The AI Money Trap, Part One

24:21It is, in some sense, a Kobayashi Maru. Anthropic is an existential need to screw over its customers by hiking rates and imposing long-term commitments, but its existence is also in some way predicated on these companies continuing to exist. If Cursor and Replit both die, that's a significant chunk of Anthropic API business gone. And may I remind you, that significantly overshadows its subscription business, making it almost like an inverse of OpenAI, where subscriptions drive the bulk of revenue. Also a shitty business model. Anthropics Future is wedded to Cursor, and I just don't see how Cursor survives, let alone exists or gets subsumed by another company in a way that mirrors how acquisitions have worked since ever.

25:02If Cursor does not sell for a healthy amount. I'm talking$10-20 billion, and I mean actually sell, not the founders are hired in a strange contractual agreement that pays out investors and its assets are sold to Rick from Pornstars, that's P-A-W-N, by the way. It will prove that no generative AI company to this date has actually been successful. In reality, I expect a Chumlee-esque deal that helps CEO Michael Truro buy a Porsche while his staff makes nothing. Is Cursor worth$10 billion or more? No, no matter how good its product may or may not be, it is not good enough to be sold at a price that doesn't require cursor to incinerate hundreds of millions of dollars with no end in sight.

25:38And this ultimately gives us a real conundrum. Why aren't generative AI startups selling? I'll tell you what though, other people are selling stuff and it's time for you to buy it. Listen to these ads and let me know what you think at my email address, which is Robert Evans at... Tired of spills and stains on your sofa? WashableSofas.com has your back. Featuring the Anabay Collection, the only designer sofa that's machine washable inside and out, where designer quality meets budget-friendly prices. That's right, sofas start at just$699. Enjoy a no-risk experience with pet-friendly, stain-resistant, and changeable slipcovers made with performance fabrics.

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27:46Mint is still$15 a month for premium wireless. And if you haven't made the switch yet, here are 15 reasons why you should. One, it's$15 a month. Two, seriously, it's$15 a month. Three, no big contracts. Four, I use it. Five, my mom uses it. Are you playing me off? That's what's happening, right? Okay. Give it a try at mintmobile.com slash switch. Upfront payment of$45 per three-month plan,$15 per month equivalent required. New customer offer first three months only. Then full price plan options available. Taxes and fees extra. See mintmobile.com. And we're back. So, really though, why are there so few generative AI acquisitions?

28:24I know you're probably going to assume that there have been a ton of them, right? If you've not been obsessively reading every single story about that for over a year, you might have missed it. But before we go any further, there have been some, but they've been sparse, and they often have a weird structure that's typically the exception, not the rule in tech. So here's a real one. AMD bought Silo AI, the largest private AI lab in Europe, in August 2024 for$665 million, which appears to be the only real acquisition in generative AI history and appears to be partially based on Silo's use of AMD's GPUs.

29:00Elsewhere, NVIDIA bought Octo AI for an estimated $250 million in September 2024 after buying Brev.dev in July 2024 for an undisclosed sum, and then Gretel in March 2025. Gretel, brev.dev, octo.ai, Jesus fucking Christ, these names. Be normal. Be normal for one minute. Yet in all three cases, these products are used to deploy generative AI and not products built on top of generative AI or AI models. Canva bought generative AI content and research company Leonardo.ai in July 2024 for a disclosed sum, but that's small fry. Really, the only significant one I've seen was on July 29th, 2025, publicly traded customer service platform Nice buying AI-powered customer service company Cognigy in a$955 million deal.

29:51I hate these names so much. According to CX Today, Cognigy expects about$85 million in revenue this year, though nobody appears to be talking about how much it costs to make that revenue. However, according to some sources, they judge tens of thousands or hundreds of thousands of dollars per contract for their AI voice agents that can understand and respond to user input in a natural way. Great. Great. We've got one real deal company built on models acquisition, and it's a company that most people haven't heard of, making around$7 million a month. But let's take a look at the others. So you probably remember Inflection AI to Microsoft, which was not an acquisition, but a$650 million licensing deal that according to Fast Company, maybe more like a billion dollars when you include things like how much it paid to inflection CEO and former DeepMind co-founder Mustafa Suleiman, who is most famous for just being an abusive and horrible guy to work with.

30:41Here he's pushing a horrifying 996 culture at Microsoft too. To do what, Mustafa, you fucking prick? Anyway, according to Fast Company, the deal involves a license to sell inflections models, a waiver against any employment claims against inflection or Microsoft, paying off investors, and some sort of unnamed compensation for employees. Sounds stinky to me. But let's look at Windsurf to Google and, of course, Cognition, which was also not an acquisition. Windsurf's C-suite went to Google for$2.4 billion, which paid them off along with their investors, and then the rest of the staff and the product got acquired by Cognition for$250 million.

31:16According to TechCrunch, investors made$1.2 billion on the deal with Windsurf co-founders Varan Mahan and Douglas Chen, making another$1.2 billion, and it's staff getting to start a new job at a different company building something else with, according to TechCrunch, a large portion of Winsurf's approximately 250 employees not benefiting from the deal. As an aside, Mahan and Chen fucking suck. I fucking hate these guys. Absolute loser psychopaths. You make$1.2 billion and you couldn't break off a little bit from that? You fucking... Ugh, disgusting. You can't crack that$200 billion, the.2? You couldn't take$200 million dollars share it with the class you fucking losers assholes pieces of shit come on the show if you want to hear more words like that you fucking assholes anyway let's talk about io products going to open ai in an all stock acquisition this deal is a farce and it's unclear if open ai actually bought anything 6.4 billion dollars in stock for what johnny ive's weird face staring at you lovingly as he says things like i think we should make it look like a circle while making a$5 million a year salary?

32:20Get out of here. It's not real money. And then, of course, there's character.ai to Google. This was also not an acquisition. Google, to quote the Wall Street Journal, paid$2.7 billion to bring back an AI genius who quit in frustration. I would not use the term genius. Well, I don't like that term. Just to be clear, Shazir was one of the authors of the original Attention is All You Need paper that began the Transformer-based large language model era. Nevertheless, much like inflection, Google paid a licensing fee to character.ai for its models and hired, according to the information, its co-founders and many of its engineers, creating a fund that would pay out vesting shares, as in the shares you're given when you join a company that you accrue over time as you work there, until July 2026.

33:01Anything after that, you're fucked. And now, outside of one very industry-specific acquisition, there just doesn't seem to be an investor with the hunger to buy a company like Cursor, valued at$9.9 billion or more, if they raise another round. And you have to ask, why? If AI is, as promised, the thing that will radically change our economy and these companies are building the tools that will bring about that change, why does nobody want to buy them? And in broader terms, what does it mean when these companies, those with$10 billion or in the case of OpenAI,$300 or even$500 billion valuations, what does it mean when they can't be bought and can't go public?

33:41Where does all this go? What happens next? What's the plan here? How will venture firms that plow billions of dollars into these businesses bring a return for their LPs, and that's the limited partners who invest in the venture capitalists, if there are no IPOs and no real buyers? Sure, investors got paid in these deals, but these deals were like pulling teeth. If they do enough of these, there will, even in this administration, be an antitrust thing. Nevertheless, the economic implications of these questions are quite frankly terrifying, especially when you consider the importance that VC has historically held in building the US tech ecosystem.

34:17And they raise further questions about the impact of an AI bubble on companies that are promising and do have a viable business model and a product with natural fear, but won't be able to raise any cash because everyone's putting it into fucking AI. But Ed! Great. Ed, what if Cursor turns profitable now? Great. Awesome. I would believe if it was possible if it ever, ever happened, which it's not. I'm not even being sarcastic or rude. It's just not happened. No company that actually stakes their entire product on generative AI appears to be able to make a profit of any kind. Glee, in a company that makes at best$8.3 million a month,$100 million in annualized revenue, said that it had$550 million in cash in December of last year, then raised$150 million in June of this year.

35:01Where'd the money go? Why does a generative search product with revenues that are less than a third of the Cincinnati Reds baseball team need a half billion dollars to make 8.3 million dollars a month even. I'm not even saying these companies are unnecessary, so much as they may very well be impossible to run as real businesses. This isn't even a qualitative judgment of any one generative AI company. I'm just saying if any of these were good businesses, they would be either profitable or be acquired in actual deals, and there would also be good businesses by now. It is not early. That argument is stupid.

35:34The amount of cash that these businesses are burning does not suggest that they're rapidly approaching any kind of sane burn rate. Well, we would have heard. Putting aside any kind of skepticism I have, anything you may hold against me for what I say or the way I say it, I ask you this. Where are the profitable companies? Why isn't there one outside of the companies creating training data or NVIDIA. We're three years in and we haven't had one. One. One of them. One. One. We've also had no real exits and no IPOs. There's been no cause for celebration, no validation of a business model through another company, deciding it was necessary to continue its dominance by raising funds on the public market or allowing actual investors, flawed though they may be, to act as a determiner of their value.

36:18I also will say that very few, if not all of these companies, they would all just turn into a pillar of salt if you made them fill out an S1, which is the document to go public. It's also unclear what the addition of Winsurf's intellectual property actually adds to Cognition, much like it's a little unclear what differentiates Cognition's so-called AI-powered software engineer Devin from anything else on the market. I heard Goldman Sachs is paying for it and said the stupidest shit I've ever heard to CNBC that nevertheless shows how little it's actually paying for. This is an actual quote from an actual human being.

36:52We're going to start augmenting our workforce with Devon, which is going to be like our new employee who's going to start doing stuff on behalf of our developers, Argenti told CNBC. Initially, we will have hundreds of Devons, and that might go into the thousands, depending on the use cases. Hundreds of Devons could mean hundreds of seats. At a very optimistic 500 users, at the highest end possible, at$500 a month, and more than likely it's$20 a month, if not less. Let's assume that it does discount an enterprise scale too, because that always happens, that's about$250 ,000 a month. Wow. Wow. $3 million a year in revenue on a trial basis.

37:29Amazing. To be clear, it's probably far fewer seats and far fewer dollars a month. I'm nothing if not generous with my adversaries. In fact, I can't find a shred of evidence that Cognition actually makes money. Despite currently raising$300 million at a $10 billion valuation, I can find no information about their revenues beyond one comment from the information from July 2024 when Cognition raised at a$2 billion valuation. Cognition's fund raises the latest example of AI startups raising capital at sky-high valuations despite having little or no revenue. Cool! In a further move, per the information that is both a pale horse and a deeply scummy thing to do, Cognition has now laid off 30 people from the Windsurf team and is now offering the remaining 200 buyouts equal to nine months of salary and, I assume, the end of any chance to accrue further stock in cognition ceo scott woo said the following in an email telling windsurf employees about the layoffs and buyouts we don't believe in work-life balance building the future of software engineering is a mission we all care so deeply about that we couldn't possibly separate the two we know that not everyone who joined windsurf has signed up to join cognition where we spent six days at the office and clock 80 plus hour weeks fuck you man fuck you i'm sorry you shouldn't be proud of them and all that piss vinegar and burning of the midnight oil does not appear to have created a product that actually matters.

38:44I realize that's a little cold, but if you're braying and smacking your chest about your hard-charging, six-days-a-week office culture, you should be able to do better than we have one publicly known customer and nobody knows our revenue. Maybe it's a little simpler. Cognition maybe paid$250 million to acquire Winsurf so that you could, after the transaction, say that they had$82 million in annualized revenue. If that's the case, this is one of the dodgiest, weirdest acquisitions I've seen in my life. Two founders getting, what, like a few hundred million dollars between them and their investors and a few of their colleagues moving with them to Google, leaving the rest of the staff effectively jobless or in hell with little payoff for their time working at Winsurf.

39:20I can only imagine how it must have felt to go from being supposedly acquired by OpenAI to this farcical rich-get-richer bullshit. It also suggests that the actual underlying value of Winsurf's IP was around$250 million. So I ask, why exactly is Cognition worth$10 billion? And why did it have to raise$300 million after raising hundreds of millions of dollars, according to Bloomberg in March? Where is the money going? It also doesn't seem to have revenue in general. And Carl Brown of the Internet Bugs revealed that Cognition faked the demo of Devin, the AI-powered software engineer, last year. And Devin doesn't even rank on SWE Benchmark, the industry standard for model efficacy at coding tasks.

40:01Then nevertheless, what I hear is based entirely on one coding language? Eh, we'll get to that another time. At best, Cognition has now acquired their own unprofitable coding environment and the smidgen of revenue associated with them. How would Cognition go public? What is the actual exit path for Cognition or any other generative AI startup? Because really, it comes down to three things. Get acquired, go public, or die. And that right there is Silicon Valley's own crisis. Their own housing crisis. Except instead of condo houses they can't afford with subprime adjustable rate mortgages, Venture capitalists have invested in unprofitable, low-revenue startups With valuations that they can never sell at And like homeowners in the dismal years of 2008 and 2009 They're almost certainly underwater They just haven't realized it yet Where customers were unable to refinance their mortgages To bring their monthly payments down Generative AI startups face pressure to continually raise Higher and higher valuations to keep up with their costs With each one making it less likely that their company will sell to someone else By which I mean survive The other difference is that, in the case of the housing crisis, those who were able to hold on to their properties eventually saw their equity recover to pre-crash levels, in part because housing is essential and because its price is influenced just as much by supply and demand as it is the ability for people to finance the purchase of properties.

41:19And when the population increases, so too does the demand for housing. A house is a useful thing that you could live in with walls and stuff. None of that is true with AI. There is a finite amount of investors, a finite number of companies, and a finite amount of capital. And those companies are only as valuable as the expectations their investors have for them, and as the broader sentiment towards AI goes as well. Also, I should add, there don't appear to be that many business models or different ones. There's so many different AI coding environments, including ones made by these companies. Amazon has their own one now.

41:53OpenAI has Codex. I mean, at some point, can all of these things last? And who is going to buy Cognition? Because the only other opportunity for the investors who put money into this company to make money here, let alone recoup their initial investment, is for them to go public. Do you think Cognition will go public? How about Cursor? It's worth$9.9 billion. There was a rumor that was also raising at$18 billion to$20 billion back in June. Do you think that Cursor goes public or get sold? I mean, maybe, maybe one of these sells. Do you see perplexity? Fucking perplexity. An evaluation of 18 plus billion dollars selling to another company or going public.

42:36The alternative, as discussed, is that perplexity, a company with 15 million users and around 550 million annualized revenue, is still making less than half of the revenue, by the way, of the Cincinnati Reds baseball team. They're going to go public. They're going to go public. Just to be clear, The Reds make$325 million a year. They're profitable, real money. How is perplexity, which is an inferior business to the Reds, how are they meant to do that? They've, at this point, raised over a billion dollars, and they lost$68 million in 2024 on$34 million of revenue. By comparison, by the way, the Reds are a great business with a net income of$29 million, all to provide a service that upsets and humiliates millions of people from Ohio every a year for the pleasure of America.

43:22That's a great business. We should respect the Reds. The Reds should be interviewed by Bloomberg. We should have Eli de la Cruz talking every time we hear from Sam Altman. Just put Eli in there. He'd be way more interesting and also works harder and provides greater value as a business leader. Anyway, putting aside the Reds, what exactly is it that perplexity could offer to the public markets as a stock or to an acquirer? Apple considered acquiring them back in June, but Apple tends to acquire companies it wants to integrate into their core business, as was the case with Siri, which makes me think that Perplexity leaked that information about a deal that was never really serious.

43:55Hell, Meta also talked about acquiring them too, and again, I would assume that Perplexity leaked that. Isn't it weird, by the way, that two different companies talked about buying Perplexity, but neither of them did so? CEO Aravince Rivenas said in July that he wanted to remain independent, which is a weird thing to say after talking to two giant multi-trillion dollar market cap tech firms about selling them to them. Like, you seem to not want to stay independent. Why would you have the conversation if you're just getting intel? Bullshit. It's almost as if nobody wants to buy Perplexity, or that really they want to buy any of these sham companies, which I know sounds mean, but if you're worth tens of billions, or a billion dollars, or anything over like 500 million dollars, and you can't make more than a bottom-tier baseball team in fucking Ohio, you're neither innovative nor deserving of said valuation.

44:45But really, my pissiness and baseball comparisons aside, what exactly is the plan for these goddamn companies? They don't make enough money to survive without a continuous flow of venture capital, and they don't seem to make impressive sums of money, even when allowed to burn as much as they'd like. These companies are not being forced to live frugally, or at least have yet to be made to, perhaps because they have all actively engaged at spending as much money as possible in pursuit of finding an idea that makes more money than it loses. This is not a rational nor reasonable way to proceed. Yes, there are startups that can justify burning capital.

45:16Yes, there are companies that have burned hundreds of millions of dollars to find their business models or billions in the case of Uber. But none of these companies are like those companies in the generative AI space. Generative AI businesses don't have the same economics, nor do they have the same total addressable markets. Now, if you're going to say Amazon Web Services, there's a three-part episode, the Hater's Guide to the AI Bubble, that explains that in detail. I do voices. I have sources. You need to go and listen to that. I'm fucking tired of hearing people about this one. What about Uber?

45:46What about AWS? You ain't got shit. That's all you've got. You certainly don't have a company to point to. These startups are their VC firm's subprime mortgages, overstuffed valuations with no exit route, and no clear example of how to sell them or who to sell them to. The closest they've got is using generative AI startups as beauty pageants for guys wearing Patagonia, finding ways to pretend that the guy who runs an AI startup, sorry, AI lab, is some sort of mysterious genius versus just another founder in just another bubble with just another overstuffed valuation. The literal only liquidity mechanism outside of CognitGuy that Generative AI has had so far is selling AI talent to big tech at a premium.

46:25Nobody has gone or is going public, and if they're not going public, the only route for these companies is to either become profitable, which they haven't, or sell to somebody, which they're not. But I'd be dancing around the real reason they won't sell, because fundamentally, generative AI does not let companies build something new. Anyone that builds a generative AI product is ultimately just prompting the model, albeit in increasingly more complex ways at the scale of something like Claude Code, or though Anthropic has the advantage of being one of the main veins of their infrastructure, or of course Cursor.

46:53This means that a generative AI company owns very few unique things beyond their talent and will forever be at the mercy of any and all decisions that their model provider makes, such as increasing prices or creating competing products. I know it sounds ludicrous, but this is the reality of these companies. While there are some companies that have some unique training and models and such, none of them seem to be building interesting or unique products as a result. If your argument is that these things take some time, how long? No, really. So many of you have said this is what happens. They burn a lot of money, they grow, and then And then what?

47:27You stop short. Because the next thing you say is turn profitable by getting enterprise customers. Nobody can do the first part and few can do the second part in anything approaching a consistent fashion. But really, how long should we give them? Three years? Perplexity's had three years and a billion dollars. It doesn't seem to be close to profitable. How long does perplexity deserve exactly? Four years? Five years? An eternity? Every single example of a company that's burned a lot of money and then not done so in the end has been a company with a physical thing or connections to the real world, with the exception of Facebook, which has never had the kind of cash-burning monstrosity that generative AI is, or Meta has now created for no reason.

48:03There has never been a software company that has just chewed through hundreds of millions or billions of dollars and then suddenly become profitable magically, mostly because the magical valuations of software have been in their ability to transcend infrastructure. Once unit economics in the sales of software like Microsoft Office or providing access to Instagram do not require the most powerful graphics processing units, run full tilt at all times. And those are products that people like and want to use every day, even though both of them seem to be getting worse every minute. I get people saying that these companies are in the growth stage.

48:35But when all of them are unprofitable, even the unprofitable ones outside of OpenAI and Anthropic aren't really making much money, come on! This isn't anything like any boom that leads to something good or useful or profitable. And it's because the economics do not make sense. And that's before we get into OpenAI and philanthropic in the next episode.

49:01Thank you for listening to Better Offline. The editor and composer of the Better Offline theme song is Matt Ossowski. You can check out more of his music and audio projects at mattosowski.com. M-A-T-T-O-S-O-W-S-K-I.com. You can email me at ez at betteroffline.com or visit betteroffline.com to find more podcast links and, of course, my newsletter. I also really recommend you go to chat.wheresyoured.at to visit the Discord and go to r slash betteroffline to check out our Reddit. Thank you so much for listening. Better Offline is a production of Cool Zone Media. For more from Cool Zone Media, visit our website, coolzonemedia.com or check us out on the iHeartRadio app, Apple Podcasts, or wherever you get your podcasts.

50:06We'll be right back.

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