This Week in Startups - Blitzhiring and the Complicated Case of Windsurf, OpenAI and Google | E2151

Episode Date: July 14, 2025

Today’s show:On today’s show… Jason and Alex are considering the fallout of Windsurf’s OpenAI deal, the company’s latest agreements with both Google and Cognition AI, and how “blitzhiring��� is actually playing out in real-world startups.Plus Jason’s short- and medium-term predictions for AI’s impact on the job market, Tesla’s latest expansion of its Austin robotaxi service, Mistral giving the EU a real stake in the AI model race, a look back at the SnapStream live TV archiving service, AND an update on how much more time we have until all our servers are obsolete.All that and more on a brand new Monday edition of This Week in Startups.Timestamps:(02:20) Influencers caught an arsonist in LA’s Runyon Canyon? (Don’t worry, there’s always a startup angle)(10:38) Coda - Empower your startup with Coda’s Team plan for free—get 6 months at https://www.Coda.io/twist(12:56) Windsurf’s OpenAI deal fell through… but there are breaking updates!(20:11) Squarespace - Use offer code TWIST to save 10% off your first purchase of a website or domain at https://www.Squarespace.com/TWIST(23:46) The gap from prototype to production in AI remains HUGE(29:52) AWS Activate - AWS Activate helps startups bring their ideas to life. Apply to AWS Activate today to learn more. Visit aws.amazon.com/startups/credits(34:56) Things are going well for Tesla’s Austin rollout, but will regulators demand LIDAR systems anyway?(45:47) Maybe NOTHING that’s happening right now in AI is as important as what’s to come?(54:31) Follow-Up: So how much more time until all of our servers are obsolete? What happens to them when they’re removed?Subscribe to the TWiST500 newsletter: https://ticker.thisweekinstartups.comCheck out the TWIST500: https://www.twist500.comSubscribe to This Week in Startups on Apple: https://rb.gy/v19fcpFollow Lon:X: https://x.com/lonsFollow Alex:X: https://x.com/alexLinkedIn: ⁠https://www.linkedin.com/in/alexwilhelmFollow Jason:X: https://twitter.com/JasonLinkedIn: https://www.linkedin.com/in/jasoncalacanisThank you to our partners:(10:38) Coda - Empower your startup with Coda’s Team plan for free—get 6 months at https://www.Coda.io/twist(20:11) Squarespace - Use offer code TWIST to save 10% off your first purchase of a website or domain at https://www.Squarespace.com/TWIST(29:52) AWS Activate - AWS Activate helps startups bring their ideas to life. Apply to AWS Activate today to learn more. Visit aws.amazon.com/startups/creditsGreat TWIST interviews: Will Guidara, Eoghan McCabe, Steve Huffman, Brian Chesky, Bob Moesta, Aaron Levie, Sophia Amoruso, Reid Hoffman, Frank Slootman, Billy McFarlandCheck out Jason’s suite of newsletters: https://substack.com/@calacanisFollow TWiST:Twitter: https://twitter.com/TWiStartupsYouTube: https://www.youtube.com/thisweekinInstagram: https://www.instagram.com/thisweekinstartupsTikTok: https://www.tiktok.com/@thisweekinstartupsSubstack: https://twistartups.substack.comSubscribe to the Founder University Podcast: https://www.youtube.com/@founderuniversity1916

There are drivers, safety drivers, in Waymo's, in Zooks, in Valswagans, in Tesla's right now. Those safety drivers are there to solve the last 10% of the problems so that all drivers lose their jobs. The same thing is happening with developers right now. When developers are using a product like cursor, their training cursor had to take their job. It's literally like what happened in factories or in farms or other things where the people who had become the middle class are teaching the people

who are going to replace them and they complain about it. This is now happening with machines. This week in startups is brought to you by Coda. Coda empowers your startup by bringing words, tables, and teams together.

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Turn your idea. into a beautiful website. Go to Squarespace.com slash twist for a free trial. When you're ready to launch, use offer code twist to save 10% off your first purchase of a website or domain. And AWS Activate. AWS Activate helps startups bring their ideas to life. As you build and scale your business,

Activate credits grow with you to support your changing needs. Apply to AWS Activate today and receive up to $100,000 in credits. Visit AWS. dot amazon.com slash startups slash credits all right everybody welcome back to this week in startups i'm your host jason caliccanus with my co-host is alex wilhelm it is monday july 14th i'm in the bay area for the launch accelerators graduation i have a little demo day at google on wednesday we'll

go see some of our friends at sequoia tomorrow today i'll go up to fenwick's office and help the companies practice their pitches and do a little q-na so busy busy a couple of days for me. I had no rest for the weary. Yeah, I was going to say you just got home. You're like, I'm so glad I'm back. Finally, I'm at home. My feet are, you know, shoes are off and now I turn around, you're back in the Bay Area. But I'm not going to lie. I am jealous because I do love the Bay Area and my feet are nailed to the ground out here for a little bit. So, you know, just enjoy it for me. So two babies will do that. But, hey, did you see this social media thing go by with the, I used to hike in Runyon Canyon when I lived in L.A.

Oh, my friend Sean Golk, who go up Runyon Canyon. Okay. Even back then, 20 years ago, all beautiful people. Like, it was like a celebrity. I think this is where you would get discovered walking up Running Canyon. So people would dress up to work out or undress to work out, like people with the most ridiculous bodies you've ever seen running around, working out. So all of these incredibly beautiful people, Alex, would be,

walking up and down Runyon Canyon. If you're in L.A., you know, it's kind of an institution. You know, you see celebrities on the margins or whatever, but it's filled with influencers now posting to their TikToks and whatnot. So it's pretty annoying. And but I think they redeem themselves. I think there was a redemption arc here because I saw this video, play the video, of what I think is a bunch of influencers who caught one of these lunatic arsonists. All right. So we're going to play this, everybody, and we're going to narrate. But just in case you're listening to the audio version, Runyon Canyon is dirt, shrub grass.

It's gorgeous, great walking path. Looks like a great list of skateboard. Let's take a watch. Yeah. So there's a crazy person. He started that fire. Who started a fire. You're right.

Yeah. You have the warrant for the murder, right? So this guy confronts an arsonist. He's wearing a Nicaragua shirt, I think, Jason? I mean, I can't tell, but he looks like a vagabond. Looks like a hobo, like maybe unhoused mentally ill person. But he might pass for just a mentally ill influencer because he's wearing sports clothes too, so he just can be hiking.

You see people with their dogs and a fire. And I guess this person on social media recorded it. and posted it to their Instagram. The fire trucks coming to put out this fire. But this is what I believe happened with the, I believe like half the fires were arsonists. Thank you, Scott. I mean, tragically.

I don't know who knows what percentage of them, but here they are arresting the dude towards the end of the video. Here comes a helicopter dropping. Helicopter dropping water. And yeah, put your arms behind your back. I mean, oh my lord. So anyway, I just want to say, always forgiven to be insufferable influencers and running gang and having those cameras and being

aware, if see something, say something, folks. So I wouldn't think I was really impressed with Jason is how quickly the LAFD, the fire department, got this taken care of. So they responded to a call at 1147 a.m. and the fire was fully extinguished by 1225 p.m. So about 45 minutes. I mean, not bad at all. And we did a little digging on this. And we think the guy who stopped, him, the larger black man in the athletic gear, is Scott Anthony Mitchell, and it turns out that he was actually a wide receiver, played in Kentucky, and then ended up doing a little bit of games in the AFL and then the Canadian Football League in 2008. But just citizens, stop this guy and held him and he's arrested. Now, there's been no reporting yet on exactly who he is,

so we don't know, but what was he thinking? Lon was telling me about how running Canyon is just so popular, you would know you're going to get caught. So I wonder if the guy I just wanted to get arrested. I mean, either your, there are so many different theories about this now. Number one, there were gangs robbing homes setting fires. This was one theory during those big wildfires. So you set a fire over here and you go rob the houses over there. I don't know if that theory ever came to, but yeah, if you were going to, if you were going to start a fire and you wanted to get a

with it, you would not do it in Runyon Canyon. The place is like a nightclub during the day. Yeah, you could start a blaze 20 other places and people have. So this all goes to all these great startups that we've seen. There's always a startup angle, folks. Anytime you see a problem in the world, there is a startup angle. Problems equal potential products or services to solve those problems. Number one, cameras everywhere looking for smoke. And so we just need to have more of those. was a company in the Twist 500. You'll remind me of which it is, because you can search Twist500.com real easy. Thank you to our friends at Coda for helping us make this database.

And we're using the Twist 500, the top 500 private companies to drive our secondary purchases in breakout companies at the Syndicate.com. What's the syndicate dot com? It's 11,000 angel investors who read my book, Angel, and who invest with us alongside. So my team over there, Kelly and Maddie, are using the Twist 500, which Alex and I created here for the past year, or maybe six months, nine months, we've been on this project. Now, they're taking it over and they're looking through for great companies. And then they're going to go through those companies, put them in front of our investment committee at the syndicate.com, which is now, I think we have 30 people on the investment committee. They hear pitches, and then we make an offer to companies

to maybe buy secondary shares or just, you know, put an extra 500K to $2 million, is typically the range, into companies on that list. So it's editorial here at this week and started driving that. But what was that company we saw that was using cameras to early detect fires? Yes.

Do you remember that? Using AI? We were talking about a company called Pano AI. Here's a new story of them. They raised $44 million last month, which is why I think they were back on the show, Jason. But what's really interesting is, actually, I was running to search of the twist 500.

We have two companies that do wildfire detection. We also have Dryad networks because this is one in Germany and then one in the U.S. But just evidence that there's a lot of work to be done here. Great that people found this guy, but most of the time you're not going to have 8,400 influencers with smartphones

and great connections right there. So I think we need a better system. I wonder when we're going to do it from space. Because couldn't you detect? You can, but, you know, there's a lag between the time those images get downloaded, et cetera, and I'm not sure they have the fidelity

to pinpoint very tiny fires. Like certainly when you see, images from space of the fires that have broken out, you're going to see them. But to see a micro fire, just a little plume of smoke, probably better for these 360 degree cameras, all that consumerization of Insta 360 and GoPro cameras. As those drove down the prices, even your iPhone camera for that matter, and security cameras like Nest cameras, drop cams, all of that put together equals such a cheap solution, internet everywhere. You can now buy cameras, like living on a ranch.

You start to realize you don't have internet everywhere, right? Your Wi-Fi is not going to reach everywhere on a multi-acre ranch. You've got dozens or hundreds of acres, certainly. So they actually sell now 5G solar cameras. And you can find them all over Amazon if you type in 5G solar camera. And people put these on the edges of their ranch. they pay like an extra 5G fee. I guess I don't know what that costs,

$25 bucks a month, 50 bucks a month for these data plans. And you can put cameras into the forest. Now with Starlink, you could build a Starlink mini and then have this. So here's an example of one. This is a real link for $129 bucks. You get like a camera battery solar panel.

And you can put this anywhere. And it has a 5G and obviously 2.4 gigahertz Wi-Fi. and it has local storage. It's crazy, right? For $129. Jason, that's free. That means it costs nothing. Yeah, I mean,

if you're building out of, if you're building out a ranch and you have 100 acres, you can afford a hundred bucks, this is cost of much. It's really the cost of installation, the time it takes. Founders, you got a lot on your plate.

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That's C-O-D-A.io-T-W-I-S-T, to get six months of the team plan for free, coda.coma.io-slash-Twist. So now you start thinking about fire, fire, you know, prevention, and, yeah, these wild. fire fires, every one of these trails could have every five miles up in a tree, up on a pole, you put these things. We could get to these fires very quickly. And obviously, the next piece is instead of a helicopter dropping that, that's got to be a drone that does it automatically. I mean, the worst case scenario of a drone that puts out a fire that it shouldn't have put out

is a bunch of kids at a campfire having water doused over their heads, which would be hilarious. Which I was going to say, that's a great story. You won't believe what happened to us. So that's the next piece that somebody has to build. Somebody come up with a drone that can carry that fire retardant material and zip it over there and do a sortie of those. Like zip lines should be making. I forget about delivering burritos. Like, let's put these fires out early.

You know how much of class is sent a helicopter? I think a helicopter is like $10,000 an hour is what they charge you, you know, if you have to send one. So you could send a drone for essentially like $5, yeah. I was... Well, if Zipline uses our idea, they owe us 5% of the company. You heard it here first.

All right, but Jason, enough about this. I want to talk about WinSurf. I'm so excited. I've been waiting and dying to talk about this deal. Wait, WindSurf was going to get bought by Open AI. And you and I talked about this, but you laid out the numbers for me

of their revenue and the price. It was something like $10 billion price tag by Open AI. Walk us through the numbers. Oh, it's $3 billion. Yeah. And they were making how much at the time? 100 million error. Got it.

And we said 30 times, it should be 100 times based on the growth, as I think is what we came to. And we said it should be a $10 billion deal. Don't sell. Yep. Well, it turns out they were trying to sell. They had an agreement with the Open AI. Open AI almost announced this in May.

They almost put out a press really saying, we've bought it. And then it all fell apart. And the moment the period of exclusivity ended, Google swooped in and did another one of these very fancy slash tricky, give the company a lot of money, don't buy the whole thing, get the founders type agreement. Essentially, it's a talent way. What do we call these agreements now? Is there, do we come up with a name for it on the show? I think I came up with like the 49% purchase. There was something about 49% we talked about in the context of scale AI and meta, because meta put a lot of money in and then actually bought shares. But I'm actually pretty sympathetic to the view from,

um, it's illy over at category VC. He calls this blitz hiring and he explains what's, okay, all right. Yeah, I mean, it's not exactly blitz hiring. I like it's a, foe acquisition or a backdoor merger. A backdoor acquisition? Yeah, but anyway, let's hear his thesis. Okay. It's probably the same thing, which is the bad name. Well, again, not defending the name, but what he does is point out that in the old days, you bought a company, you bought all the shares and you owned it, or you bought the IP and hired the employees. Okay. The problem is with deals of that story is that anything over $150 million has to go through the HSR Act test, which is an addendum to, I believe the Sherman Anti-Trust Act that came out in the 70s.

Essentially, if you're going to buy a company for nine figures or more, you have to tell the government, I'm going to buy this thing. And then they get to go, hmm, let's take a look at it. And then most of the time you go through and it's fine. But the problem, Jason is, is not that you'll get your deal denied. It's that that process can take up to a year. And currently, in AI moments like this, you can't afford to wait a year. A year is 10,000 years.

So if you want to buy some talent now, how do you do it? Well, that's where these deals come into place. So his argument is it's less about the wrath of Lena Con. It's more about just getting the people you want in your company, in your company now and avoiding the regulatory, just oversight, let alone block it. Yeah. So it's probably both of those things could be true at the same time. And so there have now been a bunch of these 49% agreements. And the issue becomes for LPs and GPs for the venture firms, how is that money,

accounted for. When you buy a share of a company that is a capital gains, a capital gain, when you do an asset sell, an asset sale or a licensing deal is revenue into that company. An asset sale, I believe, would be considered cap gains. Now, what's the difference? Well, depending on the structure of the company, you could be taxed twice. So let's say you bought a piece of software from a, if you license a piece of software for a million dollars a year, which can use that to make a clean number, one million dollars. That company puts a million dollars in. If they have a million dollars in profit that year, let's assume they had no expenses.

Then they would pay corporate tax on that and then send a dividend to the shareholders. So then you have to ratchet up the price to make up for that difference. In capital gains, if the person lived in a, let's say, no tax state. like Florida or Texas, et cetera, they would not, or Nevada, they would not be paying, they would just pay the federal capital gains tax. And then you have QSBS, qualified small business. Is it QSBS? It's QSBS. Yes. You have QSBS where the first $10 million theoretically could be, if your asset value of the company's under $50 million, you get a waiver for the first $10 million in gain. So if you're an LP in a fund that made $100 million, you were $10 million of it,

you would not pay that tax. So you'd basically get $10 million straight. So these deals, qualified small business stock, yes, QSBS, you can look it up. We talked about it in a previous episode recently because the law changed a little bit. Talk to your accountant, sorry, it's not legal advice, not accounting wise. No, people always want me to give them legal or business advice on it. It's a, it's something you have to, you know, actually work out with your own accountants, etc. but it does come up with syndicates all the time.

Like if a syndicate does it qualify for QSBS, we try to figure that out. Anyway, these 49% agreements, these backdoor acquisitions, I'm going to call it a backdoor acquisition because that's most accurate. Yeah, they seem to be for two reasons. One, speed, two, harder to block.

So what was the line from Jurassic Park? Nature finds away. Life finds a way. Life finds away. Okay, VCs, find, away. Corporate M&A finds a way. So this post from Villy, and I'm going to link it in the show notes and put it in the newsletter today, so take a look at it because it's quite good. He's actually pretty, I think, insightful here. He says you have to do a dance, Jason, because you can't just

basically leave a dead company in the wake of one of these deals because then the regulators will say, well, there was, there's no startup that exists after this. You're clearly circumventing the rules. So you have to leave enough of a carcass that's still breathing behind you. And in the case of windsurf, people were trying to figure out why there was about $100 million left behind. People were thinking, well, maybe that's because they're trying to make sure that the company can keep operating for a while to keep up this kind of facade. Now, in the case of wind service, there's some questions. I'm curious what you think about this.

But people are saying, if you look at the numbers and the cap table and kind of what you would expect the non-invested employees to be holding in terms of value, maybe it's about $100 million. They have about $100 million. Maybe they would shut down the company and then just give out that Hyundai to the employees. No. This is actually an interesting rub. If those were an investment from an investor, this is back to the tax treatment issue. You're an investor. Let's say you had put $100 million into the company. Now the company, let's just say theoretically was profitable, didn't need the $100 million. So they got $100 million in a

interest-bearing account. They're making $5 million a year just sitting on that money. So you got $105 million dollars sitting there. What they could do is the investors, based on their document, could take their investment back, especially if it was a convertible note and not pay tax on it, right? Because they put $100 million in. They got $100 million back. There's no gain. So if you think about that, any of the licensing fee that we talked about might have bad tax treatment. They would get that $100 million back. And maybe that note had interest on it. Maybe if it was a convertible note, it had a 5% thing on it, where maybe it had, I'm going to get this much interest on it. So that could make these deals even more possible. Your website is the face of your company. People judge a book by its cover. It's how you make

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add a layer of on-brand visuals, and boom, zip, zip, you're done. So check out Squarespace.com slash twist for a free trial, and when you're ready to launch, go to Squarespace.com slash twist to get 10% off your first website or domain purchase. That's Squarespace.com slash twist. What we're seeing in the industry is AI is such a big prize. I would say the AI prize is worth $10 trillion in market cap, right? We see Nvidia is worth $4 trillion.

Let's just say theoretically, the AI, you know, super intelligence prize is worth $10 trillion. It's going to cost $10 trillion in market cap to appear incrementally on top of Google, Microsoft, Tesla. just could be 500 billion here, a trillion here, two trillion there. Just say there was 10 trillion at stake. You know, it's a rounding era for these kind of acquisitions that are sub-50 billion, if you actually believe that. There's a group of people who don't believe it. They believe, I was listening to Adam Curry the other day.

And he has a great show called No Agenda with John C. DeVorek, who was like a hero of mine when I was a kid, he wrote the PC magazine columns in the 80s. So when, like, I was a kid in the 80s, he was probably 15, 20 years older than me writing columns about PC stuff. And when I saw John C. Dvorak, John C. Dvorak, write these, like, really crumudgeonly columns. Jim Seymour was another one. You can pull up their PC magazine, like, you can pull up an image of it, but, like, there was Jim Seymour who was a big, robust guy.

There was John C. DeVorek who had glasses, who was kind of like a Boston crumajend. And then there was Michael McCrone, I think, was the editor-in-chief of PC magazine for a while. Anyway, there was just a cohort of people who would write these columns in PC magazine and you would like go to those columns pre-Walt Mossberg, I believe, and they would sort of set the tone. Anyway, Adam Curry was talking about vibe code and he said, none of this stuff actually works to completion. And he was wondering if this whole thing is just BS. There's a group of people who actually think like the whole AI thing is a bubble and it's not going to finish the last 20%, which totally makes sense. There is a lot of work left to be done to make these things actually production ready. The people who are building the technology, they believe that last 10, 20%, the important finishing touches that get rid of hallucinations and make things production ready.

So the code actually can get produced. Not just it makes the developer 10 or 20% better, but the full job gets done, which, you know, I think I'm in the camp that it will get done. the timeline might be three years, it might be seven. But somewhere between those things, each of these massive castles will fall and these cities will fall to AI. And then there'll be job displacement. You will not need as many people. And then you'll need many more companies to emerge, to solve other problems, to hire those people. And that's the other thing we've been talking about on this show for a long time. I did my KPMG talk last year. I think you helped me with that presentation. Did you help me with that? Yeah.

I've got to find that presentation because I'm doing it again at KPMG this summer. And I do my like trends based on what we talk about here. And one of them was that static team size that we've talked about over and over again. The only people who are coveted right now are like the tip of the spirit AI experts. Everybody else, podcasters, journalists, lawyers, accountant, developers who are not part of the echelon of AI developers, designers, UX. everybody else is, you know, customer support, obviously, operations. Everybody's looking at those jobs and saying, how do we hire these people for $100 million to get rid of those other 99 people?

So, or get rid of, it's kind of crazy when you think about it. It's Darwinian. The drivers, there are drivers, safety drivers, in Waymo's, in Zooks, in Volkswagen, in Tesla's right now. Those safety drivers are there. to solve the last 10% of the problems so that all drivers lose their jobs. The same thing is happening with developers right now. When developers are using a product like cursor, their training cursor had to take their job.

It's literally like what happened in factories or in farms or other things where the people who had become the middle class are teaching the people who are going to replace them when they complain about it. This is now happening with machines. And so whenever you're doing work and it's being monitored by an AI, the explicit goal is to take that person's job. And in fact, there's startups now that are putting on glasses on workers and you can watch them work. And that's becoming the training data to take that person's job. I've seen what you're talking about.

And it's going to be brutal and sit there and realize that not only are you not getting paid much to do hand, assembly work that's going to be automated, but you won't be paid anything for it in the near future. All right. Anyways, Devin's buying WinSurf. Devin? Wait. Yes. So Cognition AI, which is the startup behind Devin, announced right before we went to air,

that they're going to buy what's left of WinSurf that Google is not buying for $2.4 billion. Got it. Okay. So there's a breaking news story while we're taping. Devin is buying the remnants, but we don't know what the remnants of that carcass are. Essentially, Open AI wanted to buy all of Windsurf. That didn't work out because Microsoft was a sticking point as they sort out some deals with IP between OpenAI and Microsoft.

The period of exclusivity ended. Google swooped in with $2.4 billion, bought out most of the investors, got the founders and researchers they wanted, left behind the company. Everyone thought it was going to be a carcass. Then, Cognition, who's behind Devin, showed up and bought everything that was left. which is the ARR, and Devin is what? What does that company do? I'm curious.

So Devin is the much vaunted AI engineer that you could hire to work with your company. It was essentially, going back in time, it was the early agenetic developer, if you want it. So the cursor product is loved by a large number of people, right? And it's making $100 million. 500 million. This is now 500 million ARR. Okay. Yeah.

It's mind-boggling how fast that was going. So who gets that? Who gets that? Well, so no, wait, Curser or WinSurf, Jason? Okay. Cursor's a separate company. WinServe is this company. WinServe's product competes with Cursor.

What is WinServe's product called? Does it call WinSurf? It's called WinSurf. Got it. Okay, so Curs is the leader in the space. They're making $500 million. WinSurf was at $100. I've now got it in my mind.

I was juxtaposing the two. So whatever's left of the Winsurf product is going to go to this Devon company. and then the talent goes to Google, but will they have a competitive product? I'm wondering. I mean, I don't think- Because Google Gemini does code. There's actually a code project.

Yes. There's a code, what's the name of their code project? Google has a cursor competitor, a windsurf competitor already. So Google has a product called CLI that brings its Gemini AI models for coding into the terminal. There's a similar product from, I believe, Anthropic, which is Claude Code. and then OpenAI's operators around the same thing.

There's also a general code assist. Yeah, that's the direct competitor, I think. Do you want to make this even more hilarious? Please. So today, just because why not? Today, Amazon released a new thing called Hero. And it is a new agentic IDE that works alongside of you from, quote, prototype to production made by some folks at the AWS team.

They're kind of keeping it on a separate brand. you can pay for it, but now there's another one. So everyone's trying to solve this particular nut, and they're spending a lot of money. I'm just glad that we had Verroon on the show a couple months back, link of the show notes, and now he's a billionaire. So shout out Varroon. Well done, man.

Great. All right. So there's going to be 20 different ways for you to have a code assistant help you. It's all going to be free or close to free. And these products were greatly under, I mean, there's tons of free products. And even the paid ones, which I guess, GitHub's co-pilot was the original. It's like 100 bucks a year or 100 bucks a month.

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problem that dovetails neatly with the company that i was talking to um for the show today called vellum uh they're a yc winter 23 batch company they raised a 20 million dollar series a why do we care it's another company in the i i space raising around well what i liked about them was that they were trying to work on essentially what you're describing that the gap from prototype to production in AI is still huge. And these founders had run into this problem at their last company. They were at Dover for a while. And so they made a company to do this.

And I think it's a pretty cool idea. I have a lot of notes about how they're going about helping companies kind of solve the AI pipeline. But what I care about a lot is on the pricing point, I asked them, do you have SaaS gross margins? Or do you have like 50% gross margins? And this company says that they have SaaS gross margins as they're growing three to four X every year. So maybe even with relatively inexpensive pricing, a lot of AI companies will make economic sense long term. Maybe they're not as gross margin negative as we anticipated. Yeah. So when we see

the price, we talked about in the last episode, the price of like tokens keeps plummeting as we have this crazy competition. Then if you build a product that uses Claude, GROC, pick your, you know, open AI as your back end. And these things keep. the tokens keep collapsing, plus you have deep seek, plus everything else on Hugging Face available to you, yeah, then the margin might actually be growing as the cost goes down. How many of these backdoor acquisitions have there been? I just wanted to note for the audience. I think you did a little bit of research on it.

Is this the six or seven one? Go through it. And maybe we could show it on the screen. One, two, three, four, five. Five. Okay. Right. Yeah, I'll just, I'll go ahead and, yeah, I'll just pull this.

up for everyone so they can enjoy. And you can see the docket, folks. This week in Startup's.com slash docket. You can see the notes we use here for the show. Yeah. So just pulling them up here. So the first one that kicked us all off was the Microsoft Inflection AI deal. That was back in March of 24, $650 million in cash.

It was an IP deal. That's a common refrain in these acquisitions. Took the founders, most of the talent, and then the company pivoted to the enterprise. Go forward a couple months. Amazon Adept AI, June 24. We know it's in the nine figures, Jason, but no one got closer than that. Again, a licensing deal took the founders and some of the research team.

Then number three, Google, Character AI, August 24, 2.5 billion. Woof, that's getting expensive. Non-exclusive IP, so the same idea of buying intellectual property access, founders, and some researchers. Then this year, we saw meta and scale AI. This was kind of the weird one. 14.8 billion, but they bought a stake in the company and took the talent, but then the company was poisoned because no one wants to work with meta's subsidiary effectively on their data. So that's going to be a mess. And then most recently, Google and Windsor, July of this year,

$2.4 billion for the license, co-founders and some talent. And then, as we saw later on, Cognition slash Devon is buying whatever's left. So this has now happened five times. You know, trend starts at three. This has all happened in the last year, a couple of months. I'm curious to talk to an attorney. If anybody knows an attorney who structured one of these deals, we'd love to talk to them in the background. He's Alex at launch.com. I'm Jason at launch.com. Alex W. At launch.com. Alex W. at launch.com. I'm, yeah. You're not JCC. You're just Jason. You were here first. I was, yeah. There's no other Alex here. All right. Let's keep going. What else is in the docket? So I was particularly excited to see that we are seeing Tesla expand their geofence in Austin.

Well, okay. No, I saw the image go by like everybody else. Yeah. All right. So we're going to try to do this with the minimum of jokes possible. Friends, we've been covering the expansion of Robotexies around the world from Chinese companies to Waymo to Zooks to everyone else. Of course, Tesla is now in the mix. Jason, they launched in Austin.

Seemed to go pretty well. There have not been headlines of fires and explosions and crashes. There was one, a tire touched a car a little bit. I would say there were three notable instance, the tire touching, the going into the wrong lane. Oh, that's right. And then there was the phantom stop. There were three. And all of those at low speed, all of those, the car was basically in control.

All of those, there were safety monitors there. So even in the worst case scenario, I think in any of those instances, it would have been a fender bender and no harm. to human life. So will society be okay with this? Well, there were, remember there was a Waymo that went down an alley? So there was the Waymo that bumped into a pole in an alley. Now, it probably shouldn't have been in the alley. Allys are probably edge cases.

And it hit a pole. But it hit it at such low speed that it looks like it hit it at, I would say that dent is a 10 to 15 mile per hour down. Yep. you know, if there had been a, you know, God forbid, a person between the poll at the time, it would have stopped, I'm sure. But how did Waymo hit a poll? You have to ask. Now, when did that happen? I think that was like two years ago. So I think you're going to see that type of mistake. Zooks had one as well. Zooks was, had somebody pull out. It was going extremely low speed. And it was in the right-hand lane. Somebody pulled out. into that right-hand lane, and it kind of moved to avoid it or slammed on the brakes or something,

I think there might have been a touchy-touchy, tapy, tapy. But these little tickey-tacky-tappy-tappies, if they occur once every couple of thousand rides and nobody's hurt, I think society will accept it, but will regulators accept it becomes the issue. And will regulators accept it if you don't have lighter? Not that lighter would have solved any of the problems. But if they feel there's like a higher level of, you know, technology that could be there, whether they're right or wrong, I think regulators are going to, if these tiki-tankies happen too consistently, regulators are going to step in. This is why I'll keep saying it. There's no shame in the safety driver game. Put a safety driver in there, folks.

Volkswagen is doing safety driver, Zooks, Tesla in or safety monitor in Tesla's case. I would have put him in the left hand. I would have put him in the left hand side. That's just me. You know, I can disagree with Elon on stuff. He's obviously a little closer to the issue than me. I just think for optics, I would have put it in the left hand side. But whatever it is. But here it's expansion. It goes up, it looks like, to the northern part of the city. It does. And it hits the, I think, University of Texas, which is kind of a big deal. And this means Lon could go from the University of Texas. This could be our office could be in this zone. and it could go to south of Congress.

I don't know, Lon if this could actually do that. Less people think that this expansion to the tip of the northern part of Austin. I thought we were going to pull it off. All right. Yeah. I mean, it looks like it expanded like 5X. I don't know if that's average, but it looks like about 5. It looks like, you know, when you look at the map, it looks like it got an extra 3 inches of expansion there.

I don't know if that's average or not. All jokes aside. All jokes aside, this is the Tesla logo. Okay, you've all been trolled. Lest you're seeing something here that's not here, it's just the upside-down Tesla logo. That was my joke. I can't move it.

What I have now up on the screen is the Waymo service area in Austin with the Tesla service area imposed on top of it. And according to all the data, we could find, Jason. This is roughly a doubling of the Tesla geofens. And also it now has, people are calculating about 40 square miles versus Waymo's 37 square miles. So it may be now that the Robotaxi effort from Tesla is now larger in footprint geographically than Waymo.

And I just, I mean, I try to never have you going up against your friends because it's not what the show is for. But you were pretty serious about like, let's go slow, let's be moderate, let's be safe. And this is faster than even my bullishness expected. So too fast or just better data on the operational side? You know, there's a great self-correcting mechanism here. If you go too fast and you get a tapy, tapy, touchy, regulators are going to be lobbied by haters, by concerned citizens,

by people in government who might think slow is better. And, you know, in technology, you have had this position for a long time of like, hey, net net, it's going to save lives because distracted drivers. I 100% think statistically you're right. Then I look at regulators and knowing what I know about regulators after that cruise mishap, which really wasn't their fault, somebody got hit by a car, the person ricocheted as crazy as that is, into a slow-moving cruise. And the reason Cruz got in big trouble in San Francisco is because they dragged the person a little bit.

And then... And edited the video and didn't show it. It's not the crime. It's the cover-up. The cover-up always worse than the crime. But even still, life happens. People will get hit by cars. People will jump in front of cars, right? People put cones on Waymos. So the self-correcting mechanism is, if Tesla goes too fast, if Volkswagen, if Zooks, anybody goes too fast, then a regulator might say, hey, you're going too fast and then correct them. There's a lot of edge cases. I've been having perfect rides in my hardware for Juniper model of the Model Y. I will say, like, you get into a construction zone on 290, which is a highway that goes east-west from, you know, hill country all the way to Bastrop and past the airport, the Austin Airport.

You know, my Tesla cannot figure out what they're doing with that construction zone because they are going for it. So construction zones, mislabel signs, tricky stuff. This is the stuff, the edge cases where it really matters. because I've had one or two instances, even with my hardware four, where, you know, it could have done serious property damage, serious harm to me, like life harm at, you know, 45 or 60 miles an hour. So it's a lot of speed. And that's why I think staying off the highways, keeping these cars to 35 miles per hour, even if the speed limit's 40, I think they should just throttle them to third, you know, if I was running this minus five miles per hour, whatever the speed limit is, which I think is legal to do. and then, you know, unless it's like 25 miles an hour, just keep it slow, steady, wins the race. Because what's going to happen is somebody is going to feel like they're losing the competition.

And I don't think Tesla feels this pressure. Waymo doesn't feel this pressure. Volkswagen's not going to feel this pressure. But there's going to be somebody who feels the pressure that they're falling behind and somebody's areas faster than theirs. And it kind of feels like the Waymo, Uber, Volkswagen, Zooks, Tesla competition is now heating up. This is where regulators can do their job and say, here's the rules of the road, literally.

We want you all. I think the regulators should pick the zones that are. I don't know why Tesla and Waymo get to pick their area. I think the regulators should approve that. And I think local regulators have the right to do it. So I don't think this should be a federal thing or a national thing. I think local regulators should shut their rules. They should have their say in this.

And everybody should go nice and slow and steady. And they should go nice and slow and steady and add Providence, Rhode Island, as the next stop in their expansion. I'm going to keep saying that until it happens or until you tell me to stop. Oh, you know what the other big note here is? Tell me. Very disruptive. I saw some influencers who are in the thing here because it's not open to the public yet. It's open to influencers and their friends or whatever.

Oh, Robotaxies in Austin. Robotaxis in Austin are open. It's not open like Waymo is. It's invite only. Yeah, yeah. It's invite only still. And they let their influencers in. I think they feel like they would get a bad, you know, that people have it out for them, which I get, you know, it's a political sized moment or whatever.

It's still 420. I can tell you that ride from the northern tip to the base, from tip to base, that's not a 420 ride. That's like a $15 ride. So actually, if you happen to have that commute area and you happen to have this, kind of like the early days of Lyft sidecar and Uber, going to be subsidized for your ride. That's a really cheap ride. Well, producer lawn just weighed in. He thinks the Omni, where a capital factory is, is inside the quote Tesla Pene. And as is his neighborhood, so he is going to take a Tesla commute. We're going to get him to apply. And then we're going to make him do an on-screen reporting about how it goes. So somebody is right long.

goes self-driving. He's L-O-N-S on X.com. Somebody invite him. Or his email is Lon at launch.com. If you're in it, please email Lon and invite him to go take some rides. Yeah, we want to see, we want to see how it is from Lons. I'm not going to do, what is Lon? He's not the team Luddite at all, but he's like slightly more skeptical than we are.

No, he's pro tech. He's pro tech. Yeah, he's just a little sprinkling of, uh, No, he's just, actually, I'd say he's probably, like, slightly more liberal than, like, a Clinton Democrat, but not like an Elizabeth Warren. But he's probably got some Bernie Sanders to him a little bit. He cares about the working man, probably very Trump-esque in that way. I'll let him speak for himself. I think he believes in universal health care.

He was a Bernie bro in 2016, but he's eight years later. I don't know if he's still a Bernie bro. Joe Rogan was a Bernie bro. All right, let's keep on. Let's move on. Okay. I've been keeping tags on open source A. Because we talked about this a lot a year ago, back when META's Lama Project was doing quite well. And then META has pretty publicly stumbled with its Lama 4 release.

And everyone kind of went back to thinking that we're going to see essentially close source AI run the world as XAI, anthropic and open AIA kind of battle it out. Well, turns out the answer is maybe not. And there's a company in China called Moonshot AI. And they have been referred to as an AI tiger by Chinese media, essentially putting them in the deep seek kind of collection of the, of the Chinese AI industry. They're part of the Mag 7 of Chinese AI, if you will. And they dropped a couple of new models that are called the Kimi K2 models. And here's the thing that's killer.

They're legitimately open source, weights and everything. And they're very, very good. And I just did not expect this to happen because this is a company that raised a billion dollars last year and most recently raised another 300 million with Tencent participating at a $3 billion pre-money valuation. and they're dropping, arse-kicking open-source models. Here's some of the data, Jason, just showing off how they do. Now, keep in mind, this dropped, I believe, before anyone could get their hands on GROC4.

So there's no X-A-I comparisons here, but this is against DeepSeek, Quinn, which is Alibaba, OpenAI, and Anthropic. And as you can see, these models are competitive with kind of current state of the art, and they're now absolutely free. Now, I don't think American companies are going to adopt open source Chinese AI models or close source Chinese AI models, just given tensions between the two nations. But from the rest of the world's perspective, this is an enormous gift. And I find it to be honestly pretty encouraging and optimistic that were still seeing this level of improvement. And I just can't believe what a gift it is to have open source information out there of this magnitude, Jason. I'm blown away. Well, this was what Open AI was supposed to be doing before they closed it down and made it a for-profit company.

It was supposed to be, you know, the original premise that they sold the world on with their nonprofit status was, we're going to make this free as a gift to humanity. It's too powerful for any one person to have. Therefore, if everybody has it, that's the way to go. Something changed along that way. And people changed your mind. And now we have this great paradox that China and that country is saying, you know what? We might be six months behind, 12 months behind, whatever the test might be, three months behind. Who cares? You know, what, having an open source option, that's six months behind the state of the art or 12 months behind the state of the art or maybe sometimes dips ahead of the state of the art? Yeah, it's got the great price.

So we'll be sitting here in four or five years and it will be feel very much like MySQL, right? there was a period of time where people said like, I'll never use WordPress or MySQL. How would I ever use something open source in a corporate environment? And then the White House is running on WordPress, open source, you know. Or large companies, you know, Uber, Airbnb are probably using MySQL or, you know, some version of, you know, those. So it's going to be really amazing to see. this might relate to the story we saw with windsurf in we were trying to figure out like, why do they not care about the product and they care about the people?

Maybe everything being built right now isn't as important as what's to come. And having those people iterating at a high velocity in your organization is more important. If you don't know exactly where this innovation ends, then what's been accomplished to now is going to feel like the web, ages of the 90s. So you got to get the talent, have them locked in for five, 10 years in your company, but four or five years is realistic. And if they're locked in for the next five years, you increase your chances at the $10 trillion prize. Which is that, I'm running that dunk. We keep going to go back to that. So I think that's going to be one of our trends for the back half of the year. Okay, looping back, though, to AI, I want to make a point really quick because

there's something interesting going on that I don't think we've actually talked. about enough. So we talked about China, talked about the United States, and that's kind of where the conversation stops when it comes to foundation AI models. There's not really any other major nations out there except for Jason. Have you heard of France? Because it turns out, Mistral is the only other company on the open router leaderboard by token percentage of just users from that service. But Mistral, the French kind of like AI champion, is ranked sixth in the world for token usage on open router. Shockingly, look at them. They're actually pulling it off, and Europe might have an actual stake in the AI future. We joked, we joked, but they're still

here doing it. Yeah, I mean, it does feel like with these open source projects and talent moving around, the paper's being written, we have some parity between these platforms. There's a funny meme of a circle of who's in the lead. I got it. I don't know if we showed it here before, or we were, could we show it last episode or we showed it in our group chat? I can't recall, which we do a lot of shows, guys. Yeah. I think it was like, you are here. And it's like it had Deepseek, it had GROC, it had GROC, it had Gemini, it had Claude,

it had Open AI in like a circle. And it's like, takes the lead. You are here. And then here he goes. So, yeah, GROC interests the world's most powerful model. Next, open AI introduces the world's most powerful. See. So you basically need to do this once a year.

and then Polymarket has betting on this. And you know what? I wonder if Polymarket resolved Grok winning. Because remember we had brought up the Polymarket? It was the leading AI model by a certain date. And it was pull that up. What it was using to resolve the bet, right? Because all of these markets have to be resolved.

And that's where... Oh, this is very interesting. Okay, so I found it. Juicy. Juicy, juicy, juicy, pull it out. This is, the question is, which AI, sorry, which company will have the best AI model

at the end of July? And we talked about it probably somewhere in here. Google was storming. And then you'll note that with the release of GROC 4, XAI seems to have made a dent, and then they've kind of lost it again, which is interesting because the market is now re-betting, actually more than ever,

that Google is going to have the best AI model by the end of July. So either GROC-4's, Maybe they peaked too early because look, somewhere in the middle of July, if you hover your mouse over when the gap closed, when was that? When was the gap? That was July 8th. Right. So last week, between July 8th or whatever, the gap closed and X almost flipped it. But remember, this market is closing on July 31st. So there's no way for XAI to drop another model. No, they've done it. They dropped the numbers. Yeah, so I don't think there are, I don't think folks are doing this based on the

polymarket when they're dropping it. But if we scroll down here, you'll see Deepseek and Meta have no chance. What is the rule? Less than one. The market will resolve to the company which owns the model, which has the highest arena score based on the chat about arena LLM leaderboard. when the table under the leaderboard tab is checked on July 31st. Okay.

So this is not using the same thing that we were talking about GROC last week. We're using something else for GROC. But yeah, so this will be the arena. Well, there's a variety of ways to look at things. And you'll note here that actually, according to LM Arena right now, GROC 4 is not really showing up yet. Number three. I don't know if it's actually been...

It's number three, actually. Oh no, that GPT4? Where is GROC? That's GROC 3. GROC is 3. I don't know if it's been... No, but that's GROC 3, not GROC 4. So GROC 4 isn't on the leaderboard yet.

Yeah, not yet. Okay. So, but that does not mean that it won't show up there. It means that right now. But all this is fun in games just to show everybody that if you were ever curious about what it's like to live during a time of great technological change, well, here we are. This is what it looks like. It's messy.

It's aggressive. it's expensive, it's exciting, and at the end of the day, we get lots of cool new tools. So I just love technology. Hey, one thing, and we should end on this, I think, because we got a lot of show here. I had asked you to look into the depreciation of servers. Did we do that? I have a lot of good data on that for you. Great.

Let's start this discussion, because I was told by some folks in the know three years, and then these things are going to be obsolete. You said some people had expanded it to four. this is critical because putting in 100,000, 200,000 servers at Colossus, GROX, or CoreWeave is a company that 5X, their valuation or something when it went up at the peak. Their valuation is based on all this. You have Open AI, you know, incredible revenue numbers, but what is it costing them? Because they're putting a lot of servers to work. So what is the depreciation schedule? my challenge to you is to figure out the depreciation schedule that people were using for like H-100s

or these latest Nvidia servers. What did you come up with? What did you find? All right. So I looked at this from two different perspectives. The first one is what are the hyperscalers doing? And when they discuss servers, they don't always break down strictly AI versus strictly not. There's some commentary in earnings reports.

But the big numbers are as follows. Alphabet raised. And by the way, you could show this on the screen, I think, because it's in the docket. This week in startups.com slash docket if you want to follow along with us. And you can find today's date, July 14th. We keep all the dockets up there. So you have tons of content you can look at and you can build on this and put comments into our notion if you want to.

Yeah. I'd always turn on comments. So you can always drop in, leave notes. I love them people to do that. Okay. So Alphabet increased its surer lifespan most recently to a six-year depreciation timeline. That was back in 23. Meta moved to five and a half years.

This year, Microsoft moved from four to six years back in 2022. And then this is when it gets interesting. Amazon moved the other direction. They moved from six years depreciation to five, shortening the time frame and therefore just increasing the effective cost of their data center investments, their CAPEX, if you will, Jason. Now, the Financial Times did an analysis of this back in 2024, looking at the aggregate impact of those changes,

so not an entirely up-to-date number, but they calculated that the hyperscalers alone are going to save about $10 billion by increasing the length of time they think they can use their servers. So what does this kind of look like in practice? Well, I went to the CoreWeave, latest Irman's report, their Q1 numbers. And as you can see in this little data set here, the depreciation and the mortization cost at CoreWeave, which is a NeoCloud, rose from basically 80 million

in the first quarter of 24, all the way up to 44 million in the first quarter of this year. So when you spend a lot of money, your costs go up. Now, should we worry about this? Is this a concern for the profitability of some companies? The hyperscalers, no. So I went ahead and looked through some Q1 data from both meta and Google. And if you look at their CAPEX, which is servers and so forth, they're spending $14 and $17 billion apiece.

And their depreciation and amortization costs in the same quarter were basically $4.5 billion. So it's a lot of money, and those costs will go up as they invest more money, Jason. but nothing that I saw struck me as worrisome. I guess if that makes sense. Yeah, I mean, I think the bigger issue, putting aside worrying, is how much revenue are these generating versus what they're costing? So when we looked at those first set of servers, those are Amazon Cloud, CPUs. They're not the GPUs in all likelihood.

The meta Facebook ones, that's to serve up your Facebook page. That's not doing, you know, that's not an Nvidia, H-100. hundred or whatever it is, you know, doing that. So I guess the question is core weave might be the closest number. So how much money is CoreWeave making on those servers is the next piece of the puzzle we have to sort of tease out? Forget about worrying about it. Just does it pencil out?

Does the 100,000 servers in Colossus, if they last for four years and 100,000 servers times $100,000, you know, whatever that equals in billions of dollars in servers, what does that generate in revenue? And then the next piece is what happens to those in year five or six? Do they get turned off? Do they get thrown out? Those are the two remaining questions I have. So if anybody has feedback on that, AlexW at launch.com or Alex on Twitter, you can just

reply to us at Jason at Lonz. Yeah, that's a piece I would like to know. happens in year five or six of these? Do they go into like, do they get resold? Do they have some afterlife doing some other purpose, like indexing images or something for, you know, tagging of photos? Or do we just not know the value of those? We put them out to pasture slowly to do the last bit of data crunching. Kabir did fine for us, analyst Kabir, that invidia has a recycling program, which is pretty cool. So I think if something gets so old that you're just going to throw it away, you can send it back to the mothership and they can do something with it.

But we have seen in the past case. I wonder if that's even real. That could just be window dressing. Like they take them back, but who knows what they do with them? Do they actually take the time? Is the cost of taking them apart and melting it down and doing something with it? Actually, does that actually cost them money?

Or do they break even on that? Apple will take back your products as well. So I wonder if those are just greenwashing programs. I always suspected the Apple one was a greenwashing program for the oldest machines. I know they can resell an iPhone that's three years old or four years old in an emerging market, but is there a market for an H-100 that's five years old, is the question? Well, if you have a five-year-old mega-inVIDIA GPU, I want to put it on my wall. So, yeah, just shoot me an email because that would be a fun, fun wall-dressing.

I'll have all that for you, Jason, on Wednesday when we're back. Yeah. Okay. You can read the docket this week in startups.com slash docket. He is at Alex. I'm at Jason, executive producer Juan at L-O-NS, and we will see you all next. on this week in startups. Bye bye. Bye bye.