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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+

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 17d 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 16d 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 16d 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 16d 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
  $800M a year is less than 1% of their quoted revenues at $100B+ / year. Claiming credits as revenue would be tax fraud. Credits to clients for services are counted as debits against There are zero serious companies collecting $1000 on revenue and sending $999 as a cost of goods sold to Anthropic/AI. It would be unprofitable to even run a proxy to Anthropic on such thin margins. But I digress. No company was banking $100 and keeping $99 in the "before times" either. These are fantasy numbers not even the most highly optimized software company produced. As an example, Slack famously went public in 2019 and it had revenue of $401M with a gross margin of ~79%, meaning they were pulling in $316M in gross profit. That is the figure before labor, administration, R&D, sales & marketing, etc. They actually operated on a net loss after factoring for those expenses, despite their high gross margin, which is common in high growth startups (Amazon famously ran losses or marginal profits until decades after their founding because they continuously reinvested in expansion). Credits reduce revenue by all basic accounting standards. You can accuse these companies of fraud, it is within the realm of possibility, but it would also be <1% of their total quoted revenue, so not really worth the heat at the same time. You are making conflicting arguments at the same time. There exist startups that are able to generate gross profit with some consumption of AI services, they are also able to invest nearly 100% of their capital into AI to generate those profits without needing to spend on traditional labor, and yet AI is not sustainable. By your own circular logic it is of course sustainable, but by grounded logic, you have to understand any business that goes from zero 4 years ago to $100B+ in annual revenue today with double digit growth rates is offering the world something of value. Anyone who has tried AI sees some value in it. There is some revenue and profit to be made here. Betting against that in the long term will just lose you money and sanity.
  - reticulates 15d ago
    > No company was banking $100 and keeping $99 in the "before times" either. Yes they were and are. The marginal cost of software as a service or data as a service is near zero. Slack is a good example. A new Slack customer costs Slack nothing. Free money! Slack had a high valuation because of the margins. Slack and other traditional high-growth technology companies were valued highly despite being loss making because there was an understanding that paying for growth early returns a lot more later on. Slack (pre-acquisition) could turn off their expensive growth engine and start making money hand over fist. (Look at what Bending Spoons are doing now, they're picking up "zombie" technology companies that have incredible margins but no growth. Bending Spoons are cutting these companies to the bone, giving up on growth, running on a skeleton staff, and making money hand over fist, cashing out on the incredible margins of software.) Someone shared up thread an example of Harvey, a legal AI company, who regularly post about their token consumption. They're consuming trillions of tokens per month for their product. Harvey's investors include OpenAI. Harvey has raised more than $1bn and is currently valued at $11bn (and raising again at $15bn apparently). As of last month, Harvey's revenue was reported to be $30m/month on 13 trillion tokens per month. Let's be conservative and assume their average spend per million tokens with OpenAI is $2. That's $26 million in token spend per month, on $30 million per month revenue. $2 is lowballing it of course, they're surely using one of the frontier models. That's pretty close to every dollar coming in going straight out to OpenAI. Considering the capital they're raising and burning (seems like $50m a month) while relatively small (<1k employees) I would guess they're spending at least double their revenue with OpenAI. Of course, long term, this is fine for Harvey, as model costs come down and businesses mature they are going to be spending a lot less. Maybe they'll start running their own hardware, offloading certain workloads to cheap models, using scripts for routine tasks where AI is overkill. Great for Harvey and Harvey's investors, an absolute disaster for OpenAI. > By your own circular logic it is of course sustainable, but by grounded logic, you have to understand any business that goes from zero 4 years ago to $100B+ in annual revenue today with double digit growth rates is offering the world something of value. Anyone who has tried AI sees some value in it. There is some revenue and profit to be made here. Betting against that in the long term will just lose you money and sanity. You're making a leap from "useful" to "profitable". Yes, there is absolutely revenue and profit to be made for companies building products, for the companies providing technology, not for the companies providing inference. There are not software margins in inference, it's a commodity, the only reason OpenAI and Anthropic went "from zero 4 years ago to $100B+ in annual revenue" is because nobody cares about the money today. Right now, we're in a gold rush, we're in the growth-engine phase, we're in the "spend a billion to make a million as long as you're growing" phase. Right now, people at Harvey aren't worried that every dollar in is at least a dollar out to OpenAI, who cares, investors are funding it, they're growing, they're taking over the legal world, that's all that matters, they can balance the books later... and when they do start to balance the books, when they convert that growth-at-all-costs into profit (as every company eventually does) OpenAI are going to get absolutely eviscerated. The circular financing problem doesn't mean that startups building on AI aren't generating revenue from normal companies, it means that the money going into Anthropic and OpenAI is coming from investment (whether OpenAI directly or indirectly (see: funds like Situational Awareness raising money off the back of their Anthropic investment)) and being immediately spent on inference. If the economic environment changes, OpenAI don't have a growth engine they can turn off to turn their revenue into profit... because it is their customers who are going to be collecting the profit. We can see this already with OpenAI starting to try and bill based on solutions through ChatGPT (because they realise selling tokens is a god awful business to be in) and their partnerships like The OpenAI Deployment Company. OpenAI and Anthropic are triple screwed no matter whether AI is a wild success beyond your imagination or a disaster.

reticulates 17d 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 16d 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 16d 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 16d 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
$800M a year is less than 1% of their quoted revenues at $100B+ / year. Claiming credits as revenue would be tax fraud. Credits to clients for services are counted as debits against There are zero serious companies collecting $1000 on revenue and sending $999 as a cost of goods sold to Anthropic/AI. It would be unprofitable to even run a proxy to Anthropic on such thin margins. But I digress. No company was banking $100 and keeping $99 in the "before times" either. These are fantasy numbers not even the most highly optimized software company produced. As an example, Slack famously went public in 2019 and it had revenue of $401M with a gross margin of ~79%, meaning they were pulling in $316M in gross profit. That is the figure before labor, administration, R&D, sales & marketing, etc. They actually operated on a net loss after factoring for those expenses, despite their high gross margin, which is common in high growth startups (Amazon famously ran losses or marginal profits until decades after their founding because they continuously reinvested in expansion). Credits reduce revenue by all basic accounting standards. You can accuse these companies of fraud, it is within the realm of possibility, but it would also be <1% of their total quoted revenue, so not really worth the heat at the same time. You are making conflicting arguments at the same time. There exist startups that are able to generate gross profit with some consumption of AI services, they are also able to invest nearly 100% of their capital into AI to generate those profits without needing to spend on traditional labor, and yet AI is not sustainable. By your own circular logic it is of course sustainable, but by grounded logic, you have to understand any business that goes from zero 4 years ago to $100B+ in annual revenue today with double digit growth rates is offering the world something of value. Anyone who has tried AI sees some value in it. There is some revenue and profit to be made here. Betting against that in the long term will just lose you money and sanity.
- reticulates 15d ago
  > No company was banking $100 and keeping $99 in the "before times" either. Yes they were and are. The marginal cost of software as a service or data as a service is near zero. Slack is a good example. A new Slack customer costs Slack nothing. Free money! Slack had a high valuation because of the margins. Slack and other traditional high-growth technology companies were valued highly despite being loss making because there was an understanding that paying for growth early returns a lot more later on. Slack (pre-acquisition) could turn off their expensive growth engine and start making money hand over fist. (Look at what Bending Spoons are doing now, they're picking up "zombie" technology companies that have incredible margins but no growth. Bending Spoons are cutting these companies to the bone, giving up on growth, running on a skeleton staff, and making money hand over fist, cashing out on the incredible margins of software.) Someone shared up thread an example of Harvey, a legal AI company, who regularly post about their token consumption. They're consuming trillions of tokens per month for their product. Harvey's investors include OpenAI. Harvey has raised more than $1bn and is currently valued at $11bn (and raising again at $15bn apparently). As of last month, Harvey's revenue was reported to be $30m/month on 13 trillion tokens per month. Let's be conservative and assume their average spend per million tokens with OpenAI is $2. That's $26 million in token spend per month, on $30 million per month revenue. $2 is lowballing it of course, they're surely using one of the frontier models. That's pretty close to every dollar coming in going straight out to OpenAI. Considering the capital they're raising and burning (seems like $50m a month) while relatively small (<1k employees) I would guess they're spending at least double their revenue with OpenAI. Of course, long term, this is fine for Harvey, as model costs come down and businesses mature they are going to be spending a lot less. Maybe they'll start running their own hardware, offloading certain workloads to cheap models, using scripts for routine tasks where AI is overkill. Great for Harvey and Harvey's investors, an absolute disaster for OpenAI. > By your own circular logic it is of course sustainable, but by grounded logic, you have to understand any business that goes from zero 4 years ago to $100B+ in annual revenue today with double digit growth rates is offering the world something of value. Anyone who has tried AI sees some value in it. There is some revenue and profit to be made here. Betting against that in the long term will just lose you money and sanity. You're making a leap from "useful" to "profitable". Yes, there is absolutely revenue and profit to be made for companies building products, for the companies providing technology, not for the companies providing inference. There are not software margins in inference, it's a commodity, the only reason OpenAI and Anthropic went "from zero 4 years ago to $100B+ in annual revenue" is because nobody cares about the money today. Right now, we're in a gold rush, we're in the growth-engine phase, we're in the "spend a billion to make a million as long as you're growing" phase. Right now, people at Harvey aren't worried that every dollar in is at least a dollar out to OpenAI, who cares, investors are funding it, they're growing, they're taking over the legal world, that's all that matters, they can balance the books later... and when they do start to balance the books, when they convert that growth-at-all-costs into profit (as every company eventually does) OpenAI are going to get absolutely eviscerated. The circular financing problem doesn't mean that startups building on AI aren't generating revenue from normal companies, it means that the money going into Anthropic and OpenAI is coming from investment (whether OpenAI directly or indirectly (see: funds like Situational Awareness raising money off the back of their Anthropic investment)) and being immediately spent on inference. If the economic environment changes, OpenAI don't have a growth engine they can turn off to turn their revenue into profit... because it is their customers who are going to be collecting the profit. We can see this already with OpenAI starting to try and bill based on solutions through ChatGPT (because they realise selling tokens is a god awful business to be in) and their partnerships like The OpenAI Deployment Company. OpenAI and Anthropic are triple screwed no matter whether AI is a wild success beyond your imagination or a disaster.