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Circular financing absolutely creates revenue. A startup raises $50 million from OpenAI and Anthropic to finance API calls to OpenAI and Anthropic that they ar

Circular financing absolutely creates revenue. A startup raises $50 million from OpenAI and Anthropic to finance API calls to OpenAI and Anthropic that they are using at a loss who in turn spend that money on compute with Microsoft and Google who in turn invest in Anthropic and OpenAI who then invest the startup using the startup’s revenue to value it… the cycle repeats. There are multi-billion dollar valued startups invested in by OpenAI and Anthropic with hundreds of millions in ARR that are spending 90% of their revenue with Anthropic and OpenAI. Situational Awareness, the fund that recently imploded, invested tens of billions into AI companies using their holdings in Anthropic to help finance the investments… This could all work out fine in the long term, we’re all just speculating at this point, but the circular financing is absolutely making it to revenue because capital invested into startups is used to fund growth which is achieved by subsidizing costs incurred with OpenAI and Anthropic.

chrisco255 15d ago
The vast majority of startups are not funded by OpenAI or Anthropic. They are not a significant source of venture capital. Meanwhile, OpenAI is pulling in $40B+ per year and Anthropic $65B+ per year. You are mixing up valuations with liquid cash and you're also making sweeping statements about how those startups are spending their cash. A majority of a raise is not spent on AI compute. Situational Awareness blew up because they used leverage to invest, and leverage is a great way to blow up any fund even if they were directionally correct about AI.
- reticulates 15d ago
  You’re applying pre-AI investing to a post-AI world. Yes, a decade ago, a startup raised money and spent 90% of it on people. The people built software which had incredible margins. Build it and then print money for ever more. That’s not the case any more, these startups no longer have incredible margins, they’re not collecting $100/m per user and banking $99 of it. They’re collecting $1000 and sending $999 of it to Anthropic and OpenAI. Revenue numbers are vastly inflated compared to pre-AI but these startups aren’t keeping the money. Profits are worse than ever before. Startups with 30 employees that reach $100m ARR in 6 months are not banking $90m or $80m or… they’re just passing that money straight through to OpenAI and Anthropic. If startups aren’t just funnelling all their funds raised straight through to OpenAI and Anthropic, where is this combined $100bn in revenue coming from? Who is paying for it? My spend on software certainly hasn’t gone up in a post-AI world. My company is spending less on software now. OpenAI have stopped being so reckless with their cash investments which is why they appear to have slowed down but they’re still investing millions in huge numbers of startups through token allowances. They invest $2 million in every YC startup (or did a few months ago). There’s an entire market of reselling these tokens! https://mlq.ai/news/openai-and-anthropic-pour-up-to-800m-a-year-in-free-credits-into-yc-startups/ https://mlq.ai/news/openai-and-anthropic-pour-up-to-800m-a-y... Hell, I’ll go one step further and bet they book these credits being spent as revenue.
  - saberience 15d ago
    This is so completely wrong and deluded I’m not sure where to start. I work with AI startups and scale ups on a regular basis as well as plenty of more old school companies, all of whom are spending money on AI models, because they are getting insane value from them. This idea of the revenue for OAI and Anthropic coming from “circular financing” is just bizarre wishful thinking coming from AI doomers with zero financial literacy. The revenue numbers reported by AI companies (not just OAI and Anthropic) isn’t being driven by Nvidia at all, in fact, the numbers wouldn’t add up if you thought that was the case. The revenue being brought in by AI companies is far, far higher than the sum of any investments from Nvidia. The AI doomers just can’t handle the idea that AI is actually incredibly valuable and every company is using it and increasing their use of it every month. And yes, I see this every day in my job and with every company I work with.
    - swiftcoder 15d ago
      > all of whom are spending money on AI models Real money, or credits? I also contract in the startup space, and many of these startups have pretty much their entire infra bill covered by AWS/Azure/GCP credits, and all of their AI spend covered by Anthropic/OpenAI credits. Theoretically they'll spend real money on those things down the line, assuming they find product-market fit, but who knows how many of the current crop of startups will reach that point
    - reticulates 15d ago
      Wow, thanks for your perspective, it’s lucky to find someone on Hacker News who works with technology every day! You presume to know my position but you do not. AI is an innovative new technology that is radically changing how we build and use technology and will continue to do so. That doesn’t mean that trillions of dollars is going to be spent on it. Despite the penetration all technology has in our lives, most companies are barely using technology from 20 years ago because implementation is a nightmare. Businesses are risk and cost averse, better the line item you know. And so, most companies could be radically improved not by human-level intelligence, or even dog level intelligence, most companies just need macros that are easy to implement. Most companies could 10x their productivity without AI! After all that’s what startups have been doing for the 20 years pre-AI, that’s been the YC investment thesis (which has worked very well). My position is that AI is a radical step forward in technology that pragmatic businesses will benefit from handsomely by using cost effective models. A middle of the road local model that can trigger tools is more than most companies need. The frontier models by the frontier labs are a complete waste of money outside of the most extreme edge cases. Conflating “the technology is incredible” with “companies will spend trillions per year on the technology” is ridiculous. Your argument about usage says absolutely nothing about the financials yet you’re dismissing the AI “doomers” (people who are pessimistic about the financials, not the technology) on that basis. If you look at what we know of the financials of OpenAI and Anthropic it is impossible to come up with a financial case to justify the trillions of dollars in revenue needed for the AI booster’s vision of the future. How much money does The JavaScript Company make? How much money did Docker make? It’s like the AI boosters who argue for the financial case have forgotten the last 20 years. The world of technology is built on open source, it’s built on companies that made a huge impact and failed financially. Docker led the way with containerization, one of the most influential technologies of the last 20 years, and the company almost went under multiple times. We constantly gripe about how unsustainable open source is. Why is all this suddenly different? Why is making an innovative new technology suddenly guaranteeing trillions in revenue? How many trillions of dollars were invested in data centres to build Docker containers? https://xkcd.com/2347/ https://xkcd.com/2347/ why will AI infrastructure be any different? If you think I lack financial literacy, please explain where the money is going to come from. Please make the financial case for trillions of dollars being spent on AI over the next few years. Keep in mind that the reason technology has been so profitable over the last 20 years is because of the margins, software is basically free money. AI is not free money. AI is very expensive money. Also keep in mind that the current (rumored) revenue of Anthropic is primarily made up of the most expensive use case (generating millions of lines of code) being paid for by rich tech companies which does not represent the wider economy. A factory could revolutionize their operations with a middle of the road model they could run on local hardware. Hell, they could revolutionise their operations by hiring a single competent software engineer who understood their business. AI is so compelling because we, technologists, have failed to deliver for most businesses, not because businesses need frontier AI. Bets are meaningless but feel free to stake a claim here to how you think things will be 4 years from now and we can return to review. I’ll stake my claim: AI will be more impactful than ever while Anthropic + OpenAI will have less revenue than today. And we will all be thinking “wtf were we thinking building all these data centres?”

chrisco255 15d ago

The vast majority of startups are not funded by OpenAI or Anthropic. They are not a significant source of venture capital. Meanwhile, OpenAI is pulling in $40B+ per year and Anthropic $65B+ per year. You are mixing up valuations with liquid cash and you're also making sweeping statements about how those startups are spending their cash. A majority of a raise is not spent on AI compute. Situational Awareness blew up because they used leverage to invest, and leverage is a great way to blow up any fund even if they were directionally correct about AI.

reticulates 15d ago
You’re applying pre-AI investing to a post-AI world. Yes, a decade ago, a startup raised money and spent 90% of it on people. The people built software which had incredible margins. Build it and then print money for ever more. That’s not the case any more, these startups no longer have incredible margins, they’re not collecting $100/m per user and banking $99 of it. They’re collecting $1000 and sending $999 of it to Anthropic and OpenAI. Revenue numbers are vastly inflated compared to pre-AI but these startups aren’t keeping the money. Profits are worse than ever before. Startups with 30 employees that reach $100m ARR in 6 months are not banking $90m or $80m or… they’re just passing that money straight through to OpenAI and Anthropic. If startups aren’t just funnelling all their funds raised straight through to OpenAI and Anthropic, where is this combined $100bn in revenue coming from? Who is paying for it? My spend on software certainly hasn’t gone up in a post-AI world. My company is spending less on software now. OpenAI have stopped being so reckless with their cash investments which is why they appear to have slowed down but they’re still investing millions in huge numbers of startups through token allowances. They invest $2 million in every YC startup (or did a few months ago). There’s an entire market of reselling these tokens! https://mlq.ai/news/openai-and-anthropic-pour-up-to-800m-a-year-in-free-credits-into-yc-startups/ https://mlq.ai/news/openai-and-anthropic-pour-up-to-800m-a-y... Hell, I’ll go one step further and bet they book these credits being spent as revenue.
- saberience 15d ago
  This is so completely wrong and deluded I’m not sure where to start. I work with AI startups and scale ups on a regular basis as well as plenty of more old school companies, all of whom are spending money on AI models, because they are getting insane value from them. This idea of the revenue for OAI and Anthropic coming from “circular financing” is just bizarre wishful thinking coming from AI doomers with zero financial literacy. The revenue numbers reported by AI companies (not just OAI and Anthropic) isn’t being driven by Nvidia at all, in fact, the numbers wouldn’t add up if you thought that was the case. The revenue being brought in by AI companies is far, far higher than the sum of any investments from Nvidia. The AI doomers just can’t handle the idea that AI is actually incredibly valuable and every company is using it and increasing their use of it every month. And yes, I see this every day in my job and with every company I work with.
  - swiftcoder 15d ago
    > all of whom are spending money on AI models Real money, or credits? I also contract in the startup space, and many of these startups have pretty much their entire infra bill covered by AWS/Azure/GCP credits, and all of their AI spend covered by Anthropic/OpenAI credits. Theoretically they'll spend real money on those things down the line, assuming they find product-market fit, but who knows how many of the current crop of startups will reach that point
  - reticulates 15d ago
    Wow, thanks for your perspective, it’s lucky to find someone on Hacker News who works with technology every day! You presume to know my position but you do not. AI is an innovative new technology that is radically changing how we build and use technology and will continue to do so. That doesn’t mean that trillions of dollars is going to be spent on it. Despite the penetration all technology has in our lives, most companies are barely using technology from 20 years ago because implementation is a nightmare. Businesses are risk and cost averse, better the line item you know. And so, most companies could be radically improved not by human-level intelligence, or even dog level intelligence, most companies just need macros that are easy to implement. Most companies could 10x their productivity without AI! After all that’s what startups have been doing for the 20 years pre-AI, that’s been the YC investment thesis (which has worked very well). My position is that AI is a radical step forward in technology that pragmatic businesses will benefit from handsomely by using cost effective models. A middle of the road local model that can trigger tools is more than most companies need. The frontier models by the frontier labs are a complete waste of money outside of the most extreme edge cases. Conflating “the technology is incredible” with “companies will spend trillions per year on the technology” is ridiculous. Your argument about usage says absolutely nothing about the financials yet you’re dismissing the AI “doomers” (people who are pessimistic about the financials, not the technology) on that basis. If you look at what we know of the financials of OpenAI and Anthropic it is impossible to come up with a financial case to justify the trillions of dollars in revenue needed for the AI booster’s vision of the future. How much money does The JavaScript Company make? How much money did Docker make? It’s like the AI boosters who argue for the financial case have forgotten the last 20 years. The world of technology is built on open source, it’s built on companies that made a huge impact and failed financially. Docker led the way with containerization, one of the most influential technologies of the last 20 years, and the company almost went under multiple times. We constantly gripe about how unsustainable open source is. Why is all this suddenly different? Why is making an innovative new technology suddenly guaranteeing trillions in revenue? How many trillions of dollars were invested in data centres to build Docker containers? https://xkcd.com/2347/ https://xkcd.com/2347/ why will AI infrastructure be any different? If you think I lack financial literacy, please explain where the money is going to come from. Please make the financial case for trillions of dollars being spent on AI over the next few years. Keep in mind that the reason technology has been so profitable over the last 20 years is because of the margins, software is basically free money. AI is not free money. AI is very expensive money. Also keep in mind that the current (rumored) revenue of Anthropic is primarily made up of the most expensive use case (generating millions of lines of code) being paid for by rich tech companies which does not represent the wider economy. A factory could revolutionize their operations with a middle of the road model they could run on local hardware. Hell, they could revolutionise their operations by hiring a single competent software engineer who understood their business. AI is so compelling because we, technologists, have failed to deliver for most businesses, not because businesses need frontier AI. Bets are meaningless but feel free to stake a claim here to how you think things will be 4 years from now and we can return to review. I’ll stake my claim: AI will be more impactful than ever while Anthropic + OpenAI will have less revenue than today. And we will all be thinking “wtf were we thinking building all these data centres?”