Latent Space: The AI Engineer Podcast
01:05:51 · Jamin Ball, Shawn Wang
[01:05:51] S0: Yeah. Totally. Totally. By far. [01:05:53] S1: Totally. And so part of my whole thesis around model labs versus agent labs is model labs will, you know, respect the model and a g... And try to build AGI, and products will be a final last mile Yeah. Sort of delivery mechanism. Whereas the agent labs will will respect the customer the most and build whatever they need, and then... And they'll they'll backwards integrate to models as and when, but they'll never be... Probably never be at the frontier for for those things. Yeah. And both can coexist. Yeah. Totally. Both have a market. [01:06:19] S0: Totally. Maybe to your question, I do expect to see a much bigger push by both labs, Anthropic and OpenAI, into vertical applications and kinda like diversifying out of just delivering models. I I think [01:06:31] S1: I I think the the actions of Anthropic show... So far have shown no serious intents at it. Yeah. Because cloud design is just a tab inside of That's right. A quad. That's right. Like a whole Adobe, you know, replacement. [01:06:44] S0: Mhmm. [01:06:44] S1: Claude legal is a markdown file, you know, markdown repos. Mhmm. Which like that is the AGI pillar. If if if research is king and like, you know, one model does everything, that is what you do. [01:06:53] S0: Yeah. So there's classic enterprise and org management. Yeah. You have a cash king product. [01:06:58] S1: Yeah. [01:06:58] S0: Yeah. Think your sales reps, what do they wanna sell? The thing they know how to sell that they've been selling, that is crushing it. What's harder to sell?
01:06:58 · Jamin Ball, Shawn Wang
[01:06:58] S0: Yeah. Think your sales reps, what do they wanna sell? The thing they know how to sell that they've been selling, that is crushing it. What's harder to sell? [01:07:05] S1: Like New things. [01:07:06] S0: New things, new SKUs, and so it's inertia, it's momentum. And this is just classic like big company boring stuff. [01:07:12] S1: But it's just like, you know, I I think for someone... Like, I've been through maybe fifteen years of IPOs. Mhmm. And for an IPO stage company, much less a $2,000,000,000,000 company Yeah. You've never seen, like, well, we have three SKUs. [01:07:27] S0: Yeah. Yeah. Exactly. Exactly. But but I think to Anthropic's credit, they've been really good at focus. And like they haven't been, you know, enamored with the next thing or [01:07:36] S1: No robots. Yeah. No images. [01:07:39] S0: You know, it's and again, you look at open eye, it's tough. Like, who are they competing with? They're competing with NVIDIA. They're competing with Google. They're competing with Meta. They're competing with Anthropic. You know, like, they're... They have different lines of business that are all competing with giants, like the biggest tech company in the world. And it's like, it's it's a tall task to take on one at a time, let alone all of them at a time. But, hey, that's that's the game you take on if... You know, when you're a trillion dollar company. You know, the state... The stakes are just higher.
01:07:39 · Jamin Ball, Shawn Wang
[01:07:39] S0: You know, it's and again, you look at open eye, it's tough. Like, who are they competing with? They're competing with NVIDIA. They're competing with Google. They're competing with Meta. They're competing with Anthropic. You know, like, they're... They have different lines of business that are all competing with giants, like the biggest tech company in the world. And it's like, it's it's a tall task to take on one at a time, let alone all of them at a time. But, hey, that's that's the game you take on if... You know, when you're a trillion dollar company. You know, the state... The stakes are just higher. [01:08:05] S1: Yeah. Okay. I wanna round out the Anthropic discussion, and then we can go to general commentary on other stuff. We... We've cheated a bit with Elorean and and TypeSafe. But have we covered the main debates that you've you've been engaged in? There's [01:08:22] S0: there's two others. So this is gonna be very, like, financially in the weeds. There... [01:08:29] S1: If you look at You can talk about convertibles. Yes. Exactly.
01:08:29 · Shawn Wang, Jamin Ball
[01:08:29] S1: If you look at You can talk about convertibles. Yes. Exactly. [01:08:31] S0: Yes. Okay. So on the balance sheet, you know, earlier in the episode, we talked about, hey. A 140,000,000 of cash raised... Capital raised, 134,000,000,000 of cash. That's what the the balance sheet shows you. What the balance sheet also shows is a... I might mess up the exact numbers because I don't have them in front of me, but I think about 108,000,000,000 of convertible notes payable as a liability. And so the question is, was that debt? Did they raise debt? And what you also see is a huge portion below the operating income line of other income and expenses that makes it look like they have a huge net loss. They're both related. And let me explain. So any company and any startup founder listening to this would understand and appreciate this. There's different ways to raise capital. You can raise preferred equity. You can raise converts. You can raise safes. There's a whole different host of options to raise money. Anthropic, just like every other startup, did everything. They raised some preferred equity. They raised some converts. They raised some safes. And along the way, there's different reasons that certain investors of the company might prefer one or the other. When it comes to strategic investors, there's even more reasons why they might prefer one or the other. And I think it's it's very well known that some of the strategic investors, Amazon and Google in particular, were very large investors and very big owners of Anthropic early on. And...
01:08:31 · Jamin Ball, Shawn Wang
[01:08:31] S0: Yes. Okay. So on the balance sheet, you know, earlier in the episode, we talked about, hey. A 140,000,000 of cash raised... Capital raised, 134,000,000,000 of cash. That's what the the balance sheet shows you. What the balance sheet also shows is a... I might mess up the exact numbers because I don't have them in front of me, but I think about 108,000,000,000 of convertible notes payable as a liability. And so the question is, was that debt? Did they raise debt? And what you also see is a huge portion below the operating income line of other income and expenses that makes it look like they have a huge net loss. They're both related. And let me explain. So any company and any startup founder listening to this would understand and appreciate this. There's different ways to raise capital. You can raise preferred equity. You can raise converts. You can raise safes. There's a whole different host of options to raise money. Anthropic, just like every other startup, did everything. They raised some preferred equity. They raised some converts. They raised some safes. And along the way, there's different reasons that certain investors of the company might prefer one or the other. When it comes to strategic investors, there's even more reasons why they might prefer one or the other. And I think it's it's very well known that some of the strategic investors, Amazon and Google in particular, were very large investors and very big owners of Anthropic early on. And... [01:09:51] S1: Yeah. Go go ahead. Sorry.
01:09:51 · Shawn Wang, Jamin Ball
[01:09:51] S1: Yeah. Go go ahead. Sorry. [01:09:52] S0: And and so early on, Anthropic and Google, twenty three, twenty four, twenty five, a lot of the dollars that they provided the company were in the form of converts and safes and notes. Those... The value... The the value that those converted at at the time was pegged more towards the valuation those companies were raising at at the time. Why might they prefer a convert? Well, they're public companies, Google and Amazon. If they have an ownership in a third party that exceeds a certain limit, they now have to start reporting more on that, look through ownership. Right? If you own 20% of another company, you almost have to It's consolidated financial statements. Exactly. And that company's losing a lot of money. You now have to report that loss on your bucks. And so it's... They did... You know, strategics don't want to hit certain ownership thresholds. So, hey. Give us a convertible. Give us a note. We'll give you cash. You haven't given us shares yet, and so we don't have that equity ownership. We don't... We haven't gone above those thresholds. Maybe Anthropic didn't wanna give them voting shares. I don't know. Right? Let's have your shares convert into nonvoting shares because we don't want the governance of a supplier or strategic. I'm totally speculating and hypothesizing. [01:11:01] S1: These are all reasonable reasons to