[00:00:09] Morning folks and welcome to today's episode that I've called Sam Altman, 1985-2023. And I'm going to open up with an excerpt from a fantastic, really deep dive New Yorker article on Altman. Altman has a relentless will to power that even among industrialists who put their names on spaceships sets him apart. And according to an OpenAI board member, he's unconstrained by truth. He has two traits that are almost never seen in the same person.
[00:00:38] The first is a strong desire to please people, to be liked in any given interaction. The second is an almost sociopathic lack of concern for the consequences that may come from deceiving someone." Close quotes. So in this episode, I'm looking at Altman's progression from app developer to a massively successful investor. I mean, eventually he accumulates a fortune of over $3.5 billion just from his investments.
[00:01:07] And then taking over and growing Y Combinator, which is the most influential incubator for startups. And then battling Elon Musk to eventually take charge of OpenAI. And by the time we get to the end of the episode, again, just in 2023, at the age of just 38, he's become one of the most influential and powerful people in business and technology. It is a cracking story. Enjoy.
[00:01:38] So Sam Altman was born in Chicago, April 1985. He's the eldest of four children, two brothers and a sister. His mother's a dermatologist. His father's a real estate broker. And when he's just four, the family moves to Clayton, Missouri. They live in a pretty affluent neighborhood. He's precocious, intelligent. On his eighth birthday, he gets an Apple Mac. And like a lot of the tech entrepreneurs that I've covered, he just immerses himself in the computer.
[00:02:07] He learns how to code. But he also says it becomes a lifeline because Altman, he realized at a very early age that he was gay. And as he said himself, and I quote, open quotes, He enters a private school in 1997.
[00:02:33] And while he was there, when he was 16, a Christian group in the school, they boycotted an assembly about sexuality. And Altman stands up in front of the entire assembly, announced that he was gay, and then challenged his fellow students. More or less saying, do you want the school to be a repressive place or an open place? And he got a standing ovation. And here's a quote from the school counselor. Open quotes.
[00:03:02] What Sam did changed the school. It felt like someone had opened up a great big box full of all kinds of kids and let them out into the world. Close quotes. And look, regardless of whether or not you like Sam Altman, doing what he did back then in 2002, at the age of just 16, it took guts. And you can see right there that he had this leadership potential.
[00:03:30] He goes on to Stanford in 2003 to study computer science. But apparently he spent a lot of his time playing poker. And he credits poker with teaching him pattern recognition, decision making with incomplete information, how to read people. But then in his second year, he comes across an essay that changes his life. It's called How to Start a Startup. And it's written by Paul Graham. Now, I've already done an episode on Paul Graham.
[00:03:59] He is a fascinating character. So, in short, Graham was, and I suppose kind of still is, this extremely well-regarded coder, blogger, entrepreneur. And in the late 90s, he sold his internet company to Yahoo for $49 million. And as a result of his experience with his own startup, he came to the conclusion that VCs weren't always the best route for a startup.
[00:04:25] Because VCs have business models that require them to invest large sums. And not necessarily because startups need that much, but because that's what their fund structures dictate. And of course, this can then lead to startups receiving more money than they actually need, which in turn pushes them towards these unsustainable growth strategies. And also, in return for the investment, the VCs take a lot of control.
[00:04:51] And in Graham's view, most startups don't need that much money. They need guidance, mentorship, more than anything else. And Graham also felt that it was vital for the founders to stay in control. So, I actually agree with a lot of what Graham was saying. So, in 2005, Graham, with a few other people, startup Y Combinator. It's known as YC with $200,000.
[00:05:16] And over the last 20 years, YC has invested in over 5,000 startups. And these companies that they've invested in collectively hold a combined valuation well above $600 billion. Notably, more than 400 of these companies are valued at over $100 million. And they have over 100 companies that have achieved valuations in the multi-billion dollars. You've got Airbnb, Stripe, Coinbase, DoorDash, Dropbox. So, massive success.
[00:05:46] Anyway, when YC launched their first program in the summer of 2005, they announced a summer founders program. It was offering young teams $6,000 per founder. Also, hands-on mentorship over three months. And dinner every Tuesday night in Graham's kitchen. And in return, YC took roughly about 6% equity. Now, YC's average ownership of its companies gets diluted by subsequent venture funding. And it is usually left with around 3% equity.
[00:06:16] Now, Altman and his boyfriend at that time, Nick Sivo, they were working on an app called Loot. It was, I suppose you'd call it an early social networking app that allowed users to see their friends' real-time locations on a digital map using basic cell phones. Because this was two years before the iPhone was even launched. And Loot was accepted into the first batch of eight startups by Paul Graham's YC. And within that fund also was Redis.
[00:06:43] So, in June 2005, at the age of just 19, and in classic Silicon Valley tradition, Altman drops out of Stanford and he moves to Cambridge, Massachusetts, where YC is based. And apparently he works so relentlessly that summer that he develops scurvy from eating almost nothing but ramen. And Paul Graham wrote that Altman has, and I quote, the kind of ambition that you don't see often. Close quotes.
[00:07:13] Now, one of the key elements of YC is Demo Day. This is where the founders present their companies to an audience of invited angel investors and VCs. Now, for the first ever Demo Day for that first batch, there were just 15 angel investors, no VCs. And Loot was by far the star. It generated the most interest. Now, I couldn't find out exactly how much angel investment Loot got on their Demo Day.
[00:07:39] But the hype around the app led them to a $5 million investment from Sequoia Capital a few months later. And over the next few years, Loot raised a total of just over $30 million. Now, its success in fundraising was mainly put down to Altman's persistence. Or to quote him, the way to get things done is to be really fucking persistent. Close quotes. In terms of his leadership style, his staff really, really liked him.
[00:08:08] But some did mention his tendency to exaggerate. And here's a quote from one employee. There's a blurring between, I think I can maybe accomplish this, and I have already accomplished this. Close quotes. And this pattern, you know, you might call it exaggerating. Others, however, accuse Altman of being duplicitous or outright lying.
[00:08:32] It resulted in the boards of Loot considering removing Altman altogether because concerns were raised about how he was reporting user growth numbers. But because Altman inspired fierce loyalty amongst employees and board members, he wasn't pushed out. Anyway, the long and the short of it is that Loot didn't really break through. But Altman did eventually sell it in 2012 for $43 million.
[00:08:59] Like, not a great ROI for anyone, but Altman does cash out with $5 million. So, not bad. Now, crucially, while all of this was going on, Altman gets involved in angel investing. And he's pretty good at it. Like, for example, he gives a $15,000 check to the Collison brothers. They're the founders of Stripe, Irish like myself. But before Stripe is even officially incorporated, it was in the YC class of 2010.
[00:09:28] And Altman got a 2% stake. Stripe, at the time of recording, is worth $159 billion. Now, that would have been diluted over the years. But according to the Wall Street Journal, that Stripe investment is still his single best investment. Which says something. Because as we'll see, he has made some really, really good investments. So, he puts most of his looped money into a venture fund called Hydrazine. And he raises a total of $21 million.
[00:09:57] His $5 million and the rest of it mostly comes from Peter Thiel. And the strategy of this fund is that 75% of it will be invested into YC companies. By 2014, he's invested in 40 companies. And five of them have increased in value by 100 times or more. Companies like Airbnb, Pinterest, Instacart, Zenefits. We already mentioned Stripe.
[00:10:21] In total, over the last 15 years, Altman has invested in over 400 companies. And at the time of this recording, those investments are worth about $3.5 billion. Now, as a result of all of these early investments, mostly with YC companies, Altman is spending more and more time at YC. And Paul Graham is very impressed with him.
[00:10:45] For example, Graham has written that the two founders he most often referenced when advising startups were Steve Jobs and Altman. Open quotes. On questions of design, I ask, what would Steve do? But on questions of strategy or ambition, I ask, what would Sam do? Close quotes. And here's another great and I think very prescient quote from Graham. Open quotes.
[00:11:12] Sam is extremely good at becoming powerful. You could parachute him into an island full of cannibals and come back in five years and he'd be the king. Close quotes. And so, in 2014, when Graham and his wife decide to move to the UK, Altman was named as president of YC. And he is hugely ambitious for YC. His aim is to grow it tenfold. He launched a $700 million continuity fund.
[00:11:41] This allowed YC to back its graduates all the way to late stage growth rounds. And he starts really focusing on hard tech. Stuff like nuclear fusion companies, deep science, AI. Because he realises that if you want to build multi-billion and even trillion dollar companies, you need to focus on major scientific advances.
[00:12:06] So, he more or less tells YC partners that the era of, I suppose, frivolous apps is over. And this leads to friction and some senior people leave YC as a result. Now, a defining moment in Altman's career happens in August 2014. And this is when Elon Musk tweets the following.
[00:12:36] Altman agrees. Both of them, they're specifically worried about Google's acquisition of DeepMind. Their worry is that a single corpus entity could control and monopolise AI. Then, in May 2015, Altman sent a late night email to Musk proposing that they build a Manhattan project for AI. Musk responds within two hours.
[00:13:03] The idea, he says, is probably worth the conversation. That July, Altman and Musk host a dinner at the Rosewood Sand Hotel in Menlo Park. Now, the people at this dinner include Patrick Collison, the Stripe co-founder, Greg Brockman, who at that time was Stripe's CTO. Ilya Sutskiver, I hope I'm pronouncing that right. He was a star researcher at Google Brain. Dario Amodi, he was also at Google. And there are a handful of others.
[00:13:33] Now, Altman and Musk's pitch to the researchers was more or less, we will give you the resources of a massive corporation, the computers, the salary. But the mission of a non-profit. You won't be building products for Google. You will be building AGI or Artificial General Intelligence for everyone.
[00:13:53] And the focus of this pitch on safety, this is vital because these star researchers were and are very concerned about the negative impact of AGI. Now, that December 2015, OpenAI was formally announced as this non-profit AI research company with the pledge of $1 billion. But it's got to be made clear.
[00:14:22] The actual cash that flows in over the following years is about $130 million. $38 million come from Musk. $10 million comes from Altman. And the rest comes from a group that included the likes of Reid Hoffman, Peter Thiel and many, many more. So the billion dollars is a commitment. And Musk promised to fund any shortfall on that commitment. In terms of actual structure, you have Musk and Altman are the co-chairs.
[00:14:50] Brockman leaves Stripe and he becomes the CTO. And Ilya Sutskiver is the research director, while Amodi was the lead for AI safety. And at this stage, there isn't a CEO. And this, again, it's as a result of their concerns with safety.
[00:15:08] The founders, they wanted to avoid the normal Silicon Valley or any company model of a single all-powerful CEO who's driven by aggressive commercial incentives. Because remember, this is a non-profit. And here's a quote from Sutskiver explaining why a CEO role isn't suited to take charge of open AI. Open quotes.
[00:15:55] Close quotes. And I understand where he's coming from here. The personality traits required to be a great CEO, ambition, political maneuvering, even ego an awful lot of the time. They were the exact opposite of the traits required to safely manage artificial intelligence. Like humility, caution, transparency.
[00:16:22] Now, the first trouble in open AI, it starts in mid-2017, when the researchers build a boss that beats world-class players at Dota 2, a very complex computer game. I'm not a gamer, so I have no idea what Dota 2 is. But it cost them around $30 million to achieve just this. So, to move forward, they realise that they're going to need a lot of money. And this then opens up the conversation about becoming a for-profit company.
[00:16:50] And this then turns it into a brutal three-way power struggle between Musk, Brockman and Altman, which is now playing out in the courts at this very moment while this is being recorded. So, Musk's solution back in 2017, when this was first raised, is to merge OpenAI into Tesla. And he demands a 60% equity stake and absolute control.
[00:17:14] His leverage is that he is withholding the $870 million of the $1 billion pledge that's left. But the board doesn't like it, so in February 2018, Musk walks away. Now, at this stage, Greg Brockman is more or less running OpenAI. He's described as being obsessive, brilliant, routinely working 100-hour weeks. But his leadership style is also described as being abrasive and very narrowly focused.
[00:17:44] And crucially, at a time when they need to now raise money, he's not seen as someone who can charm investors. Whereas Altman can. He has the experience. And so, in March 2019, Altman becomes CEO. And he's backed by Brockman and Sutskiver because he apparently gives them a private assurance. And this is a quote from Brockman. He unilaterally told us he'd step down if we ever both asked him to. Close quotes.
[00:18:14] Now, while all of this is going on, we have to remind ourselves that Altman is still in charge of YC. And there were allegations now within YC that he'd been consistently lying about his time commitment. And using the YC brand to prioritize his own investments. And this leads Paul Graham to ask Altman to choose between YC and OpenAI.
[00:18:40] Now, publicly, it's always appeared as if Altman's parting from YC was amicable. And Graham even writes a tweet in 2024 confirming that he would have liked Altman to stay. However, the detailed New Yorker article on Altman has the following. Open quotes. Graham told YC colleagues that prior to his removal, Sam had been lying to us all the time. Close quotes.
[00:19:07] Anyway, Altman leaves and now he can devote most of his time and attention to OpenAI. And it's also at this time that ideological fault lines are opening up within OpenAI. Altman later describes these factions in internal emails as two tribes. One tribe is focused on safety.
[00:19:31] The other, of which Altman is now aligned to, argues that the only path to safe AI is to keep building, keep deploying and learn from what happens. So this is definitely a shift in position for Altman. And it's a shift away from OpenAI's initial foundations where, you know, safety took a priority. In March 2019, Altman announced a radical restructuring.
[00:20:00] OpenAI creates a for-profit subsidiary, which is controlled by the original non-profits. And the structure is called capped profits. So in other words, investors can receive returns of up to 100 times their investment, with anything beyond that flowing back to the non-profits. And the logic is kind of straightforward. You can't train AI advanced models on charitable donations alone. You do need serious capital. And investors, of course, will require a return on investment.
[00:20:31] Now, Dario Amodi was the key person behind the safety tribe. And he had started questioning the motives more openly. And here's a quote. He said, everything was a rotating set of schemes to raise money. I felt like what OpenAI needed was a clear statement of what it would do, what it would not do, and how its existence would make the world better. Close quotes.
[00:20:57] Now, he had every right to be suspicious of both Altman and Brockman's motives. I mean, Altman because he was shifting his position. And as for Brockman's motives, well, here's what he wrote in his diary in 2017. So what do I really want? Financially, what will it take me to get to $1 billion? Close quotes. So that's from Brockman's diary.
[00:21:23] And that's not a great look for someone who was publicly claiming that his priority was to develop safety-first AI through a non-profit company. So Amodi, he decided to write a charter for the company with numerous safety provisions. And when he brought the charter to Altman, Altman assured him that he fully backed the most important provisions within the charter and that they were non-negotiable.
[00:21:49] Then in July 2019, Altman announced that Microsoft was investing $1 billion in OpenAI. And the structure of the deal is really worth looking at. I'll try not to get too technical, but these points are important. So in exchange for that billion, Microsoft gets two very important things. First of all, OpenAI commits to use Microsoft's Azure as its exclusive cloud provider. Which means almost all of Microsoft money flows straight back to Microsoft's own servers.
[00:22:17] Because that's where most of the money is going. So it's basically a closed loop. So good move for Microsoft. Second, Microsoft gets exclusive commercial rights to OpenAI's models. Now, there's one more clause worth knowing about. This is the AGI clause. So Microsoft's commercial rights automatically expire the moment OpenAI's board decides they've achieved artificial general intelligence.
[00:22:45] So a system that can do essentially anything a human mind can do. And so this clause is built as a safety tripwire. If something that powerful ever gets created, it shouldn't be owned by a corporation. But here's where it gets a bit messy. As part of the Microsoft deal, there was a change to a certain clause. And this was a vital clause for a Modi. It was called the merge and assist clause.
[00:23:12] So the main thrust of this clause was that if any other company got closer to AGI first, then OpenAI would stop competing and would join with that company to help them create the AGI safely. So it was a kind of a peace treaty for the AI race. But now Microsoft had the power to block any such merger. And for a Modi, as I said, this merge and assist clause was vital.
[00:23:40] This was the very thing that prevented ADI development from becoming this winner takes all race, where safety gets sacrificed for speed. And now it was gone. And he later said that 80% of the charter had been betrayed when they did this deal with Microsoft. Now look, maybe a Modi's view is idealistic. Maybe he's being overcautious. But when I hear the likes of JD Vance say, open quotes,
[00:24:09] the AI future is not going to be won by hand-wringing about safety, close quotes, I get worried. And look, I'm not an AI expert. Most of us aren't AI experts. So we need to listen to the experts, not to JD Vance, not to David Sachs. And the AI impact survey was probably the most detailed survey done, where they surveyed 2,778 AI experts.
[00:24:37] And that research found that 34% of researchers believed there was at least a 10% chance that AI could lead to human extinction. And for me, that's enough to say, okay, let's be careful here. Because the point is, if the 64% who aren't worried are right, and there's no existential threat, then fine. Being cautious just slows us down a bit.
[00:25:06] Nobody dies. But if the 34% are right, not being cautious could spell the end of humankind. And look, I do understand that many will say that we've probably gone past the point of caution. It's like an arms race, and the US AI companies need to beat the Chinese AI companies. But the danger here is that with AI, if it's not regulated in some way,
[00:25:34] you're not just talking about countries. You've got individuals, terrorist groups. They'll all be able to use this powerful technology that might be capable of causing immense damage. So, this idea that we shouldn't be concerned about AI safety, I think it's just ludicrous. In this situation, it's way better to be safe rather than sorry.
[00:26:01] But look, I don't have the answers as to how this could be achieved. Anyway, Amodi confronts Altman after this deal. And he says that Altman lied, that Altman denied that the merge and assist clause even existed, despite Amodi showing him the actual text of the charter. So, this causes a huge rift, bitter infighting. Eventually, Amodi and his sister Danielle, who also has a very senior role in OpenAI,
[00:26:31] they leave and they launch Anthropic, the company behind Claude, which I must say, I'm beginning to really like. And full disclosure, I use ChatGPT, Gemini and Claude. And they all have their uses. But I've definitely found over the last three to four months that I'm using Claude a lot more than before and a lot more than ChatGPT. Anyway, in June 2020, GPT-3 is launched. And while it doesn't get a huge amount of mainstream coverage,
[00:27:00] the tech press are really wowed by it because it was very impressive, mainly because it showed that making models bigger doesn't just make them slightly better. It actually makes them significantly better in a very, very noticeable way. So, GPT-3, it laid the ground for what was coming down the tracks. And I'm pretty sure most of us remember this day. It was November 30th, 2022, ChatGPT launches.
[00:27:30] Within five days, it has a million users. Within two months, it has a hundred million users, making it the fastest growing consumer application in history. Here's a quote from Paul Krugman, Nobel laureate, New York Times columnist, open quotes, ChatGPT is a big deal. It's not just a toy. It's a tool that will change how we think, how we write, and how we teach. Close quotes. I remember using it for the first time
[00:27:57] and I was just blown away by it. Not just because of what it could do, which was really impressive, but because you just knew this was the start of something really, really big. And it's fair to say that at this moment, November 2022, ChatGPT became one of the most immediately transformative technologies. And Sam Altman, overnight, became
[00:28:25] one of the most powerful and influential people in technology and business. And he leans into it big time. He goes on a global tour, meeting heads of states, regulators, technology ministers in places all around the world. And he's positioning himself as this bridge between the AI industry and world governments. And, I gotta say, he does a good job. For example, when he's before the Senate Judiciary Committee in May 2023,
[00:28:55] he's asked if he's made a lot of money and he replies, I have no equity in open AI. I'm doing this because I love it. And it's true in that he doesn't have equity in open AI. But having said that, he does have equity in companies that will go on to make a lot of money from open AI. For example, he's the largest shareholder in Helion or Helion Energy and nuclear fusion startup. And at the time of this recording, they're in talks to sign a multi-billion dollar deal with open AI. Anyway,
[00:29:24] back to the Judiciary Committee. Altman went on to say, open quotes, My worst fears are that we cause significant harm to the world. I think if this technology goes wrong, it can go quite wrong. And we want to be vocal about that. Closed quotes. He even proposed a new federal agency to oversee advanced AI models. So, this all lands really well because you have Altman with apparently no direct financial interest in open AI,
[00:29:53] refusing to sugarcoat the danger. he's not playing the techno-optimist. He's playing the realist. He's the responsible adult warning about his own product. And this becomes the initial narrative around him. Yes, behind closed doors, within open AI, Altman by this stage is now very much on the opposite side of the safety debate. And here's an excerpt from an email sent by Jan Leek,
[00:30:22] one of the world's leading researchers in AI alignment who has a very senior position within open AI. And he sent this email after the release of GPT-4, just a few months after ChatGPT was launched in March 2023. So, this is before Altman appeared at the Senate Judiciary Committee. Open quotes. Open AI has been going off the rails on its mission. We are prioritizing the product and revenue above all else, followed by AI capabilities, research and scaling,
[00:30:52] with alignment and safety coming third. other companies like Google are learning that they should deploy faster and ignore safety problems. Close quotes. So, I'm reminded of the words of Sutskiver when he referred to the kind of person who wants to be the CEO of a company that has such a powerful technology. I mentioned it earlier in the episode, but it's worth quoting it again. Open quotes. The people who end up in these kind of positions are often a certain kind of person.
[00:31:22] Someone who is interested in power. A politician. Someone who likes us. Someone who just tells people what they want to hear. Close quotes. And look, I do understand that Altman is in an extremely tricky position. You know, they started with great intentions of being a non-profit and expected that they get to where they want it to be by staying a non-profit. But then reality gets in the way. They needed investment and investors want a return on investment.
[00:31:52] I get that. And as a result, Altman has had to balance safety issues with commercial interests. And this is a really hard balancing act. As he said himself, open quotes, this was the most fun job in the world until the day we launched ChatGPT. Since the launch, the decisions have gotten very difficult. Close quotes. I understand that it's easy to be idealistic when you're not the one responsible for thousands of employees, the one who has to answer to your investors.
[00:32:22] So I get all of that. And I'm going to have at least one more episode on Altman where we'll get into his dramatic firing at the court case with Elon Musk and we'll be able to get maybe a clearer picture of his character. But based on what we know of Altman now up to 2023, we know that he's very, very smart. We know that he's a very savvy investor. And we know in the words of Paul Green that he's extremely good at becoming powerful. But also, according to those who have worked closest with him,
[00:32:51] he's duplicitous. He's untrustworthy. He's deceitful. And I just don't think I want a guy like that in charge of such powerful technology. Anyway, he does make for a fantastic business story. And this brings us to listeners' emails. And actually, this isn't an email. This is a comment that was left under the Bill Ackman episode by a listener called Yerone. He loved the Bill Ackman episode and would love to hear more like them, especially on the Tiger Cubs.
[00:33:21] These were the young recruits who started their career working in Julian Robertson's Tiger Fund. It's a great suggestion, Yerone. And I have them as well as Robertson on my list. And remember, if you have any comments, any corrections, or any story that you'd like me to cover, email me at info at gbspod.com. All the best, folks.