SPEAKER_03: Okay, everybody, welcome to This Week in Startups. We're going live on a Monday afternoon in the middle of all this open AI drama. What a 72 hours. Never seen anything like this in the history of Silicon Valley. It's like we're living through the firing of Steve Jobs. And the drama here is incredibly high. And with me again today to discuss this is Sundeep Madra, my good friend. He is at Sundeep on Twitter where we're hosting a Twitter Spaces Live. If you want to be invited to these Twitter Spaces Live in the future, you can just follow me. I'm x.com slash Jason. He's x.com slash Sundeep on the website formerly known as Twitter. We also are live right now. If you want to see the video, if you go to YouTube dot com and search for this week in startups, the channel is YouTube dot com slash this week in and you can subscribe to the This Week in Startups channel and hit the alert button and you will get alerted there when we go live. We are experiencing the most drama we've ever experienced in the history of Silicon Valley startups, I think. This is probably goes beyond Theranos. Certainly an importance goes right up there with SPF. I give this one the edge with me again to discuss it all and give you a recap of what's happened. And our insights is my good friend, Sunny Sundeep Madra. Sunny, how you doing? Excellent. You know, been just tracking all of this and seeing what impact it has on my startup as well.
SPEAKER_02: So we can talk about that as we after we recap and exciting times, you know, lots of stuff happening. So let's maybe get right into it.
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SPEAKER_03: I'm up in Tahoe I was traveling a bit so I wasn't keeping up with everything. But I think the first most important thing that I'd like to work backwards to is the resignation of the open AI team and the complete utter destruction that's occurred here. I just want to start with that for a second. Okay, this company was worth $90 billion. They were about to do a secondary, the 700 or so employees were going to be able to sell some number of them the shares for billions of dollars that evaporated when the board fired Sam Altman. And for not communicating candidly with them, the most obtuse, strange, opaque firing we've ever heard of. Obviously, there's been a bunch of innuendo and theories about him raising money, etc. But I just want to start with your impressions of the destruction of equity value here.
SPEAKER_02: I think it's probably the largest and fastest value destruction we've ever seen. But it's so hard to look at that on its own because there's so many factors playing into the destruction of it and, you know, sort of the structure of the business, the structure of the board, the type of investors, the, you know, the governance of this entity. And so, you know, I think it's a role, it must be a record of, you know, how much value has been destroyed. The impact on so many employees is really sad and unfortunate. You know, I was reading messages from folks that are in visa processes and all types of other immigration statuses that are, you know, Explain that to the audience.
SPEAKER_03: Yeah, so, you know, if you are, say, someone who's come over on like an H1B, that H1B is typically tied to a business and depending on the phase of the immigration that you're in, it's impossible for you to leave. And so if, you know, a bunch of people are signing a letter saying they're going to move over to a different company, you can't really do that because your immigration is tied to the company that sponsored your visa.
SPEAKER_02: And this is a very crazy part of this. This is one of the things I find most abhorrent about our immigration system. That's a conversation better left for the squad over at All In. And we've had that conversation about immigration. But I've been in so many meetings early in my career when I was in the IT business where these H1, it's H1B visas. Yeah.
SPEAKER_03: And so people would say, hey, we can hire these Indians, et cetera, for cheaper. They're going to work harder because if they say no to a weekend request or a nighttime request, we can kick them out of the country. And then we'll get them to come here with their family and we'll have basically our knees on their necks. It's gross. I've always hated this about the H1B visa. I think the H1B visa should secure you a spot in the country for a year. Well, I think it's a good thing. Whether they fire you on day one or maybe plus one year, you should get at least a year if you get fired or they pull over the company sponsoring you doesn't. I don't understand. And they're making changes to it. In this case, I don't know if it's necessarily like a nationals, like India nationals, but like a lot of the talent in AI comes out of University of Toronto in Canada. And Canada actually has a different visa that's much more straightforward, doesn't have sort of the restrictions. It's called the TN. It's part of the what used to be called NAFTA agreement.
SPEAKER_02: And that but, you know, if you want to immigrate to the U.S., you have to be on an H1B. It's the only visa that one of the few visas allows you to get a green card on. So a lot of even the Canadians have to go down an immigration path with that visa. OK, so let's just do a quick recap here. OK, for folks who are listening to this as the This Week in Star Wars podcast, we're going to give you the overview here for people who are listening on spaces or live on Twitter. I'm sorry, live on YouTube. You're going to know some of this information, but we thought it would be good to start just very quickly run down the bullet points of what's happened.
SPEAKER_03: Yeah. So just we're going to go like the high level touch on the most important ones since our last spaces slash, you know, live that we did. So when we ended, we saw Kara did a tweet saying, hey, more information to come. There's a lot more of the story. More people are going to quit. Then we saw a few researchers quit right sort of after we finished the podcast. A couple of top researchers ahead of safety as well. Soon after that, we saw a tweet from
SPEAKER_02: GDB Greg Brockman and he outlined sort of what happened and he outlined a timeline of what happened. And so, and here we go. I think producer Nick has got it up for us here. And so what what we saw here was the sequence of events that led to the firing and what a surprise it was. And so it started off with a text from Ilya to Sam to meet at Friday at noon. Sam then joined a Google meet with the whole board except Greg and then Ilya told him he was fired. Soon after that, about 20 minutes later, Ilya asked for a call with Greg and told me he was being removed from the board, but asked him to stick around in the company and inform that, you know, Sam had been fired. And then they published the blog post that we all saw on Friday. And, you know, so this was sort of the first lens into the sequence of events and how quickly this happened and how it happened, sort of, you know, all on virtual kind of Google meet in this particular case.
SPEAKER_03: And to be clear, we still don't know exactly what the board the board has been completely silence, silent in three or four days of this. We don't know what their justification was. We do have some breadcrumbs. Apparently, Sam's deal making and he is a consummate deal maker. It's probably a superpower at this point is helping people. And we saw that with the outpouring of love. Many people saying, hey, you know, and then this is the currency of Silicon Valley is in Silicon Valley. It's a tradition to just help people as much as you can. Sam and I and you all grew up in that tradition. We came here. People helped us. We always try to help people, you know, with no expectation of return. And then when something like this blows up, you really do see that people come out with the stories. Hey, this person helped me this way. They helped me that way. Help me out. Why common air help me with my company. So shout out to Sam with that. I think it's a great testament to the Silicon Valley tradition and his role in it. But the board said he was not candid, not honest with them. You can give me the exact quote. I keep forgetting that. There is our language they use. It was in it was in their blog post. It was inconsistent in his communications with the board is was the exact wording. But let's let's keep going down the timeline because this this point comes back up. So we just have to maybe keep going through the next 48 hours.
SPEAKER_02: So then on Saturday, you know, speculation continues and we're hearing that there's a 5 p.m. deadline for potentially Sam and Greg to join rejoin the company and everything can be reset. And, you know, the everyone will be happy. We'll just kind of go back to where things were 24 hours before that deadline comes and passes. And, you know, the Twitter verse continues to speculate. Don't really hear anything much more interesting. Let's now then fast forward. And there's a lot of releases coming around what people are hearing from about like the conflicts, about the safety stuff and what we'll get into that in a second here. Then let's fast forward to 1 p.m. on Sunday. Sunday gets interesting. On Sunday, we see 1 p.m. Sam posts a picture of himself wearing a visitor badge inside OpenAI. And, you know, this is this is tough, right? You know, a company you founded, a company you've been a leader with, you know, with all the staff that's there and all the other folks. And so to post this, that really hurts. And I think it's it's a. And he's got a grimace on his face.
SPEAKER_03: You know, one of the things about this whole drama is, you know, the principles are all engaging. Yeah. And that is unprecedented. I think maybe the the second winner in all of this after Microsoft is X dot com. Because the amount of traffic from this has been insane. Yeah, I haven't done a space in years or maybe a year. This is the second space I've done in 72 hours to support this week and start up to get the news out there to the audience. And why not go live? Yeah. Live to tape on the pod. And yeah, he is. You got the no coastal getting involved. You got Greg getting involved. The only person not getting involved is this board and the board, you know, to not have a statement. Yeah. Other than the initial one is insane. So I mean, that that we have to get to here is. So let's let's keep going. Let's keep continuing. So then we know there's another 5 p.m. deadline, which is, you know, kind of comes by and passes. And then things get really interesting. Around 9 p.m. you know, Ashley Vance and a couple of the folks at Bloomberg. Bloomberg reporter. Yeah. Leak that a new CEO has been hired. Right.
SPEAKER_02: And Emmett Shear, who was previously the founder and CEO of Twitch, which was ultimately acquired by Amazon. And also of note, he was in the Y Combinator class with Alexis, Gary Tan for Reddit. And I believe Sam himself was in that same class with Loop. Yeah. His location, mobile location app.
SPEAKER_03: Yeah. So we we we see this and basically, you know, what we're hearing again, all in the tweets or I guess reading in the tweets is folks were surprised because the CTO who had put in place as the interim CEO, she was trying to find a way to bring Greg and Sam back. And the board had independently went and hired Emmett.
SPEAKER_02:
SPEAKER_02: And so the you know, it's everyone's in shock. Twitter is exploding. People are trying to figure out what's happened. And got to you, by the way, during all of this is the back channel was he is infuriated. Yes, because he's put billions of dollars into this.
SPEAKER_03: He staked the reputation of Microsoft on this innovation. All of his credibility is in on this. And he didn't he found out when we all found out basically one minute before it broke. So he is absolutely engaged in this according to sources. And he is insanely upset. Well, look, there was a drop of the stock price on Friday after this announcement. Right. How much? You remember?
SPEAKER_02: Microsoft. It was like, well, somewhere like maybe 2 percent, like one and a half to 2 percent. Which is tens of billions. Yes, exactly. Right. Microsoft has tied their revenue and future products to open. Yes, that is what they've pitched Wall Street and it's what they've pitched consumers and developers and consumers.
SPEAKER_03: Consumers, enterprise and developers are their three legged stool. Yes. They went all in with developers for the open platform, consumers for being and then enterprise for co-pilots on office. Yes. Like super all in. Yes. So you can imagine what's on Satya's mind is the market open. Right. He's got to get a message to the market running one of the most valuable companies in the world. This is an important part of their strategy.
SPEAKER_02: What are they going to tell the world what's happened? The current situation is probably not going to be acceptable to the market. It's going to cause a massive hit to Microsoft stock. So then what we see around just before midnight is a message posted by Satya. And Satya basically mentions here is that he's committed to the partnership with OpenAI. You're reading through it. Great. What you would expect. And he touches on everything they announce at Ignite and making sure their customers and partners are OK and getting to know the new CEO, Emmet Sheer. What we then see is the second part of this message is that Sam and Greg are going to be joining. Look at the view count. Yeah. 32.2 million views. Yeah. It's crazy. Pretty crazy. You know, and shout out to X, right? No other platform could really, you know, you couldn't even probably get that in a press release. And so what you see here is Satya mentioning that both Sam and Greg will be joining Microsoft to lead a new advanced AI research team. And again, it is mind blowing. Exactly. I mean, oh, and just a programming note, we have bestie David Sacks now. Welcome, David.
SPEAKER_03: Hey, David. Hey, buddy. We're going to let him go through the timeline here and then interject whenever you feel like you have a comment. Sounds good. Yeah. OK. So then now we're basically you know, it's it's going from midnight Monday morning. Right.
SPEAKER_02: And so midnight Sunday to Monday morning. And then around 4 a.m. or 5 a.m. we see a message from Ilya. And, you know, I basically said this has got to be the mea culpa of the of this particular century where he is saying, I regret my participation in the board's actions. He didn't want to harm the company. I love everyone and everything that we built together. And I want the company to come together. And so this then leads to a letter that is published, that is signed by, you know, initially 10 or 15 employees. That's all we saw in the letter that's been released. And the latest update is it's been signed by upwards of 700 plus employees of the 750 that work there. So effectively, you know, 90 plus percent. All right. Scaling a business is really hard.
SPEAKER_03: We all know that when you're growing things that used to take an hour. Yeah, it's gonna take a week to avoid getting bogged down. You need to remain efficient. And one way to stay efficient is to know your KPIs key performance indicator. KPIs are critical for startups to understand. And right now you can download NetSuite's popular KPIs checklist for free at netsuite.com slash twist and a SaaS startup that you're running. Hey, you might know some of the KPIs monthly active users, MRR, ARPU, your average revenue per user. And then NetSuite's KPIs checklist is going to teach you how to identify and understand all your strategic objectives, how to collect and analyze data and so much more. Identifying KPIs will make you more efficient. It's going to make your team hit their targets, which then unlocks all kinds of things like funding and hiring. And right now increasing margins and getting profitable is the name of the game. Here's your call to action. NetSuite is everything you need all in one place. Download NetSuite's KPIs checklist for free at netsuite.com slash twist. That's netsuite.com slash TWIST to get your KPIs checklist. I'll just go to Sax on this one. Sax. What is your take at this point with the resignations and then this power move by Satya?
SPEAKER_00: In terms of what?
SPEAKER_03: unprecedented nature of this value destruction. Take it where you want to go. Well, yeah, I think it is unprecedented. I mean, it's not unprecedented for a founder or CEO to be fired by a board. I mean, that does happen. Nobody likes it, but it does occasionally happen.
SPEAKER_00: However, it only happens when a company is in crisis and things have gone off the rails or there's some sort of criminal misconduct. It takes, you know, something really egregious to get a founder CEO fired. And here, not only do we not have that, I mean, OpenAI was on a trajectory to be one of the next great companies of Silicon Valley. I mean, it was, I guess they were working on a $90 billion financing round up from 30 just a short while ago. If you had asked most people in Silicon Valley what the next trillion dollar software company was likely to be, I think everybody would have said OpenAI. I mean, it was one of those companies like a Google, like a Microsoft, like a Facebook or Meta where they had basically figured out something very fundamental. They had engineered the next kind of technology platform shift. And so OpenAI was one of those generational companies. And everything was calm. Everything was working. I mean, this is a company on top of its game and a founder apparently was at the top of this game. And so I think this kind of came out of the blue on Friday. And so when they put out that announcement on Friday saying that Sam hadn't been candid, which as far as these things go was a very, you know, that was a pretty harsh statement. I mean, normally when boards put out statements about a founder getting fired, they don't say much. And that was, as far as these things go, a pretty harsh statement. So I think we were all kind of bracing, waiting for the other shoe to drop to find out that there was some horrible misconduct that had occurred here. And then, you know, with each passing day that hadn't come out. And then like you said, Sunny, Ilia put out this mea culpa. So now there's no reason to believe it even exists. And so I think that's what's so inexplicable about this is there doesn't appear to have been any reason for this. And this is just, it seems like a case of snatching defeat from the jaws of victory. I mean, again, this is not a company in crisis. This was a company that was on its way to being, you know, a centicorn company and maybe a trillion dollar company one day. The company that basically, I mean, when 10GPT launched November 30th last year, that ushered in this whole wave of AI that we're seeing everyone build on now. I mean, this was the next great technology platform shift. I mean, all of Silicon Valley has basically swarmed around this. And so this was not a company that needed to make a change. It had no problems whatsoever. It was all kind of blue skies and up from here. And then you had this thing happen on Friday. And I think that's what's so inexplicable. Well, let's do a little speculation there. That's a great summary. And I think if you look at the wording of what they said, you would think just logically in game theory, if they had a real case against Sam, like some actionable item, they wouldn't have gone out with some meek, you know, excuses.
SPEAKER_03: This milk toast excuse that he wasn't perfectly candid. And since they're all getting destroyed, I would think they would have leaked the board by now to defend themselves. Hey, Sam did X thing that is and wasn't. It's fairly clear now that if there was some smoking gun here, they'd done something unbelievably horrible or fraudulent, let's say it would have come out by now. So what is your theory, Sax, of what these people were thinking? Can I just add one thing before David gets in there, which is Emmett in his message made very clear that the board hasn't even explained to him why they fired Sam. And he wants to kick off an investigation to understand what happened.
SPEAKER_02: My head's spinning.
SPEAKER_03: Yeah.
SPEAKER_00: My first act as new CEO will be to investigate why the last CEO was fired and why I was hired. Why would you just ask that question during your job interview?
SPEAKER_03: What's the what do you think happened in terms of why the board jumped the fence, went rogue and fired him? What's your best speculation, Sax? Just putting all the pieces together and looking at the chessboard? Well, let me just first say that I think that taking a drastic action and then clamming up and not explaining it is the worst possible strategy. I mean, I think that if you take a drastic action, you have to explain it.
SPEAKER_00: And if this was about values, if the company was going in a different direction from a values perspective than it was originally created with, then that would be all the more reason to explain it. Because you basically want to write your manifesto or counter manifesto on what the real values of this company should be. But obviously they didn't do that. And again, if there's some sort of horrible criminal misconduct, I think that, you know, you got to you got to get something out there to explain what it is that you've done. But again, with each passing day that there's no explanation, you begin to come to the conclusion that there was no well thought out reason for this.
SPEAKER_03: And I guess the big piece of evidence we have towards that, Sunny, is that Ilya came out with a tweet at 5 a.m. Pacific time Monday morning right before markets open saying, I deeply regret my participation in the board's actions. I never intended to harm OpenAI. I love everything we've built together and I will do everything I can to reunite the company. What's the theory here, Sunny or Sax?
SPEAKER_02: Yeah. I mean, look, I can't understand, you know, how people can change their minds and everyone has a right to do it. But then to have it go through so much public turmoil for the company, you know, this should have been part of the process. And the only thing I can really speculate from this is this just shows sort of a lack of maturity of the governance structure of the company to basically is the kind of thing you want to double and triple and quadruple check and maybe get some external folks involved as well and get their opinion. And so it's really disappointing. I mean, nice to see that he changed and hopefully that saves things here, but disappointing in terms of how the company was run and it kind of makes you wonder what else is happening there. But Sax, what are your thoughts? My main thought is when I saw that is it made me immediately think, well, there's no smoking gun here. I mean, again, if you're going to fire the founder CEO of the next great software company in Silicon Valley, again, you know, $90 billion company on its way to a trillion who started this whole AI wave, everything on the surface appear to be as calm, you know, as calm can be.
SPEAKER_00: Like no indication whatsoever that anything's going wrong. So if you're going to fire that person out of the blue, then there has to be a really good reason. You know, not just like some minor reason, like a smoking gun. So then if you attract and make an apology, then it indicates well, there can't have been anything there. Can't just have been like a difference of opinion over something unimportant. There had to be something factual. So my interpretation of that maya Colpa is that there is nothing factual there.
SPEAKER_03: Yeah, but I've come to the conclusion, Sax, that it's two things. One, there was they were a little upset at Sam for doing these deals, whether it's to Johnny Ive, you know, new phone, a iPhone or the new chipset with, you know, maybe some investors in Mina, whatever it was that was tweaking them. And then maybe there was a little bit of tweaking with his public profile, possibly. But then I think the second major item that was tweaking them was the pace at which he was releasing things. And when he released agents and apps that we talked about, that's super powerful. And the the agents are a trigger for the people who are concerned about AI spinning out of control. Once you fire up agents and they start acting, you know, on that road toward autonomy. That's what makes all these doomers as they're being called, or decelerates get triggered. So it sounds to me like I'm going with what you said, you know, it's it's philosophy. If it was the second one, Jason, my God, man, stick to your guns. I mean, if you really think this is a command civilization, then like write a public letter explaining what you did. Don't like just meekly say, Oh, I'm sorry, I didn't think it through.
SPEAKER_00: Yes, it would be nice to come clean.
SPEAKER_02: It's probably not that. I think it's it is just tied to focus and effort. Like if you take a step back and look at everything that's come out, it's very clear that a number of people that went to join and, you know, Elon kicked this off, right, started it as a nonprofit. But, you know, I think 40 million dollars in. And a lot of the one of the videos that I watched over the weekend was where he talks about recruiting Ilya. And as it was one of the hardest things he ever did. And it led to his fracturing of relationship with Sergei over at Google. And so that think about what it took to recruit him and maybe not make it about economics because he was recruiting him into a open sorry, a nonprofit at that point. And you have to imagine he's brought other people from his past research lab and Google and other places. And so when you start seeing this commercial stuff happening, you can you can understand if you've been brought over and it wasn't economic and you're starting to see, you know, an app that's coming out. An app store emerge and all these things happen and you want to focus on your research and forwarding AGI, perhaps, you know, that is really what's causing havoc. Yeah, I mean, that could be it. I guess we won't know. I guess what I'm saying is that if the motivation here was based on values in the way you're saying, you know, if if the board's position had been that Sam is exploiting the technology in a way that makes us uncomfortable.
SPEAKER_00: Either because he's explaining it for personal gain or or, you know, more importantly, that they're developing these agents that could get out of control. We're worried about the safety and all that kind of stuff. Then why would you go out there and say it? I mean, put make your argument, make your case, defend yourself. Don't just weakly go quiet and then retract and recant. I mean, was this a threat to civilization or not?
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SPEAKER_02: Well, and Mike, Microsoft put $10 billion in the company, they couldn't even be forced to use teams.
SPEAKER_03: Or how about in person? How about we do this, you know, at a dinner at an off site? Or, you know, we have we have a thoughtful one on one, we do a walk and talk, if you're going to ask someone Sam Altman's profile, who put his life into this and his reputation to move out of that top spot. How would you handle that? Zach's if you did have this philosophical arrangement? What would be the proper protocol here? Well, look, we don't even know that they did. I mean, we've, it's, we're speculating about something where they haven't even provided an explanation. I mean, again, based on Ilya retracting, it seems like there is no explanation. But look, I think that if one were to look for a root cause of this whole thing that goes beyond, you know, just the immediate events of the last few days, I would say it has to be the nonprofit structure, the original nonprofit structure. And this funky, you know, this funky
SPEAKER_00: corporate structure that had been set up with this weird board that consists of a bunch of people who don't really have skin in the game, like no VCs, as far as I can tell, and people with, you know, fancy titles and effective altruism or whatever, basically, you know, people who main credentials seem to be liberal arts majors and stuff like that. I mean, for one thing, I guess when this first happened, I was really surprised that Sam could even be fired because I just kind of assumed that he had control over the board. I mean, as the principal founder CEO, I just figured he had control. So I was very surprised that something like this could even happen. You know, on our pod, I speculated that he must have ownership in this. It just can't be the case that he has zero ownership. And I guess I was wrong about that. I mean, I guess, I guess he really doesn't have equity and he really didn't have control. I mean, I guess that's probably the most surprising thing to me about the whole thing. And I guess that springs from the fact that it was set up in this funky nonprofit way. And I just think it just all goes back to the point that you can't do better than a Delaware C Corp. You know, whenever I see founders trying to innovate on structure, legal structure, I know it's gonna be a disaster. Like, that's not where founders should be innovating. They should be found to be innovating on products and technology, not in coming up with, you know, newfangled corporate structures and org charts and governance and all this kind of stuff. And I think there was a skepticism before ChatGPT came out on November 30th last year, I think there was kind of a general skepticism about what OpenAI was doing, not because, you know, the people involved weren't seen as serious, but just, it was just seen as bizarre. Like the idea that a nonprofit foundation could somehow be on the cutting edge of technology and lead to some sort of, you know, technological revolution. I think most people would have thought that was the really fanciful idea. I mean, nonprofits have their place in the world, but it's just not generally pushing the boundaries of discovery and innovation, right? It's more about distributing products that already exist to needy people. So in any event, I mean, the structure was always really weird. And it appears that the weirdness never fully went away. I mean, they tried to paper over it, they tried to create these complicated crisscrossing structures that allowed Microsoft and others to invest, but they never fully solved the problem that the alignment that was set up in the beginning just wasn't very good. And I think one of the alignment problems is that Sam didn't have a proper comp package. And I think the board wasn't set up as a proper board. I mean, you know, for all the shit that VCs get, like, you know, VCs, and I think you made this point, Jason, VCs wouldn't fire a founder where everything is going up into the right. Like that's suicidal.
SPEAKER_03: Quite the opposite. What did they do with what did they do with Elon when it was up into the right and he was fully vested? They created a comp package to keep him in there. Right? You're talking about Tesla. Yeah, I'm talking about Tesla. Tesla created a comp
SPEAKER_00: package where the better Tesla did in terms of his public valuation, the more stock he got. So he had these very far out of the money stock options. I think Tesla was worth, I don't know, tens of billions at that point. And his comp package went all the way up to 600 billion, meaning that if the company would ever be valued at 600 billion, he would invest additional owners. So they gave him these far out of the money stock options. So the better the company did, the more ownership he got. Yeah, I mean, everyone had skin in the game, everyone was aligned. I mean, this is the beauty of the, I think of the way that the startup ecosystem works from just a legal and structural point of view is, I don't think that Silicon Valley would work without the innovation of the joint stock company. Right? You create a company and you have widespread ownership by founders, VCs and employees, and everybody's aligned, everyone has skin in the game. And then, within that framework, the founders run the company and typically have very broad latitude to do what they want. And everyone's comfortable with that because everyone's aligned. And when everything is up and to the right and working, no one messes with that. It's only when things descend to some sort of crisis or there's some sort of criminal issue or something really, really horrible, do you ever typically get a big intervention. But otherwise, when things are working, you just leave them alone. Because again, everybody's aligned for that big outcome.
SPEAKER_03: This is the key point. The structure here, Sonny, in Silicon Valley has been perfected over decades and it's been battle tested. Right? And the Delaware Sea laws are the manifestation and the codification of that. This Franken structure they came up with, which I think they modeled off of Mozilla and the Mozilla Foundation because they started printing hundreds of millions of dollars in Google AdSense revenue. This is the original sin. Then you put a bunch of non-stock price-incented individuals on the board and you get this weird outcome. You can say all the terrible things you want in the world about capitalism and VCs, but the focus. Let me just add something to that. Okay. There
SPEAKER_00: was a widespread belief or a belief that a lot of people are indulged in and maybe even Sam and this could have been his downfall, that somehow OpenAI would be a more trustworthy company if it did not intend to make a profit. This was sort of the premise behind all this foundation nonsense is that if OpenAI does not intend to turn a profit, we can all trust it more. And you heard repeated over and over in many different ways. And I think even Sam may have bought into this and I think ultimately that was the undoing here.
SPEAKER_03: This is a, if we level up the conversation sacks, if you think about operating systems for building things in the world for changing humanity, say what you want about capitalism, but it aligns perfectly with hard driving people and capital allocators. It aligns perfectly and it is a more trustworthy situation because you can trust that everybody's working towards increasing the share price and the share price obviously represents something in the world. It represents progress. So again, you can hate capitalism. It's imperfect, but it's the best system for building companies and changing humanity in the best way. And I think that's ultimately what we'll see here is this is going to be, what do you call it when you have like an ultimate decision, there's a word for this, but it would be the ultimate decision on capitalism versus nonprofits.
SPEAKER_00: Just a bunch of your point there. Let me quote Adam Smith. Uh, what Adam Smith wrote, this is in the 17 hundreds is that it is not from the benevolence of the butcher, the brewer or the baker that we expect our dinner, but from their regard to their own interest. In other words, we can trust people in capitalism not because they're going to do something altruistic for us, but because they're going to pursue their own self-interest and in so doing they're going to produce something that we all want. I mean that was basically what Adam Smith said. Right, and if you don't, what happens? It's that profit interest that allows us to understand their motivations and to align their incentives with something that's good for all of us. Now, as soon as you take away that profit incentive, say for example, by putting a bunch of effective outros on your board, you know, now you don't really know what it is that they're optimizing for. They claim they're optimizing for some principle or other, but it may just be, you know, some crazy idea in their head that we shouldn't trust or it might be some bureaucratic incentive. These people It's for social credit. Let's call it what it is. They're doing it for credit or they want social credit. Some resume packing item or some, who knows, who knows, it's some sort of, but you're never going to take human incentives motivations out of something. You're just going to replace the profit motive with some other kind of motive that might be even more nefarious. And if you're wondering like how did this happen? I think one of the reasons why it's so inexplicable is because we don't know the motivations of these board numbers.
SPEAKER_03: And you pointed out before Sam did not have a package. This is if you were on a board and your CEO who was doing this deal making was so important and critical and they didn't know 10, 20% of the company and their future incentives were not aligned and you didn't have them locked up for the next five years, that would be job. One of the board is get Sam a package and lock him down. And maybe the reason he was doing these side deals was because he wasn't compensated open AI.
SPEAKER_00: Totally. I think that's an excellent point. Look, we don't know what side deals he was doing but he was running around making a lot of deals. I guess there's been a couple of them reported. But if you're worried about that, if that was the worry, re-up the guy massively. Give him a huge stock package. Give him the Elon package that they did at Tesla. Yes, absolutely. So that he's singularly focused on making open AI successful. But again, this goes back to the motivations of this foundation and this funky setup they had. It's not clear what it is they were optimizing for. I mean, I guess some vision of societal good but who judges that? And so at the end of the day, it just becomes a highly political thing where you got a room full of people and they're optimizing for some sort of bizarre political dynamic.
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SPEAKER_02: that tune into this regular show with me and JCal is portfolio companies. You guys at Kraft have made a really big push into AI companies that are building around AI. And obviously most of them are building an open AI. How are you rethinking that and what have been the discussions inside Kraft around what should companies do and that are reliant on this? What are your initial thoughts there?
SPEAKER_00: Well, I don't think that's going to change. I mean, I think that what OpenAI did with the launch of ChatGPT was this huge proof of concept for large language models. And now that they've kind of opened the door, like no one's going to go back. So, I think probably 70 to 80% of what we do these days is AI related, at least for new investments. We're kind of probably 70 to 80% is looking at it as something AI related. I don't think that's going to change for anybody. But in terms of what do I think the practical impact on the ecosystem will be, I think this is probably going to be a huge leveler. I mean, you figure OpenAI was probably a year ahead of anybody else, including some number of months ahead of the whole open source ecosystem. So, if OpenAI is kind of unraveling and then Sam and his team have to kind of put it all back together again and some new division of Microsoft, that's going to take some period of time. I don't know how long it's going to be, six months, a year, whatever. While that's happening, everyone else is going to catch up. So, I think that the practical impact of all this is going to be a big leveling in the startup ecosystem. Obviously, this will be hugely beneficial for OpenAI's competitors, whether it's open source as a movement or maybe some of these other competitive foundation models. Obviously, it's probably going to be better for them. And then you figure there's a bunch of startups in the ecosystem that appear to have some kind of privileged access to OpenAI. I don't think there are a lot of them, but there were startups that were sort of anointed by OpenAI. I mean, I think OpenAI had a fund that was making investments in the ecosystem. And I think those companies got a lot of momentum and went on to do really high-priced future rounds based on the expectation that they were kind of first and would stay in the lead because of this, again, privileged access. And so, if the rug's getting pulled out from OpenAI or it's just the whole thing's getting kind of level set now, then those startups will be impacted as well. And David, just building on that, like Chamath
SPEAKER_02: had a tweet earlier today where he talked about the impact of smaller companies building a startup's building versus large companies and where large companies get caught up in their legal departments. Now what's happened with OpenAI, obviously, they were operating like a startup. Do you see them slowing down and does that open opportunity for others to kind of come from the startup side of the world versus, we know the larger companies are here, Google is here, and obviously Microsoft's been there. But what are your thoughts on that?
SPEAKER_00: Well, it's a good question. I mean, I think that in terms of creating foundation models, that seems like a big company. Activity is just so expensive, right? But the open source ecosystem has a lot of startup activity in it. And so, if the open source ecosystem now gets further ahead because OpenAI has slowed down, maybe that could redound to the benefit of some startups that are playing in that ecosystem. I think it's really hard to see. I think for startups that were building on top of OpenAI, this probably slows them down because there's a whole product roadmap that was about to be built at OpenAI for developers and that's been derailed now, at least from where we're sitting at this moment. And maybe this all kind of gets put back together. So, I think that to the extent that you were competing with OpenAI, this is probably certainly not positive for you. But if you were building on top of OpenAI, it's probably going to create some problems for you. At a minimum, you're going to want to diversify and build on top of multiple models, which people are doing anyway. So, I think it kind of depends on where you're sitting in the ecosystem. Jacob, what do you think?
SPEAKER_03: I got my first email from one of our companies. It's called Roam Around. And they are API partners, like everybody else, with OpenAI. And they basically just told their investors, hey, we have other models we're using. If OpenAI collapses or we have problems, don't worry about it, basically. So, that's the first time I saw founders who maybe had a dependency here or maybe people perceived to have a dependency, then letting their investors know, don't worry, we've got escape hatches here. It's not going to be a killer for us. I do think most people would say the technical advantage, when I asked people on the pod that OpenAI had, most people would say six to 18 months lead time. So, let's put it at 12. Then you have their momentum, which was people wanted to work there. Sam's cult of personality, the other leaders being a cult of personality. They had a lot of momentum. And momentum in startups, in poker, in the entertainment industry, momentum is very important. And the momentum they had was if you're talented, that would be at the top of the list of places you want to go. If you're an investor, that's one of the places you wanted to own shares in momentum is so important in startups for so many reasons. And that momentum is now gone. And now it's the opposite. It's gone from momentum to being a risk factor. So, the secondary that Thrive was going to do, that's off. That was a momentum driven secondary. People wanting to pick, hey, who do I align myself with as a startup or a corporation? That momentum is gone. They're not the lead player anymore. They're the incapacitated player. They're the dangerous choice to make. So, now Claude or Bard or Falcon or an open source project, whatever's on Hugging Face, that becomes the default. So, this has been cataclysmic in the damage it's done to OpenAI's lead. That 18 month lead, I think now is zero and or a negative. And I think you can't understate that. Yeah, I totally agree. And you're right. And like part of the momentum they had was in
SPEAKER_00: hiring, right? I mean, they were slurping up so much of the tech talent. And AI engineers the hardest job to hire for. And a lot of it was continuing to go to OpenAI. And now that momentum is going to slow down or stop. I mean, presumably, if Sam and his team set up a new entity at Microsoft, they will still attract a lot of talent to that. And the people who are loyal to Sam on that team are going to go. But if you're an engineer now, you have to really think about is this such an obvious choice anymore?
SPEAKER_03: Okay, let's go to predictions here. Sonny, you've been doing a great job here moderating. But I want to hear your prediction. What happens in the next 72 hours? Everybody has basically said they're going to quit. I thought half the people would leave. It's like 90% have said they're quitting. So that means OpenAI is dead. Microsoft says, hey, they have this option for everybody to go there. And then, of course, there is the reinstatement of Sam and the firing of this incompetent board. What do you think Sunday Madra happens next?
SPEAKER_02: I think the company re-emerges. And yeah, that's my prediction. I think they open AI Sam and, you know, Greg and the other folks return to the king, return of the king. And there is a real conversation around governance structure, nonprofit profit, and all that becomes clear forever. I think, you know, that's where I go.
SPEAKER_03: SACS prediction next 72 hours.
SPEAKER_00: I think there's what should happen. And then there's what actually happens. And I think what should happen is probably about 5050. I think what should happen is that OpenAI brings Sam back because, I mean, like you said, the whole company is basically not assigned a petition saying they're going to leave if he's not brought back. So you bring him back. That means that the whole board's got to go. He's got to reconstitute it. I would go further and say they have to get rid of this whole focaccia nonprofit structure that created all the problems to begin with. Give Sam a proper comp package, you know, get rid of all these crazy crisscrossing dotted lines and so forth, and just normalize the structure of this company. That's what should happen. What actually happens? I don't know. I think it's probably 5050 at this point whether they bring Sam back or not. If they don't, I think we all know that is going to implode. But again, with each passing day that they don't do the obvious thing, it's more likely that the obvious thing won't happen. I mean, look, I thought it was obvious by, I don't know, what was it, like Saturday or Sunday that they needed to bring Sam back because the whole company was groundswelling, you know, in favor of him. And then they did this like total non sequitur of hiring this like Emmet guy like out of nowhere to be a CEO. So that was wild. So it's like, wait, they didn't get the message. David, I don't know if you saw this, but on Twitter, Benny off, like
SPEAKER_02: everyone is out. Like every... Sharks are out, blood in the water. So if you allow that transfer to happen to Microsoft, then pretty much you're doing that for money at that point, I guess, right? Because you're going to try to get some comp package from them. But I think there's so many options for those folks that they're going to weigh those things. Yeah. There's so many options. And now you're just kind of working for Microsoft. I mean,
SPEAKER_00: the bloom is off the rose, you know. The bloom is off the rose. So I'm not saying that they won't be able to reconstitute a pretty impressive team over there, but it's not going to be this undisputed leader. You know, they're going to have to spend, I don't know, six months just getting back to where they were at least. So this is the great leveler. I think my TLDR is that this is going to be a giant leveler in the whole space because the company that was running away with it is now, you know, hamstrung or imploded.
SPEAKER_03: Yeah, that's correct, Sax. The entire poker table has been flipped. The blackjack table got flipped. Chips, drinks, cards. It's anybody's game now. It's literally if OpenAI implodes, anybody's game. Anybody could win AI. And that actually might be better for the marketplace if you think about it.
SPEAKER_02: Jason, I got to ask both you guys, Jason and David, XAI, right? You guys are close. You guys understand it. Obviously Elon started OpenAI, put the first money in. What does this mean for XAI from your guys' perspective? Sax, you go first.
SPEAKER_00: Look, I mean, I don't think XAI would exist if OpenAI had done right by Elon in the first place. You know, he did put in the first 40 million and he ended up with no shares. Now, I don't know that that was necessarily nefarious. Again, I think it was a result of this crazy nonprofit structure they've created. But I think that as part of correcting this mistake they made on Friday, I think they should undo all the shenanigans. Let's fix all the shenanigans that happened here. Again, normalize the structure. I think Elon should get shares for his 40 million that went in. That's what should have happened. It should have happened a while ago. But now I think it's probably— And Sam should get a package. Sam should get a package, for sure. That's what should have happened. They should have cleaned this stuff up a long time ago. But you know what happens is no one ever wants to clean anything up. They just want to keep papering on top of it. They papered a bunch of crap on top of the original mistakes and now it's come back to bite them in the ass. But look, in terms of what does this mean for X.AI, I mean, that company's already been created now. It's off to the races. And so the genie's out of the bottle. I mean, it's going to be good for them, right? It's got to be good for them.
SPEAKER_03: It felt to me, Sonny, when we played with it that they were six months behind maybe, maybe argue nine, something like that. And now if this continues in chaos, it's going to take six to 12 months for all the dust to settle. There's going to be so many lawsuits. Every employee who didn't get to sell in the secondary offering is going to be able to sue the board. Sam is going to be able to sue the board. Microsoft is going to be able to sue the board. The investors who invested in this are going to be able to sue everybody. So the number of lawsuits that will come out of this for lost money, remember they raised three or $400 million, right? From investors other than Microsoft. This is going to be and then imagine the discovery. Imagine how much payoffs that will cost. You know, we have full employment program for lawyers for sure. But Jason played this
SPEAKER_00: out a couple of moves beyond that, right? So now you've got this assume like Sam doesn't come back, right? And so you've got, you know, 90% of the employees have left and you've got the shell entity that's running open AI, but there's no one there. So they're barely keeping the lights on. And then meanwhile there's all these like lawsuits or threats of lawsuits and they're getting all sorts of legal letters. What do you think that management does at that point? I think they just kind of sell it all to Microsoft.
SPEAKER_03: Yeah, they quit, sell it for parts, shut it down. For Saatchi to be their white knight just to clean up the whole mess. So then Microsoft
SPEAKER_00: just acquires, you know, whatever's left, which, which will be substantial. I mean, you're talking about the source code here to, you know, open AI, which, um, you know, it's just doing over a billion in revenue and it's got, you know, thousands of, uh, no, they've got like what, like over a million developers building on top of it. I mean, this is a massive asset, huge asset. And here's the other thing, Zach, you know, this, if
SPEAKER_03: this was going to go that route, they would need to, they're fiduciary, which using the word fiduciary with these idiots, I'm just call it what it is, is, you know, um, I don't think they know how to spell the word. Um, they would need to run a process and they would need to let five or six people bid on it. And then what are those people bidding on the source code that Microsoft also has access to, but not AGI, the Franken structure of this makes it really hard for people to bid on it. But you know, Benny off might come, Google might come, Apple might come and want to bid on this. Zach's going to bid on it. So now you have to go with the whoever bids the most in order to get the shareholders who've been wrong, their money. This is so chaotic. There is no way to run a process because who assumes the liability. And I guarantee you the IRS is firing off massive investigations into what happened here because they don't like when people run circles or make them look foolish. And I think this is starting to make them look foolish. Nonprofit generates $190 billion in equity value. Then there's an auction for the assets. It's insanity.
SPEAKER_00: Well, I think the way it was structured, and there are versions of the corporate org chart that have been floating around X, is that you've got this foundation that is a nonprofit and then it somehow controls an LLC and that LLC is a for-profit entity, but whose membership interest is kind of controlled by this foundation. And then the investors came into that LLC and Microsoft had some sort of cap-profit arrangement with that LLC. So I guess what would happen is that if you could sell off the parts, that the LLC is the entity that would be sold. So I guess either you just sell the LLC as a whole and everyone sells their membership interest or the LLC sells all the assets and then distributes the cash to basically dissolve. So I think that's probably what you do is you have the LLC. Sell all the assets, take in a bunch of cash, and then you distribute all the cash to the membership interest of the LLC and wind it down. And then what happens is you end up with this foundation, the OpenAI Foundation has got a bunch of cash sitting in it. And it's a nonprofit controlled by, I don't know, whoever stole and controlled this board, I guess, and control all that money. That is a big pot of money there.
SPEAKER_03: This is a, what an absolute utter mess.
