This Week in Startups - BREAKING: Sam Altman fired from OpenAI, chaos ensues! | E1851

Episode Date: November 18, 2023

This Week in Startups is brought to you by… Vanta. Compliance and security shouldn't be a deal-breaker for startups to win new business. Vanta makes it easy for companies to get a SOC 2 report fast. TWiST listeners can get $1,000 off for a limited time at ⁠vanta.com/twist⁠⁠ Lemon.io⁠. Get access to Lemon Hire, a platform with more than 80,000 pre-vetted engineers that you can interview within 48 hours. Get $2000 off your first hire at ⁠http://lemon.io/hire⁠ today! The Equinix Startup program offers a hybrid infrastructure solution for startups, including up to $100K in credits and personalized consultations and guidance from the Equinix team. Go to https://deploy.equinix.com/startups/ ⁠ to apply today. Today’s show: Sunny Madra joins Jason for an emergency podcast! They break down the business implications of Altman leaving OpenAI (1:23), speculation around why he was fired (10:27), ongoing developments like Greg Brockman quitting, and more! (23:24) * Time stamps: (0:00) Sunny Madra goes live with Jason for an emergency Pod! (1:23) Sam Altman ousted from OpenAI and Greg Brockman quits! (6:44) The board’s accusations against Sam Altman (10:27) Speculating “no conflict, no interest” (12:16) Vanta - Get $1000 off your SOC 2 at ⁠https://vanta.com/twist(13:22)⁠ Sam's extraordinary deal-making, lack of OpenAI shares, and the possible impact from Humane launch (23:24) The OpenAI and Microsoft relationship (29:40) ⁠Lemon.io⁠ - Get $2000 off your first hire at ⁠http://lemon.io/hire⁠ (30:49) More speculation and anonymous theories (34:29) The impact of founder-led switching to not founder-led (37:10) Equinix - Join the Equinix Startup Program for up to $100K in credits and much more at https://deploy.equinix.com/startups/⁠ (38:30) Questions from live audience (56:12) Final thoughts * Follow Sunny: ⁠https://twitter.com/sundeep⁠ * Great 2023 interviews: ⁠Steve Huffman⁠, ⁠Brian Chesky⁠, ⁠Aaron Levie⁠, ⁠Sophia Amoruso⁠, ⁠Reid Hoffman⁠, ⁠Frank Slootman⁠, ⁠Billy McFarland⁠ Check out Jason’s suite of newsletters: ⁠https://substack.com/@calacanis⁠ * Follow Jason: Twitter: ⁠https://twitter.com/jason⁠ Instagram: ⁠https://www.instagram.com/jason⁠ LinkedIn: ⁠https://www.linkedin.com/in/jasoncalacanis⁠ * Follow TWiST: Substack: ⁠https://twistartups.substack.com⁠ Twitter: ⁠https://twitter.com/TWiStartups⁠ YouTube: ⁠https://www.youtube.com/thisweekin⁠ * Subscribe to the Founder University Podcast: ⁠https://www.founder.university/podcast

Yeah, I'm just processing it as quickly as you are as is coming in. Yes, and so this would be the equivalent, I think, of Larry and Sergey being fired, or Larry being fired and Sergey quitting moments later. That's basically what we've witnessed is a $90 billion company. It's had tens of billions of dollars invested in it. It's first fastest company to 100 million users. And let's be honest, it's changed, it's rocked the entire industry. It's changed the entire technology landscape.

And it's obviously changed the world. then the question becomes why? What happened and why? This week in startups is brought to you by Vanta. Compliance and security shouldn't be a deal breaker for startups to win new business. Vanta makes it easy for companies to get a SOC2 report fast. Twist listeners can get $1,000 off for a limited time at vanta.com slash twist. Lemon.io.

Get access to Lemon Hire, a platform with more than 80,000 pre-vetted engineers that you can interview within 48 hours. Get $2,000 off your first hire at lemon.io slash hire today. And the Equinick startup program provides hybrid infrastructure solutions for startups, including up to $100,000 in credits and personalized consultations and guidance from the Equinix team. Go to Equinix startups.com to apply today. Hey, everybody. Hey, everybody. Welcome to an emergency podcast. This is an emergency breaking news podcast here on this week in startups. Sam Altman has apparently been fired from Open AI. Open AI released a statement this afternoon.

And Sam quickly confirmed that with a tweet saying, I loved my time at Open AI. It was transformative for me personally and hopefully the world a little bit. Most of all, I love working with such talented people. We'll have more to say about what's next later. Minor disclaimer up top here. I know Sam socially, we're not besties or anything, but we were both Sequoia scouts together,

both Sequoia founders together, and we've got, you know, literally hundreds of contacts together. And, yeah, I think he's, obviously, I've watched him from his first startup, Sonny, through running Y Combinator, investing in a lot of great companies to this point. So this is kind of a shocking moment

because we just had Open AIs Demo Day. Sam was on stage. This has become a $90 billion company. This is, I think, one of the biggest news stories of the year. Would you agree, Sending? Oh, definitely. I mean, the biggest story in tech this year, for sure. And, you know, hugely impactful because we have a giant ecosystem of, you know,

maybe 5,000 plus companies that are being built in and around AI and many of which who are building on open AI's platforms. And so this has pretty. huge impact to a number of companies depending on, you know, and we'll maybe talk about it here, but what happens with Open AI going forward and, you know, what's the next

you know, what are some of the next things? Because, you know, we just did this late breaking news, GDB, who was also one of the co-founders, Greg Brockman just quit. Okay. Yeah, yeah. He was removed from the board. Yes. And so this is a

very dynamic situation that we have to explain. There is a board of directors. And famously, Elon originally funded the company. He left the board. Reed Hoffman was on the board. He left the board, I think, because of conflicts. That was a couple of months ago. But the board is made up of the founders of OpenAI, the nonprofit, which became a for-profit company and then some industry experts. And as part of this action by the board, Greg Brockman was stepping down, or they said, we'll be stepping down as chairman of the board and will remain in his role of company reporting to the CEO. However,

moments ago, he has quit, which would to me mean Sam and he are going to go start their own company and he is quitting, you know, in protest. And that makes it super interesting, wouldn't you say? Yeah. I mean, if you're Microsoft, you know, you've put a lot of money into this company, you've put a lot behind it, you've launched, you know, just three days ago, they had their big conference ignite where they launched a bunch of new functionality. that's built around Open AI, upwards of 10 different co-pilots and, you know,

GPT4 offerings for their enterprise customers. This has to be, you know, incredibly kind of, I guess, worrying, right? You have the co-founders, the CEO. You know, he was, I think Greg was a president, not the CTO. I think that was the, who just took over, the woman who just took over for that.

So, yeah, I'm just processing it as quickly as you is coming in. Yes. And so this would be the equivalent, I think, of Larry and

Sergey being fired or Larry being fired and Sergey quitting moments later. That's basically what we've witnessed is a $90 billion company.

It's had tens of billions of dollars invested in it. First, fastest company to 100 million users. And let's be honest, it's changed,

it's rocked the entire industry. It's changed the entire technology landscape and it's obviously changed the world. So then the question

becomes why? What happened and why? Well, the board did this news dump on a Friday, which is always a classic PR move to, you know, miss the news cycle, which is one of the stupidest things you could do because all it does is make everybody point out. You're dumping this on a Friday so it doesn't get news and it just creates twice as much news. And then the truth is, over the weekend, people have time. And so, and it really upsets journalists who now have to go to work.

on a Friday night and leave their families or whatever plans they have to have to cancel. I remember when I was running a magazine and gadget and here I am as running a podcast. It does create this amount of chaos. We are live on Twitter spaces. We're live on YouTube. We will take your questions as a programming note. But here is what Open AIs board said. They fired Sam Altman for not being, quote, consistently candid in his communication.

Now, on a housekeeping basis, we're going to do some speculation here. one thing we're not going to speculate about is any of the gnarly allegations floating around about personal conduct yeah yeah i i am we're not in the business of that and you know

we'll just leave it at that on a business basis consistently candid in his communications what does that say to you sonny knowing what you know about startups and boards consistently candid in his communications so this is a more than one, right? Yeah.

Instance. There's a pattern. This company is very complex, right? Because of, let's list out maybe some of the complexities that they've shared. And so we won't speculate. The company went from being a non-profit to a for-profit, which there's a lot of complexity. I think that comes from that, that I think hasn't been very clear to a bunch of different people.

the company has had a few security leaks, one earlier this year and one earlier this week. You know, the company has taken billions of dollars in funding in non-traditional ways. That means, you know, it's just, you know, typically when a company is financed, money comes in, chairs come out. But some of their financing is in terms of, you know, resources, like, you know, credits or whatever it happens to be on clouds. And they have a very complex deal with Microsoft that, you know, we don't even, we just know the surface of maybe at a high level. You know, a bunch of talent that has, you know, came out of Google, a bunch of talent that

left and founded other companies like Anthropic. And so it's at the center. And then there's the, you know, we've talked about this in a regular pod. There's the data that the company has used, you know, and in the past to train their models. So there's a lot of information. There's a lot of things that had already been out there with respect to what this company has been,

has had to deal with. Which is to say, if I may summarize, when you make a startup and you're moving fast, you may break things. And sometimes you got to break some eggs to make an omelet. And so the broken eggs that could have been causing communications issues with the board, as they put it, is maybe the training data, that's a vector. That's number one.

Number two, withholding information about a security breach or downplaying a security breach with a company like Microsoft, which is at the center of security because they have the largest footprint of desktops in the world, I believe still, by far. And we all know if you've had a Windows machine previously fishing, viruses. It's the biggest surface area, so it gets the most attacks in fairness to them. So that's a second thing. And then the third bucket would be,

who owns the company, who owns shares in the company and the corporate structure. I will add a fourth thing to that, which is dealmaking. So what do we mean by dealmaking? Sam is a consummate dealmaker. He has been an incredible dealmaker

at Y Combinator. I think he had an LP and Peter Thiel. That's what I was told. And he had made a lot of large bets doing SPVs or individual investments, special purpose vehicles in companies prior. Like maybe while being at Y Combinator, maybe while being involved in Open AI. And I mean, listen, what a great dealmaker running Y Combinator,

also getting Elon to put $50 million reportedly into Open AI as a nonprofit and other people like Reed Hoffman to join the board. So an incredible networker. incredible deal maker. Now, why is that last piece important? This is the speculation part here. I'm going to do a little bit of speculation here. In Silicon Valley, we have a term.

It's called no conflict, no interest. What does it mean? Everything's conflicted here. So, you know, I might be an LP, as one example, in 24 venture funds. I might invest in a company. One of the, I might be on the cap table through another venture fund in a competitor.

So it's completely possible after I invest in, I don't know, company A, that their competitor company B gets invested in by one of the companies I'm an LPN. People go from one company to the other. You get the idea. And so no conflict, no interest. Well, if Sam's out there doing a ton of deals,

what deals do we know he's done? I know for a fact that OpenAI gave preferential access to the API to many startups, many Y Combinator startups. So that was done. And if you had a financial interest in them and you got them early access, is that a conflict? Sure it is. Is that an awesome conflict if you have the ability to do it?

Of course it is. Is it illegal or anything? Absolutely not. Is it unfair to the people who don't have access? Probably. But hey, life's not fair, right? You have access to a supplier. That supplier gives you that.

And then my understanding is he was the backer of humane. WorldCoin in crypto and then maybe it was... Reactor company, you know. Sure. So which of these might have access to

training data, open AIs, tools or whatever? And then he was doing some sort of deal with Johnny Ive or possibly doing something with Johnny Ive to do another thing that sounded like

it would compete with humane possibly as an AI hardware device. Listen, selling software is hard enough right now, man. It's hand-to-hand-com. combat out there in B2B land. The last thing you need to do is slow your sales team down because you don't have your SOC2 dialed in. So if you're SaaS or a services company and you store consumer

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Here's the best part. Vanda's going to give you a thousand off because they love this weekend startups. They love startups. Vanta.com slash twist. That's V-A-N-T-A-T-A.com. slash twist to get $1,000 off your stock too. I'm going to go with that last bucket first. What are your thoughts handicapping this that this had to do with his, you know, extraordinary dealmaking and then maybe this comment he made where he does not own any shares. Remember he was in front of Congress? He doesn't own any shares in OpenAI.

How does the CEO and founder not own any shares? Sachs speculated it on All In. We had a discussion about that. And Humane's launch just happened. And, you know, I think that might have been a little screwed up by this Johnny Ive news. So here we are. No conflict, no interest. Sunny, go.

Well, look, when you've created the technology that's been the most impactful since the launch of the iPhone app store and the momentum it's working with, it's inevitable to your point that these conflicts are there. And it's probably almost impossible to disclose them at a pace. to keep the board active. I'd like to add one other thing. The board of this company is a little bit non-traditional because it doesn't have, you know, what we would call like typical board members that are, you know,

venture investors or board members of public companies. It's a little, you know, Adam is there and he obviously runs Quora, but like the other folks are related, either work for the company and some external folks. And so I do think, um,

the ability for conflict to arise. is really, really high with this with Open AI, but it may not be malicious. It just may be at the pace of everything that's happening. You've got to put yourself in CM shoes and think about how many inbound you get on every single day. There's 5,000 AI companies, right? And they all want to, you know, get access to Open AI or do a partnership or get funding from Open AI. You know, Open AI is funded companies as well. So I, you know, there's there's so much that could be happening here that it's, you know, not on purpose, but just maybe even just hard to keep up with the disclosures. Could be. And it could be the board had, you know, based on their phrasing here, you know, a

frustrating time with the second, third, or fourth time this happened. Maybe. Yeah. Yeah. And then there was this allegation like, oh, maybe he lied to Congress when he said he didn't own any shares. Yeah. Like you could say, and I'm going to do massive amount of speculation here, Sam could say, I don't own any shares. I. Sam, Sam, will. Altman. I, Jason Calcuttas, don't own any shares. But a foundation controlled by Sam or a fund controlled by Sam that invested or bought secondary shares from other workers, whatever it was, could own an interest in OpenAI. And so I, Sam, don't own any shares, but my foundation does, right? So it's possible, I've seen people, you know, use the technicalities of language to kind of

justify things. I'm not saying that's a case here. But there's always been this very weird dynamic of he doesn't own anything in Open AI and he's doing all these deals and how does he not own anything if everybody else does? And then remember it was only how

many weeks ago that there was this breaking news about a secondary at 90 billion. Yeah. That was the week before the Open AI demo day, I believe. Yeah. Well, I just want to maybe say something on the other side that we can dive deep into it. I think in the Congress statement, if we can pull it up, but if I recall,

he did say, I've just, I've done well in other places. And, you know, like you mentioned, he's been involved in some of these record-breaking funds that have had, you know, hundreds of X return. And so it is, you know, potentially feasible that, like, you know, that he does not have it in any kind of related entity or entity that's pushed off, but just, you know, he decided to give it all away as a donation to, you know, Stanford or, yeah, I'm saying Stanford because he went there, right? But like, you know, some, some place that he's very passionate about. It's possible, right? Now, I think. Yeah, sure. I think when it comes to, you know, thinking about like companies on the cap table, this company is not that big, Jason, right?

So, and it's pretty straightforward for, you know, either the board or the or the general counsel, the company or the outside council to understand every single entity on the cap table and then to come back and maybe ask like, you know, sometimes people do have family trusts and whatnot and hold things in those ways.

But so if someone makes a comment like that in a, you know, in front of Congress, I'm sure, you know, your lawyers would come back to you and say, hey, we know, you know, ABC one to, yeah, be careful, yeah. Well, that and that, this is again, super speculation here.

you know, maybe he said that in good faith. And then somebody said, hey, you know, not exactly accurate. And the press picked up on that. That became a big discussion topic. So maybe that was one of the things the board said with communication. And maybe there are other issues like that. And so then we go to the security one. So maybe you could unpack the speculation about security because the GPTs got launched.

And then I remember seeing this headline that Microsoft took everybody at Microsoft off all their developers off of Open AI. Yeah. Well, let's maybe we're running back. So they had an incident, I would say, you know, maybe March this year, where people's information was getting leaked. And so, you know, that's, and look, they're growing fast, right? So it's kind of, I guess you have to sort of expect it at the scale they're operating at.

And then what sort of happened at the launch of the GPTs was people were able to able to go and look at the private information that folks were putting into the GPT to help, build them. Like, you know, we did one as well. And so I think given how fast it was moving, how many GPs were being created, it was probably a proactive move by Microsoft to say, hey, let's not allow our employees to rush into that ecosystem, fill it up with perhaps confidential documents and confidential, you know, text and other, you know, pictures, whatever.

it happens to be that you want to use to create a GPT and not put it in there because I think the experience as we did on the last pod is incredible and you could do something quite quickly and push it out there and have people start using it. But I think the security edges of it were still being still being kind of finalized and or hardened. Like we took the launch text and put it in there and we took it from the public website. But you might not have been as comfortable if we were taking private placement documents or something like that. that, yeah. All right.

So Microsoft put $10 billion into this company. They don't own a board seat. That is absolutely bonkers, but they do own 49% of the company. So that's insane. So this is also kind of a governance problem here. Who is on the board? Well, you had Greg, you had Sam.

They're both off the board. And then I think everybody else was independent. Yeah. Oh, so Ilya is the chief scientist. and co-founder. So that's, yeah, and then you had a couple of independent directors. Cora, CEO, Adam DeAngelo, a technology entrepreneur, Tasha McCauley, and Georgetown Center for Security Emerging Technology, Helen Toner.

So the independent directors would have had to do this, right? Because you would have to leave Sam out of this if it had to do it Sam. So then you have the five of them. You need to have three to have a majority to do this. So, and Greg would, I guess, vote in favor of Sam, because he just quit. And you would think that Ilya would as well. So that would be two. And then that means all three of the other ones had to vote to remove Sam, if it was, in fact, a five-person vote.

and now core CEO Adam went to YC I would think he would be very loyal to Sam I don't know the relationship of these other two folks and you know how they wound up on the board but that is also an interesting rub here is getting rid of Sam is an incredibly polarizing as we've seen just in a couple of hours

the whole internet's like this is not cool I love Sam he's very popular and he was just on demo day so that's the thing I'm having this hard This, you know, this... Even closer to that.

Yesterday, he was at the APEC conference, right? He was at APEC representing Open AI. I didn't realize that. Yeah. Yeah.

So this is probably all happening in real time. Yeah. Wow. So while, so I wonder if this goes back to the Open AI day because that was a...

Okay, so let's talk about Microsoft. Satya Nadell showed up, right? he was on stage. And that was a little bit of a awkward interaction, I think. I wonder we'll look back on that and see if there's something there. Well, no, the interaction was good because what Sam did call out was, hey, people are, and I had a tweet about it, people are speculating about the, you know,

the relationship between Microsoft and Open AI. And he used that moment to solidify that the relationship. is stronger than ever. Fast forward to this week, Microsoft has Ignite, and they launch upwards of 10 new products kind of built on Open AI. So I feel like they had just squashed all the rumors that were out there

about the potential tension between the two companies. There was also a tweet where Sam said, we're not like sandbagging any of their software products with ChatGPT, but this also is, I think, the collision course that the two firms are on. Microsoft wants to

build a co-pilot into the desktop of Windows. ChatGPT is an amazing app

and it's 20 bucks a month. And so Microsoft has all the data we're going to use

on our desktop and then you have opening eye with this app that has 100 million users,

some many millions of them, I believe, paying 20 bucks a month. Yeah. We'd I think they said at

100 million weekly users. I wonder how many are paid. I'm going to go with 3%. So maybe one, two, I'd say one or two million people are paying. One or two million people are paying, 20 bucks, two million people, 20 bucks a month, $400, it's a half billion dollars,

and then maybe a half billion dollars in API calls. So then the next speculation is, is this financial? Is this financial? But before we get to that, there's collision course, isn't there? Microsoft wants consumers and business users

use this, and chatGAPT and Open AI are selling the same thing. Yeah. So how does that work in your mind? Who wins? If it's built into the desktop, how does OpenAI compete, or if OpenAI has a superior app and everybody gets used to using it there, why does Microsoft own 49% of this? It's like, it's like Mac,

it would be as if Microsoft owned 49% of the Maco or something or the iPhone. It's so conflicted, right? Let me give you a possible way, and I'd love your take on it. I think if you look at Open AI in two distinct ways, let's look at Open AI as an API and an API for product-led growth. So, you know, for Silicon Valley plus, or not Silicon Valley, anybody, any entrepreneurs out there that wants to build,

they can go get the API and build something around it, right? They can add a feature to their product, or they can basically make a product, ground from the ground up using open AI. And we've demoed a bunch of these type of things, right? Things that are standalone, things that are features. And then I think, and that's like the product-led growth of it. That's, you know, what I would say is if you look back to the era of cloud,

there were businesses that were built cloud native. And then there were other businesses that just lifted and shifted to the cloud. And so the way I've been kind of thinking about it is Microsoft picks up the business that is like enterprise, more enterprise-y, that's like, You want to put this into your product, you're a customer of ours already, but anybody that is trying to do something product led, they go through the OpenAI path with Open AI APIs. So I feel like it was, you know, even though it's, you can kind of see a conflict there, but they have two different competencies, right, where Microsoft really owns the enterprise and all, you know, CIO, CTO types. And Open AI owns the startup ecosystem and products. That's one way to think about it.

Yeah. There's so much consumer going on at Microsoft that's not appreciated by people like us who are in Silicon Valley because we're all Mac heads and you never see a Windows laptop here but then everybody's using Windows and you look at your Google Analytics

you see just how many people actually use Windows and also Xbox and other products they have. I'm leaving the Zoom and the surface out of that. Yeah, but that's one And that's one where you can see tremendous conflict because Microsoft lost the search war. Search is fundamentally changing.

And, you know, they want to win. And they've even, they went out of their way to eliminate Bing from the branding this past week and relaunch the product just as co-pilot. Right? Windows co-pilot. And so that's an area where you can imagine there could be, you know, some substantial conflict between the businesses, you know, going to. directly after the consumers. All right. Microsoft, according to reports, found out about this one minute before opening I published

their statement. This must have been, if the board took this action, how many days have they been dealing with this issue before taking this action, would you say, in your professional experience running companies? Yeah. Well, think about, let's go to a company you were close with a bit Uber, right? when they, you know, they had to deal with like, some issues. There were some issues, yes.

Some and issues. Yeah. It was a multi-month process. Close to a year, yeah. Yeah, that involved external firms, that involved, you know, external counsel. And even they brought in some external people, I think, right? That weren't even board members, right? I recall.

And so it's really incredible to think about how. quickly that this has happened outside of it being like something that's so black and white that's like you know criminal or something like that like something that's not subjective that's it's the only way you can think about it moving so quickly i don't think this could be criminal because they said it was an issue with communicating with the board yeah uh and so that is that's somewhere between like uh an ethics or an honesty problem Okay. So, but maybe they're trying to protect themselves from future lawsuits.

So the board has to say something in some ways a bit neutral because if they were to say, we fired this person for doing X, Y, and Z bad things, then all of a sudden the lawsuits come out. And they're like, well, the board is in charge and they said this person did it. So that's why a lot of times it's the services were no longer needed. We decided to part ways they want to spend more time with their family. And then all the craziness comes out. By the way, in 72 hours, I guarantee you we'll have all the details of this. Everything will leak.

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This was another concept, hey, they keep lowering the API costs, they're burning through tons of money. He said recently they're going to need to raise tens of billions more. And that maybe they were having cash flow problems. And because there was an email that went out that said, you have to pay for your API calls ahead of time.

Yeah, I think that wasn't real. I didn't get that email. So I feel like that. Well, he said it was going out to select people. So I'm wondering if it was going out to people who were spending $5,000 a day on the API or $100,000 a month

and they said, hey, you got to pay in advance maybe because they thought they would get stiffed or maybe they thought it may be cash flow problems. I can't imagine they would have cash flow problems. It's only a couple of hundred people, right,

at the company. So, and 10 billion raised. Yeah, and even if you had that, you don't publicly fire your CEO that's, in this kind of manner, right? Like I think there's usually, again, all these things have a process behind them.

Look, you've been, you've dealt with a lot, um, sure, a lot less, right? And so, um,

oh, I guess the email is really just got a text for my co-founder saying we got that email. So it is real. Oh, we did get it. Okay. So let's speculate a new then. Yeah.

Under what circumstance as a company tell everybody using its API, they need to fill up their credits in advance. That's kind of standard, isn't it? Like don't you buy Zapier credits or some credits in advance? But I guess for AWS, they have your credit card. and they just bill you at the end of the month.

So both of these things can be true, right? Both models exist. Yeah. Yeah, I guess, you know, like that's not so crazy. I mean, to put that out today is a bit crazy, but, you know, a lot more weird stuff is happening right now. So that's kind of really interesting to think about. All right.

There was also a unverified anonymous Reddit comment. Again, unverified. Could be fan fiction. but it's interesting. Somebody claiming to be, from opening eye is saying, I feel compelled as someone close to the situation to share additional context about Sam and the company,

engineers raise concerns about rushing tech to market without adequate safety measures, safety reviews in the race to capitalize on chat chit-tip-tie hype, but Sam charged ahead, that's just who he is, wouldn't listen to us. That's kind of on brand, not the wouldn't listen to,

but charging ahead. He does believe in speed. He's said that very public, when he was running YC. And he's right. Start-ups go fast. His focus increasingly seemed to be fame and fortune, not upholding our principles

as a responsible non-profit. I've heard that. I think that's a lot of jealousy, too. Yeah. You know, it's very rare for somebody to get catapulted to this level of notoriety on a global basis and to be meeting with heads of state, etc.

He made unilateral business decisions amid aimed at profits that diverge from our mission when he proposed the GPT store and revenue sharing across the line. This signaled our core values were at risk, so the board made that this tough decision with my CEO. Greg also faced some accountability and stepped down.

That doesn't make much sense. Yeah, I think this is what the kids say? I think this is cap. I'm going to go with this. This is cap. You know what I'm supposed to say that, but yeah. Yeah. I mean, facts are cap.

I'll bring up something. So impact to the company, I want your take on this. Founder led to now not founder led. And we've seen that many times in Silicon Valley. What's your take? Oh, this is a great, great point. I would say that losing the founders is obviously disastrous. The lead that Chad GPT has is not de minimis.

So you have to hold these two contradictory thoughts in your head. Sam was not writing code. I wonder, I don't know if Greg's writing code or not. He was. He was right. He was writing all the time. Yeah. Yeah.

So just on one thing, Jekyll, he was posting about a bug fix like two days ago. Yes. Okay. So this is where you have to like pause for a second and think it through. So if I was on the board, I'd be like, who's writing the code? Who's the figurehead? Sam's the figurehead, Sam's cutting deals. Do we need any more deals?

Doesn't sound like we need many more deals. We got Microsoft, we got $10 billion. You know, there's tons of interest in this company. We got a billion dollars in revenue. They must be close to profitable with a billion in revenue. I would think they're close to profitable. I don't know what they're spending on servers, etc. But putting capital expense out of this with 300 people and a billion in revenue,

you know, it's $3 million per person. Now, I know they're spending millions of dollars per developer upwards of $10 billion, I heard, with stock options, et cetera. So, yeah, this to me sounds like Greg. There's the, yeah, Greg fixing a bug. So Greg is a big loss. Sam would be a gigantic loss two years ago. But today with everything set up, the way he organized it, probably he's got so many deals done. it probably won't affect the company in the short to midterm.

In the long term, sure, what are the next three deals? You need his strategy. You need his networking to do deals. I think master negotiator, you know, this deal that they have, well, I mean, I think we're going to find out more about the deal with Microsoft, but that deal in many ways, like either it's the greatest deal ever, the worst deal ever, but my feeling if I would bet is the greatest deal ever, like, oh my God, they took, you can tell it's a great deal because when you first hear it, you're like, oh my God, they made Microsoft look foolish.

Then you look at Microsoft stock price. And I'll ask my producers to tell me what Microsoft stock price went up, you know, since they announced a $10 billion investment. I'm guessing it's gone up $100 billion. So, yeah. Cloud computing has revolutionized startups over the past decade. We all know that. But reality is a fully cloud-based solution is not right for every startup.

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That's EQU-I-N-I-X startups.com. EQU-I-N-I-X startups.com. Equinix startups.com. Get a call from James. All right. We have a question from YouTube. I think it's AGI, Jason, and Microsoft wants to announce, wants that announce, and he disagrees. Whoever announced AGI first rules the world and you share price goes to the roof.

I said it differently. I said, if AGI took over, this would be the first thing. it did. Microsoft gets 75% of opening I profits until it makes back its $10 billion investment. I forgot about that. Remember that condition?

This is a master negotiation. He got the valuation you wanted. He wanted an absurd sky high valuation. He got it. He got the $10 billion. And then he just said, yeah, make your money back,

but you can only make 100 times your money. I mean, he's a master negotiator. And so, yeah, losing him, just a wrap on that thought. I don't think this is AGI. But that's another interesting point. Could they have discovered something and hit it from the board?

That's like some crazy science fiction movie. There are things that are happening in the safety zone that they didn't disclose to the board. I love that speculation. It makes for a great movie, but it doesn't make, I don't think we're close to AGI, so I don't think we've achieved general intelligence. Yeah. And again, if that had happened, let's just, let's just double click into it per completeness. You wouldn't fire the people right away, right? You'd want them around.

Yeah. Right the opposite. Yeah. You'd kind of lock them down a little bit. You wouldn't be like, oh, you're fired, you know. Yeah. You know, I'm going to stick with my original thought that there are some conflict of interests. Now that we've walked through all the possibilities, I'm going to stick with conflicts of interests is my 80%

concept here. There are some conflict of interest that the board got tweaked about and there were multiple ones, no conflict, no interest, that may be, you know,

including his shares in the company, that caused this. When you go through all this for you, what's the most likely scenario? Security, conflicts of interest,

personal issues. I'm in conflict of interest. Personal issues as I conflict of interest. I think... Okay, yeah. If we take personal issues off the table,

yeah. For obvious reasons, we would never want speculate about anything like that. Yeah, that makes the most sense to me. And like, you know, you already touched on it. Open eyes investing in companies. These guys are investing in companies.

They're trying to start. They're free for all. It's every, you know, as an investor, it's a bit of a nightmare, right? Because you're kind of sitting there looking at all things happening. And it's at the pace is so quick. Like, think about, you know, how much has happened with this thing is just approaching 12 months. So, you know, probably anywhere from 25 to 100 companies that they're involved in and, you know, partnered with investing. I'm going to go 70% chance conflict of interest.

I'm going to go 20% chance of a security breach, cover up, weird situation that occurred. 10% something I can't think of. Yeah. I'm going with that. And again, taking aside any personal stuff. Can we bring someone on up from the audience? Yes, you have a specific person you want to bring up? I just, you know, the first person on my list, Jared, who's the VP of AI at

Versel, would love to hear what they're saying. Jared's coming up. What a great question. What do you think? You're really well aware of the ecosystem, Sandeep? Well, yeah, look, I think one of the things, just building on what we just said about, you know, Sam and team, they were able to push the boundaries really, really far, right? because when you have already had success, plus you've seen a ton of success, you're able to push.

And I think that's one of the reasons Open Eye is where it is. I think now what we're going to see is a chance for maybe some of the other folks to catch up a little bit. And that is good from a competitive standpoint. But in terms of pushing the frontier, like that whole AGI conversation we had, we'd probably slow down there a bit. So we initially see a catch-up of other players while all this dust has to settle it. And to just repeat the, yeah, so just to repeat the question for the YouTube audience

and for the This Week and Startups episode. I didn't know it's going across. The question was how would this affect the ecosystem and the march towards artificial general intelligence? Yeah. Yeah, I agree with you. I think this gives, you know, whatever their lead is,

you give the lead, opening eyes lead 18 months, 12 months, is what most people would say, I think. So let's just put it at they have a one-year lead. If they have a one-year lead, I'll give them 18 months, actually. They have an 18-month lead. This is going to cut it in half. They're going to have a nine-month lead.

So everybody else gets to catch up. Right now, they're literally popping champagne corks at Google. And then I'll give you the second order impact. You know, Sam and Greg are going to go raise. They're going to announce a $10 billion raise from a sovereign wealth fund tomorrow. Like within 48 hours, I think on Monday, if you're firing him, I don't know what no compete he has or if he agreed to some sort of non-compete with a nonprofit or if he has an employment agreement. If he's not getting equity, how does he have an employment agreement?

So this is where weird governance or weird corporate structures can actually cause real issues, i.e. Sam Bankman-Fried. Now, this is not fraud, but you had no board there. Or Elizabeth Holmes had a bunch of like 80-year-old former generals that know nothing about blood and chemistry and biology. So this is what bad governance does. And so even good governance can cause tons of problems. In terms of the race toward artificial general intelligence, it's going to happen, folks. It's just a matter if it's three, five, seven, or ten years.

You know, it's going to be one of those numbers. Anything else to add to that, Sonny, or should we let another person speak? Yeah, let's go to the next one. Okay. Multi-part question, Jared says, first up, Sunny, here. He believes it's a commercial interest kind of conflict like we do. Number two, he's wondering with Greg leaving, what happens to the engineering team? Do they start bolting?

What are their non-competes deals look like? Now, remember again, this is a California company. They put their office in San Francisco. There's no non-competes in this, you know. New York State and some of the Northeast, I think Massachusetts, Boston, obviously, he's got non-competes up there. one of the reasons people speculate that the West has done better than the East Coast on technology is the non-compete issue. So what do you think?

Is this going to be a bunch of people leaving Open AI? Well, so in terms of the engineers, let's go to that one first. Recall last week, and I don't know if we touched on it, but like we definitely had it in the docket. There was a way to, sorry, there was an article saying that these folks were being offered upwards of $10 million. dollars. And so I think what's happened is the war for talent for AI researchers is really, really heavy. And so depending on what happens next, that's what will impact the engineers. It does feel like the folks have been moving around in like groups, like the folks that went over to Anthropic, the folks that went over to XAI. And so it is feasible if I were to bet that

if folks aren't happy with whatever direction the company's going in and they haven't been able to properly participate in whatever monetization, like structure exists from the cap table because of all the wonkiness that's created. I think one of the things Elon said very clearly about why creating XAI was in order to have the ability to recruit people to offer them equity that could grow. So that could be something for a bunch of folks.

Now, was Greg passed up for CEO? Is that why he quit? He didn't get the CEO's thought. Hmm. I wonder. Let's take another question, just speculating here. Let's take another question from our amazing audience. Carried interest.

Okay, an anonymous account. So great comment. So the speaker was saying, hey, I've never seen this kind of dramatic firing. Dramatic firing equals personal misbehavior, misadventures, you know, gnarly, inappropriate stuff. And so maybe we're glossing over all that. I gave three disclaimers during this. I don't want to talk about that kind of stuff. If that's, in fact, what happened.

We'll find out in due time. And that'll make this really easy to understand. But yeah, sure, it goes about saying that's a possibility. So I think it's kind of boot. And what's the point of speculating about something as egregious and ugly as that when we have no information? Speculating about the business stuff and the downstream impacts, I think that is, you know, very valid for us to discuss here on this weekend startups. Okay, next person.

All right, we have Travis. Okay. So the question and the comment was, I wonder if this was an international espionage security breach that occurred. And then that is why that's like such a heavy thing that this happens so swiftly. I think it's a pretty, Travis asks us that question. What do you think? I mean, it's like we were saying earlier, hitting agency.

GI, it's a, it's a more fantastical concept here, but, you know, sometimes something weird and fantastical that those things do happen, right? I mean, how many conspiracy theories, you know, like yesterday's conspiracy theories become tomorrow's Pulitzer Prizes, right? There was a conspiracy theory that the church was covering up for sexual misconduct by priests, and then all of a sudden, boom, it was a Pulitzer for, you know, I don't think that's the case here, obviously, but, you know, What do you think? Is that a possibility, this foreign espionage? I mean, you've got to think there are actors who really would love to have the code base and data and everything. Well, when it came to just to talk through that, the U.S. government probably is happy with Sam, right? He's been the one in amongst a bunch of other people talking about regulation. And we had Bill Gurley on with us a couple of weeks ago and talking about regulation.

So I don't think it would be U.S. government, but maybe some other governments are not happy with what's happening with regulation and sharing of technology. So that's possible. We could put it on the bingo card. I guess we have to create one of those now and see where this lands. Absolutely. All right. 2,000 people watching on YouTube, 5,700 people on our Twitter. slash X spaces.

Apologies, Elon. It's going to even take me a while to not say Twitter after 20 years of being on Twitter. On our X spaces. Let's take another call. Another call. Can we get a tight question?

Tight question so we can take two more. Okay. So this happened fast. Greg was stripped of his chairman title. Microsoft didn't know. That's a lot to happen in a short period of time there. And then who wins? Sonny, who wins?

Who does this help most? Google? In the shortest term, Google, I think, right? And next Microsoft. Honestly, because... Oh, really? Why does Microsoft benefit from the leadership change here? Because they have more control?

I think going back to that point, we were talking about master negotiator. Like, you know, if who would you want to sit across from the table, Sam or someone else now, in terms of, hey, this has all happened, the funding requirements, the resource requirements and how you can basically, you know, strike a better deal for your. or maybe even by the company. Wow. That's mind-blowing. So Microsoft now, now here comes a conspiracy theory.

So if this is a coup of some types, let's say Sam tripped, people then stab them in the back. You know, he makes a mistake of some kind, let's say the security mistake, a conflict of interest mistake, whatever. It's something that's not like unforgivable. But maybe some people are like, hey, we got to come for the king, but we best not miss. And then Microsoft's like, oh, powerful. vacuum.

Hmm. Maybe it's time for us to buy all this up. And then, yeah, the nonprofit will get a bunch of money and they can give it and Kumbaya save the whales. Pretty interesting concept. Yeah. So that's an interesting point. Microsoft couldn't buy a, had a hard time buying a video game maker.

How do they get this through regulators? That's a really astute point. And I think the way to get it through is to just get the code base, get the weights, get the talent. And then you don't have to buy the company. You just sucked up by it without buying it. Buy it without buying it. for those listening on the YouTube caller says hey when you sign up for enterprise on open

AI gives you a choice to go to Azure with Microsoft or to do open AI open AI tries to steer that to get you on the newer models but maybe the way Microsoft takes us all over and you know does the second act of this coup and this is a coup of types or it's either going to fall into the category of a call into the category of you know a fall from grace kind of situation If it is a coup, yeah, they have that possibility to just take over the enterprise business as part of their negotiation with Open AI to give them the next slug of capital,

give them access to these servers. So, man, this is one of the most dynamic situations I've ever seen in my career. We'll do another emergency pod. A quick... Breaking news. Breaking news. Yeah, yeah.

So Kara Swisher. Let's... Kara Swisher. Oh. God, she hates me. I used to be friends of them. Now she hates me. I don't know.

But we got to bring it up because, okay, what did she say? It says, Scoop a lot more departures of top folks at Open AI tonight, and Sam will make a statement. But as she understands, it was a misalignment of the profit versus nonprofit adherence at the company.

Developer Day was an issue. Hmm. Yeah. And sources tell me the profit direction of the company in her outman and the speed of development, which could be too risky. So this kind of lined up with that, hacker news post.

The Reddit. Yeah, the Hackern News Post. And the Reddit, both of them were kind of in that zone. So, yeah, moving fast and breaking things, I guess, is going to be the speculation for a lot of folks. And then, which is also, we said, it was this corporate

structure is rife with conflicts. So that was our position from the beginning. Conflicts of interest. And if you go to the board member thing, and you go, like, look, maybe just all the non-employee board members, non-profit board members say, hey, what's going on here this doesn't seem very non-profity, right?

Well, and here's the thing. You could all get pinched. And this is where having these kind of crazy board structures, you bring some people onto the board to be independent directors. They start getting counsel. You got lawyers. One set of lawyers says in one ear, you know, we're the original lawyers. And Sam wanted to do this.

And, you know, now Sam's not in the room. It was a little aggressive. There are these things we warned him about. But he wanted to go forward anyway. And, you know, our advice was maybe a little more research. but Sam went for it. And then somebody else in the other ear says, hey, if Sam went for it and you guys get pinched,

you're all going to jail or you're all going to, you know, this could pierce the veil or you guys could be involved in lawsuits forever, even if it doesn't pierce the corporate veil. You know, the IRS is a humorless group of career individuals and the government does not like when people don't pay their taxes. I know this is a newsflash to many people listening

here on the live stream and the pod. You really don't want to play games with giving, the government their fair share. And if everybody's selling in secondary, the secondary thing comes to mind here, okay, we're going fast and loose. Maybe we interpreted the law. Remember Elon said I have a lot of questions about this.

Like, how does this work? And if I think Elon said, like, if everybody could build a non-profit, do a for-profit, make a bunch of money, and then not pay taxes, like maybe we should all be moving towards this. And, you know, I kind of looked at that too. I didn't ask lawyers, but I was asking folks

who want to be B corporations and all this nonsense silliness, kumbaya, Save the Wales nonsense. Like, if you're going to build a company, just be a moronic capitalist, then give your money away when you sell your shares. You don't need to kind of pollute the waters of capitalism with nonprofits and make some weird Frankenstein corporate structure. And they made a Frankenstein corporate structure,

just like Firefox had a Frankenstein corporate structure. And that led to, I can tell you, I would guess tens of millions in legal bills over the last decade to just navigate the fact that Firefox was a nonprofit that was throwing off hundreds of millions of dollars in search revenue from their search deal with Google. So there is some history here. And yeah, that would be the, there's a lot of going back to this decision and who made that decision. And that decision could get you pinched. And then if people can get pinched, you know what they do? they flip.

Self-preservation is a very powerful instinct. Yeah, I mean, the, you know, kind of, I think it was our top one. It's just like something in this area

of structure and conflict and, yeah, it's like seemingly, like, and you said it, 72 hours, we're going to know everything that's happened.

Like, look, we might even get it before then. All right, we got to redo, we got to redo our percentages. Security breach. Conflict of interest.

with Sam's deal making the nonprofit for profit structure other take a moment I'm going to give 10% to security breach 10% to other

I'll go 50 50 on the rest so 4040 I got 40% the original sin of the non-profit for-profit frank in structure the frank

I'm gonna go I'm gonna go 50% frank in structure 30% conflicts in deal making 10% other 10% security breach. What do you got, sending? I'm going to take a page out of Elon's books,

but as you always pull up Occam's razor, right? Sure. The most obvious answers. And so I'm going to go 90%, you know, corporate structure, profit, nonprofit, frank instruction, frank and five percent conflict of interest and put everything else in five percent.

Okay. There you go. Time is going to tell. Thank you to everybody who came on the space. give me a thumbs up if you like this. Maybe we'll do more of these. Apparently, a large number of people did seem to like it. So thank you for the thumbs up, everybody.

Sorry, we couldn't get everyone up as a speaker. Yeah, but I think this is fun. There's a lot of people to choose from. The UI needs to do something that helps you filter it somehow. Well, what I would like to do is, you know, when it has requests, if I go to the request tab, I'm going to talk to Elon about this. On the request tabs, when you get too many requests, I know that sounds obnoxious.

I mean, I'm going to talk to Sunday, but everybody has friends. I mean, it's not a good deal. Really, the note should be who are the most followed of the group. It should list the most follow people first. I think what it does is it lists the verified and then it lists everybody else. I would list it verified, most followed, than unverified, most followed. That would be easier to figure out who's got the most followers as just one. but one proxy for maybe they'll have until.

I would also like people to be able to type in their question when they request to speak. So that would be a very interesting, you request to speak and say, what topic do you want to talk about? I put your question here. Do an emoji. You should be able to have a thing that's a,

you know, like a little text box thing that shows this person's type their question, yeah. Yeah, yeah. At this end, I could either read the question or I could have you come up and ask it, but that would be like a good pre-screening,

like a pre-screening thing on the radio. All right. Yeah. This has been an amazing emergency episode of this week in startups, you can search your podcast player for this week in startups and subscribe. I do it four days a week. Every Monday, Sandeep and I do AI demo day. Monday equals AI demo day. Sandeep looks all week at all of the different AI things that have been released. He then presents them to me. We then give them a letter grade and we try to learn every Monday the latest and greatest

setting up to invest. Sometimes you even invest. And sometimes I find a company and I just, you know, I get a little tasty poo. I get a slice. Sundeep's company's definitive intelligence if you're doing large-scale AI stuff, you can reach out to him. He's at Sundip. First name club on X,

formerly known as Twitter. I am at Jason. And we'll see you all next time on this week in Startup's Live.