. With the greatest of respects, if you increase the tax on capital gains, you will disincentivize those investors to take risk. Why the fuck should I pay more? I'm already taking a risk. I'm already investing in innovation when other people won't, when banks won't, when all the data tells me not. Now you wanna tax me more for doing that, for taking [00:55:09] S0: The thing is when investors are taking very high risks, it's generally in an aggregated way in a portfolio, and so you would tax the gains on the portfolio overall, and so even if you have a portfolio of like, and I know that you don't like to hear the capital gains tax, Harry, but... [00:55:25] S1: No, no, no, I think, and I say this with the nicest respect, it's just wrong, because you just move. [00:55:33] S0: I agree that the main thing you need to be careful about is if people would move to other geographies, because obviously that creates problems. But I think capital gains is one option. Think But I'm so sorry to [00:55:45] S1: be addicted, and you can say withdraw. That creates problems. Yeah, that's kind of the whole point. You fuck off to somewhere that doesn't have capital gains, and then you lose all the tax revenue completely. Sorry, forgive me, we live in The UK where there's the Green Party, there's this idealist movement, Well, then we leave, and then you have nothing.