Are the days of the scrappy Silicon Valley garage startup over? In this deep dive, we explore how Artificial Intelligence is completely rewriting the fundamental laws of business physics and venture capital. For decades, the rule was simple: money could buy time, but it couldn't buy genius. Today, the "compute flywheel" allows massive amounts of capital to be converted directly into intelligence, replacing human labor with raw GPU power.

Drawing on a dense high-level conversation from the Latent Space platform featuring Andreessen Horowitz’s Martin Casado and Sarah Wang, we unpack the "bitter lesson" for AI startups. We discuss why Series A funding rounds have skyrocketed to $100 million, the terrifying "Expanding Star" analogy of base models like OpenAI and Anthropic, and whether we are living in a modern version of the 1999 telecom bubble.

In this episode, we cover:

• The Death of Brooks's Law: Why adding massive computing power to a problem now outperforms clever engineering.

• The CapEx Era: How early-stage AI startups are functioning more like heavy infrastructure projects and nuclear power plants than traditional software companies.

• The "Expanding Star" Threat: How massive frontier models are absorbing the application layer and pushing independent AI companies into a corner.

• The Cautionary Tale of Character.ai: Why even wildly successful AI apps with millions of users are being absorbed by tech giants just to cover their server bills.

• Circular Funding: The controversial accounting maneuvers where big tech invests in startups, only for that money to be routed directly back to their own cloud services.

If capital can now be mathematically traced into IQ points, does the scrappy underdog even stand a chance? Tune in to find out how founders can survive the era of the deepest pockets.

References

Latent View Interview: Inside AI’s $10B+ Capital Flywheel — Martin Casado & Sarah Wang of a16z