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Comment by lotsofpulp | Hacker News Reader

Who is being harmed? Were the owners of Anthropic unable to refuse the deal?

It does create a misrepresentation of the valuation as AWS is able to represent the investment as the retail price ($2.7B) while actually they're only parting with the COGS for the AWS services (<$2.7B).

Isn't that just really shrewd investing on Amazon's end though? Just because you've identified the win-win doesn't mean it's illegal? In fact it's what investments should look like: companies that invest in other companies for the synergies.

It would be illegal if Anthropic can't sell those AWS credits on the open market which I'm thinking they can't. You're equating this to a stock swap but that is not the case.

It seems they could have made the same investment without the misrepresentation - or are you trying to say the misrepresentation itself is shrewd?

rubuquity’s comment said that it should be illegal; not that it was illegal. In order to close a loop hole or an unintended consequence one must first be aware of its existence. I don’t know enough about the topic but it does seem wrong, at a first glance, for this sort of accounting to be legal.

If the credits displace other paying retail customers, they're worth retail.

You could potentially file a securities fraud suit if you own Amazon shares (standing) and can find a firm willing to run with it. Not joking, that is the only path to recourse if you take issue with how this is represented.

(not legal or securities law advice)

> It does create a misrepresentation of the valuation

So the harm is that some massive VCs with billions of dollars to spend on their investments, might be a bit more confused about what someone else's "real" valuation is?

They are qualified investors. I think they can do the work on their own to correct it to the "real" valuation.

This is beyond the point, these practices cause economic bubbles and when such bubbles grow too much eventually they pop and a lot of other people pay the price.

Other firms who think that the price is too high could simply.... not invest in those companies.

I am not sure what is confusing about this. If a company is too expensive, the qualified investors who are spending their investment dollars are free to not buy equity in those too expensive companies.

They manage billions of dollars! I am sure they can figure out how much a company is actually valued! They aren't going to be "tricked" by some valuation scheme that randos are pointing out in HN comments.

Sure, it misrepresents the valuation in the same way that deal structuring (liquidation preferences/etc) does in cash investments. The valuation you get by multiplying the cash value of the investment by the equity that was sold is just a marketing number, it isn't inherently meaningful.

> It does create a misrepresentation of the valuation as AWS is able to represent the investment as the retail price ($2.7B)

Represent it where? In 3rd party journalists who cover it? Or on public market financial statements?

Assuming that Amazon got some shares based on the stated value, and if the value is misleading, they got more shares than they should.

It includes the profit-value, defined by Amazon itself, that Amazon is getting from running their own servers. Not the real, actual costs.

Taxes seem like one possibility for this to be taken advantage of. Invest $X, get $Y kicked back, but calculate losses or gains against the higher $X basis.

I would be curious to see an actual full accounting of a transaction like this if you know of one.

Does valuation have any legal implications or is it just a number people can pat themselves on the back for until they can't? Genuine question, I don't know (but you can probably guess what I suspect)

The investment value to Anthoropic, which is what matters, is $2.7b.

Fancy math, but this is still money that is reported, and accounted for in the earnings. So, it is the reality.

Investors of Amazon who are buying a false reality of AWS revenue growth.

How is it misrepresenting? Amazon didn't just give the money with one hand, and take it back with the other. They bought a stake in Anthropic, although no-doubt the bulk of that money will also come back as AWS revenue! Sounds like a double win for Amazon. There should also be a lot of future AWS revenue from inference, not just training.

I'm jealous of these companies that are able to invest in Anthropic, especially at current $18B valuation. FTX just sold 2/3 of their 8% stake in Anthropic at the same valuation, with the bulk of that going to a Saudi wealth fund, and some to Fidelity funds.

In comparison to Anthropic's $18B valuation, latest investment rounds in OpenAI are at $100B.

I'm curious which of these anyone here would prefer to invest in, at these valuations, if they were given a chance ?!

Having used Anthropic's products fairly extensively over the last few weeks, I would jump at the opportunity to invest in that company.

Claude 3 Opus has replaced ChatGPT for all of my use-cases to the extent that I'm probably going to cancel my GPT4 subscription. This is for web-based Python and JS work, so YMMV.

This is no different than investing in an internal effort.

Investing in an internal effort is an operational or capital expense that may do nothing if ineffective, decrease costs if effective, or create a revenue stream. These forced spending arrangements are revenue drivers. It is not the same.

It could be thought of as quantifying the investment. Investors don’t value internal investment at zero. A vague idea that there is more to come is why tech companies have large P:E ratios.

A stock’s valuation mostly consists of guesses about what the future will bring. Sometimes there are more numbers quantifying aspects of those guesses.

Revenue is supposedly about the present, though. If some of the revenue comes indirectly from AI companies spending Amazon’s money, it’s a little odd. Maybe not materially so, though, when total revenue is above $500 billion a year?

No it's not, because Anthropic's profit is reported by Anthropic, not incorporated into Amazon's books.

LPs of VC funds whose managers use a misrepresentative investment price to mark up their portfolio.

Thats why you look at the cash flow part of the financial statement.

How many LPs have access to a financial statement for all of the portfolio companies of their VC fund?

They are free to negotiate access. Otherwise, they can join the rest of us in buying SP500.

You clearly understand how these things work. We should defer to your brilliance for all of this.

I am willing to bet pension funds LPs have full rights to audit all financials and audits or portfolio companies. There will be no way to determine valuation of their investment if they can’t evaluated the underlying assets.

(1) Pension funds don't have LPs

(2) Pension funds often are LPs, and they're widely refereed to as "dumb money" because they would be the last entity to do anything remotely intelligent.

(3) Private companies often do not even produce the kind of information talked about here, let alone do they give it to their investors, let alone do those investors pass the information along.

If you are "willing to bet" on all those things, then I can see why casinos are so profitable.

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