Good morning 👋
Happy Monday, and congrats to Rory on finally getting his green jacket yesterday.
Understanding venture math can help you justify a lot of decision-making in this asset class.
But there are some deals where you still scratch your head.
Nira Murati (former CTO @ OpenAI) is reportedly raising $2b at a $10b post.
The company emerged from stealth ~two months ago
It has no products and no revenue
It is raising $2 billion
I understand taking a bet on people, but the math still doesn’t make sense in my head.
So I turned to Kyle Harrison (@kwharrison13) on Twitter, and here’s how he’s justifying it …
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Today’s highlights
How to make sense of the former CTO of OpenAI's latest round rumors
Tariffs and secondary buyers
Founders Fund raises a massive growth vehicle
TOP
How to underwrite a pre-product $10b company 👇
It came out last week that Mira Murati's Thinking Machines Lab is raising $2 billion at $10 billion valuation.
Kyle (author of the second tweet) is one of the smartest venture people I follow, and here are his compressed thoughts on what supports people’s ability to invest that much money in a pre-product business:
Capital Agglomerators: Massive firms like a16z, GC, etc are personifying the idea that “you can only lose 1x your money but if you miss the one you lose out on 100,000x your money.” With $5-20B funds they can afford to lose $200-500M because it represents 4-10% of your fund. High risk = high reward
Outlandish comps: A lot of people believed the hyperscaler growth of AWS etc (billions and still growing) wasn’t possible in a standalone company. OpenAI and Anthropic are proving that wrong. So you can squint and say “if this grows like that, then this will be cheap.”
Untraveled territory: 12 months ago we were saying wrappers had no moat, now we’re saying foundation models have no moat. We don’t know what will be true about this space in 12-18 months, so it provides more air cover for big swings. “Nobody knew…”
Power law on cocaine: If you put $500M into each layer of the equation (models, application, compute, hosting, etc) then even though you’ll end up deploying billions, if ONE of them works at an OpenAI scale (eg $300B+) then it covers all your losses. Similar to seed stage portfolio just with ungodly volumes of money.
Sovereign wealth + strategics + asset managers as capital amplifiers: If this was just VC funds, even though we have dozens of multi-billion dollar funds, we still couldn’t justify this. That’s why you see Thrive raising a separate vehicle to put $1B into Databricks. This is an investment strategy driven by VCs who are preaching a vision (eg Vinod = open source bad, Wolfe = open source good, etc) but then amplified by huge volumes of capital allocators. Not necessarily dumb money, but people who only need small yield on their hundreds of billions and are excited to take swings at the future, or who have a vested interested. (Eg MSFT, AMZN, et al need as much of this AI compute to end up on their respective servers).
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TWEET
HEADLINES
Peter Thiel's Founders Fund closes $4.6 billion growth fund (CNBC)
LPs flooded the secondary market during tariff upheaval. Buyers paused. (Pitchbook)
The future of VC may have more borders (Pitchbook)
Blue Water Autonomy comes out of stealth promising autonomous naval ships (TechCrunch)
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LINKS
📋 Outtake Investment Memo: Why we're bullish on the company building agentic AI security for high-profile individuals
📶 Bryce Roberts (Founder @ INDIE): Efficiency, the pursuit of revenue-per-employee, and escaping the venture rat race
🧨 Market Ending Moves: Startup CEOs should ask themselves what crazy ideas can turn into a move that just ends a market’s competitive dynamic
👨🎨 Beyond ESOP—Alternative Compensation & Incentive Mechanisms: Data-Driven VC analyzes three alternative incentive designs that tech startups are starting to utilize
🚶🏻♂️ Want a Meeting? Take a Hike: Spend more of your meetings getting some fresh air and exercise
💹 Every Marketing Channel Sucks Right Now: Andrew Chen has complaints about every marketing channel but has advice for startups to navigate through
📊 Unbundling Venture: Macro trends about where venture is heading as an asset class
POLL
Would you invest into a company at a $10b valuation before they have a product?
Thanks for reading this far and giving us a little bit of your attention this week.
Feel free to unsubscribe whenever this stops becoming valuable to you.
- Clay
(Founder @ Confluence.VC | GP @ Outlaw)
