The Twenty Minute VC (20VC): Venture Capital | Startup Funding | The Pitch
00:26:43 · Rory O'Driscoll, Jason Lemkin, Harry Stebbings
[00:26:43] S2: Yes. [00:26:44] S0: And he already kicked OpenAI partially out. Right? But he can't yet because he's got this bet has to work, but the minute it can, and he said when he bought Cursor, part of the reason was he wanted that team's DNA to make Grok more competitive. Right? So there's multiple benefits here. Right? But there's some deep irony that a $60,000,000,000 core acquisitions running on China open source models primarily, it's not going to last, right? I mean, again, Salesforce forced Fin to rip out theirs before the acquisition closed. But Salesforce can tolerate a little bit more in Fin than Cursor can because Cursor's got to compete. It's in the most competitive space there is. Right. But as soon as he can rip it out, going to rip it out. Right. It can't run on Kimi forever. It's just it's just doesn't this is not it doesn't make any sense. If you think about it. It's a temporary [00:27:29] S1: It's it's not just, like, highly illogical. If you if you download and you run it locally, the security risks are limited to none. I understand that CIOs are CIOs. [00:27:38] S0: Limited to none when it's dialing China and uploading your data. And what if in... Instead of a a four zero four or whatever it was, there was a prompt injection sitting there? Very easy to do. And that prompt injection just uploaded your data. People that... This has been here for several iterations of the model.
00:27:38 · Jason Lemkin, Rory O'Driscoll
[00:27:38] S0: Limited to none when it's dialing China and uploading your data. And what if in... Instead of a a four zero four or whatever it was, there was a prompt injection sitting there? Very easy to do. And that prompt injection just uploaded your data. People that... This has been here for several iterations of the model. [00:27:52] S2: I think the question you wrestle with, Harry, is what can you know? How much can you know with 100% certainty as to what the model is doing? And then obviously separate from what the model does, you can try and to some extent, block it, sandbox it from... To prevent it doing that. But it's like having a recalcitrant and difficult employee who's actively trying to subvert you. Once that happens, your head hurts. If you had an intern and you knew that there was a risk that they would try and actively leak your guest list and your shows to your dreaded podcast competitor, it would just get in your head. But it gets to this whole question of what can you know about what the model is doing? And if you read the S-one for Anthropic again, one of the risks they say is basically the models will lie to you, the models will tell you they're not doing shit and they're doing it. So you get into this thing, what can you really know? And once you get to that point, it's really hard to, you do worry a lot about a Chinese sourced open source model. So there will be that pushback, I think.
00:28:48 · Jason Lemkin
[00:28:48] S0: Qwen lied. It says, I'll call no tools. And Claude will lie and Aster will lie too, right? It said, I'll call no tools. And what did it do? It called servers in Beijing and in Singapore and uploaded data. It said, I won't do it. So you really have to go deep in these open weights and really test it. And depending on how you test it, nominally what happened with Cohere only happened one in a 100,000 calls. So a bunch of folks tested it a few times and they sort of found this issue a couple months ago, but you had to run it at scale. But at Saster, we run 40,000 API calls a day. It doesn't take very long to get to 100,000. If you're GE or whoever in the Fortune 500, you're running millions and millions a day. That could be every hour, every ten minutes it's uploading data. And again, this doesn't appear to be even malicious per se. This appears to be a training error in a sense. Right. But who cares? Like if you're a CISO, who cares if it's a training error or if it's a spy or even worse, if it's a training error and some other actor exploits it, which is the job of all of our intelligence services to exploit these things, To have pagers blow up. I don't believe Alibaba itself, it doesn't look like the engineers did it as an exploit, but the government could take it over or force them to. They're just... It's... Why do you want to have this meeting? Let's just use Haiku 5.5. It's pretty good. Guys, your budget this month's $5,000,000 I just... And Anthropic, if you... The other thing, if you look, Anthropic is, it's on the GSA list or whatever it's called again. It's back in the government's good graces. It's across all the GSAs with a 40% discount. That means a couple months ago, they were persona non grata. Now every government agency can use it with a 40% discount and it's already pre listed. Why would you use Kimi? Plus, also think, and again, listen, these are great companies. I also think the fact that you have to pay Kimi, what is it, 30% of your gross... Of your revenue to use it at scale for the inference providers, there's just a lot of complexity here. It may not be worth it at some level. It may not... The juice may not be worth the squeeze for many people.
00:30:39 · Harry Stebbings, Jason Lemkin, Rory O'Driscoll
[00:30:39] S1: I'm just trying to understand, though. Last week, we said that Modal at 15.7. Oh my god. Yes. You buy. And then you're saying, no. No. No. Chinese open source is not... Is it gonna decline significantly? It's great for Anthropic and OpenAI. That is inherently bad for Modal. I'm just [00:30:57] S0: trying to for Fireworks, Modal. I I don't know how bad it is for OpenRouter. I'm just not sure. Right? Is it a... Maybe I should say this [00:31:03] S2: how You're you're making a fair point, and I I didn't participate in the investment committee because I don't. But I think to be fair, Jason, the assumption is that there is demand for an open weight model, which is obviously the demand that inference providers primarily meet. And you just got to believe that there's a bunch more alternatives, that there will be some US alternatives. There also will be people for whom China is okay, and there will be people for whom they want the poolside NVIDIA one. And provided something exists in The US, that business is fine. And I do agree with you. I think it's not as clear a run as you have when you own your own close source frontier model, but there is a role for inference provision just because there's just so much raw demand for an alternative other than the frontier models.
00:31:47 · Jason Lemkin
[00:31:47] S0: To answer the question, think Harry's got a good point. I think both are true. A while ago, Rory brought up that there probably won't be another deal like Manus, right, which was a direct investment. I mean, I'm paraphrasing you, right? But after that one got unwound, no one wants to do that deal again, right? This sort of direct investment in an Asian startup. This isn't investing in a US based folks running open weights, but not open source models is not the same as Manus. But there is risk. And I think if twenty four months ago, most VCs would not want to take that risk because it's a clear risk. You don't have to fast forward to today with the Cohere Qwen issue to know it's a risk. It's just the reason on the IC thing, the growth is so phenomenal that we're taking risks today that you wouldn't take if we didn't see growth that was jaw dropping. That's the job of venture today. And it's okay if it blows up. It's okay if fireworks or whatever goes to zero in our portfolio at IC because we have other investments. That's the job. And we're taking risks. We wouldn't take this risk if it was a triple triple double double, but it's not a triple triple double double. But it doesn't mean that it doesn't mean that the risk level didn't just go up in the last week. A lot. And these DeepSeek being blocked by the U. S. Government and this whole Qwen thing and dialing home and Anthropic being on the GSA schedule. These are negatives. These are negatives. I think what we may look back is, and I still believe in the IC, we may, this is just my sense, I think there's a 56.3% chance we look back on OpenRouter and this was just a moment in time. Was a moment in time, going back to earlier the show, when OpenAI stumbled. So Anthropic was the only alternative for state of the art coding. And then the Chinese open weight models got really good at coding. That's what Elon said. Like, it's really good. But he even said they'll catch up the fable by the start of next year. So there was a gap that these models filled. And now OpenAI and others are going to fill this gap. And the low cost models are going to fill the gap. Like they each now have a much cheaper model that's much better. We may see these open weight models go from 60 something percent of open router to 10% in six months.
00:33:43 · Jason Lemkin, Harry Stebbings, Rory O'Driscoll
And that would not be an extraordinary amount of change based on what we've seen. That would not be... This is not sticky. [00:33:49] S1: It wouldn't. But Jason, you've talked very well, I think, in the past about maiming markets in terms of kind of the Fortnite ification, the shrinking land that's available. And to Rory's, I think, eloquent point, there will still be some companies and there'll be some companies that want reflection and poolside, but it is a maiming of an open market. [00:34:08] S2: Think you had to look at it... I understand the point you're making, but I think you've just got to look at it. The inference market is still so big. I mean, we added up all the competitors, and they only had $5,000,000,000 And, you know, we just agreed that the closed source two frontier models are a 100,000,000,000 already. So as long as there's... Yeah. If 10% of the spend is willing to kind of do... Put up with the brain dead of open source to save real money, and you do save real money, then there's gonna be demand for that. Does it get to 30,000,000,000? I don't know. When the overall market is so big, 10% of it is still big. And that's the big Ohio. This is... It's the mother of all markets, so everything else works.