knows

okay public speaking is hard, apologies for the folks who showed up to watch me overheat and bomb, so here’s all the stuff i meant to explain right now you are being asked for a near 100% prepayment because neither you nor the cloud is considered credit worthy, and so nobody can get debt. As ai scales, we are asking the credit markets to take on a massive single sector deployment of capital. More money deployed, more scared everyone gets. this problem will flow down into the token layer. Every inference provider or model lab struggles to be credit worthy enough to get compute, and their lever to improve their situation is to lock in big prepayments from their customers or long term contracts from credit worthy customers. So this problem doesn’t just effect compute buyers, it effects token buyers. We’re entering a world where fortune 500s can very quickly deploy huge token spend ON CREDIT where the startup will need to raise capital. Startups got to exist because human capital could leave a firm and get ahead of the big firm by exploiting a combination of incentive misalignment, speed, and taste. You probably have the hidden assumption that the fortune 500 is slow and incapable of competing with your ultra fast startup. This belief does not necessarily hold in the case where the agent does the thing. the “market” is working on solving it. We know, because we are the market, and we’re working on it. sfcompute is working on ways of firming up the collateral of the loans, which makes it safer to lend to a startup. this is basically the whole reason we exist, the problem everyone is experiencing now is the problem junelark, our little ai lab years ago, hit however, we won’t succeed in time. so, in the short term, startups and venture firms should learn to protect themselves. we are mostly watching startups and investors make unforced error after unforced error, because this is not a simple subject. first, venture firms need to understand that they are in the compute business now and deploying capital to pay for a 100% prepayment for 10 startups where 6 of them die and 4 of them make 50% margins on that capital is basically locking in non-venture returns. many funds, via low understanding of the space, are wrecking their funds. there’s an economic solution for vc’s and it is owning the compute and trading equity for gpu/hrs. If the company dies, you keep the residual value. Each of you are looking to capture the next anthropic or openai, but the only way these companies scaled was by trading compute for equity. meanwhile, startups have three options in a credit crunch. The first is to raise a wild amount of capital, enough to pay for your deployments with far larger prepayment or to survive until things chill out. theres a reason we’re seeing a number of multi-billion dollar rounds simultaneously. The second is to design your business model to support variable priced tokens and compute. As the financial ecosystem builds around compute, you will be able to trade “lower up front payments” for “variably priced compute or tokens”. Your business will get tailwinds from the infra under you if you setup your business model such that YOUR customers have variable prices and you’re just adding a % take rate on top of the underlying floating price. Every year, you will become more and more capital efficient. The economic winners in ai & inference are firms that make lower and lower margin every year, but become more capital efficient & scale faster every year, making their gross profit increase. The third option is asynchronous or interrupted products. If you have a variable cogs, but a fixed rate card for your customers, it can’t have 100% availability or you’ll go bankrupt. But it is totally possible to design your product such that customers like this.