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Sam Altman makes ‘mic drop’ offer to every Y Combinator startup

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During a Y Combinator event on Tuesday night, Sam Altman had what YC partner Tyler Bosmeny called a “mic drop moment.” Altman offered $2 million worth of OpenAI tokens to every startup in the current class in exchange for equity in the startup.

In other words, he promised that OpenAI would invest in the whole class, not with cash but with an allotment of AI tokens that startups can use to build their products.

Y Combinator has about 169 startups in this cohort, according to its directory.

As for how much equity each startup can expect to give up, that can’t be determined at the time it signs the deal. It will depend on how much the startup is worth when it raises its first priced round — a funding round in which investors assign the company a formal valuation.

Y Combinator Managing Director Jared Friedman tells TechCrunch that the deal will be offered as an “uncapped SAFE,” meaning, “it will convert in the next priced round, which is typically the Series A,” he said. 

A SAFE is YC’s standard agreement structure for its early-stage companies that raise money before their first “priced” rounds with valuations involved. An uncapped SAFE doesn’t set a ceiling on that valuation, which can benefit founders because the higher the valuation at conversion, the smaller the slice of the company the investor receives.

We’ve seen some discussion on X that this deal could amount to OpenAI holding about 2% equity should a startup hit a $100M valuation, though without seeing the actual terms, we can’t verify that.

For OpenAI, the deal works on two levels. Obviously, it gains equity in this crop of early-stage companies, meaning it profits if they succeed. But it also encourages them to build their business on and with OpenAI. Whether this locks them in for the long term or not, it does mean that they won’t default to OpenAI’s competitors, like Anthropic’s Claude Code.

The tokens themselves may sweeten the deal further: as inference costs continue to fall, what OpenAI is giving away today could cost it very little to produce tomorrow — making the equity it receives in return look increasingly cheap.

Unsurprisingly, there’s already plenty of commentary on X on why this is, and isn’t a good deal for startups.

The pro-deal folks believe the deal helps startups eliminate one of their biggest costs — AI infrastructure bills, which can spiral fast and consume a disproportionate share of an early-stage startup’s budget at a time when money, typically, is already scarce.

The buyer-beware folks have other warnings. Seed investor Jason Calacanis — who has his own competing accelerator and fund — went for the be-afraid-of-Big-Tech warning.

“If you take these tokens, there’s a non-zero chance that OpenAI will study exactly what your startup is doing, copy your idea and put your app into their free offering. This is the classic platform playbook — be careful, founders!” he posted.

The fear that OpenAI and Anthropic could swallow every good AI startup idea is real.

The truth is, should OpenAI want to do that, it can, even when startups simply pay OpenAI for the tokens. By taking an equity stake, OpenAI may have more incentive for the startup’s success, not less.

Plus, as the former head of Y Combinator and a recurring guest speaker, Altman has as much access to every cohort and its ideas as he wants, deal or not.

The bigger question for this YC batch is whether a budget of tokens from a single AI player is worth giving up additional equity. Y Combinator already takes a 7% stake for a $500,000 cash investment in its standard deal. In exchange, startups get access to YC’s powerful Silicon Valley network of VCs, potential customers, and other founders.

But equity is also precious for startups. Seed investors frequently take 20% or so, too. And startups need equity as compensation for their early employees.

The bigger danger is that a startup will blow through its OpenAI token budget without enough to show for it, having surrendered equity in the process. Still, that may be better than paying for the tokens with cash, an even scarcer resource at that stage.

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Federal judge calls Flock ‘indiscriminate mass surveillance’

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A federal judge ruled this week that a Tulsa, Oklahoma sheriff’s deputy violated a woman’s Fourth Amendment rights when using Flock Safety to search for her license plate without a warrant. 

As reported by 404 Media, this ruling does not create a binding precedent, but it is one of the first times that a federal judge has ruled that a Flock search is unconstitutional.

In this case, Judge Sara Hill said the deputy should have obtained a warrant before searching the Flock database for the woman’s license plate, as he had “no apparent reason” for the search “other than the fact that [the woman’s vehicle] had a California license plate.”

The deputy then used the woman’s travel history in Flock as part of the justification for searching her car, where he allegedly discovered 91 pounds of meth. But Judge Hill wrote that all evidence obtained after the Flock search “must be suppressed as the fruit of a poisonous tree.”

Judge Hill also took broader aim at warrantless searches of the Flock database, writing that tracking people’s location — even when they’re in public places — becomes “constitutionally problematic when law enforcement can indiscriminately and passively catalog your whereabouts over an extended period of time and then use that information for any purpose whenever convenient.”

“This is a type of indiscriminate mass surveillance,” Hill wrote. “It is not targeted on a single individual, as in [Carpenter v. United States, a Supreme Court case focused on how government agencies access location data from cell phones]. It is a tool that collects information about all vehicles that pass by any network-connected camera at all times, and it serves up the information to law enforcement on demand.”

Hill joins a growing chorus of Flock critics from across the political spectrum. Numerous local and state governments, including Florida and Texas, have said they will stop using the technology. And on Friday, Senator Bernie Sanders — a Democrat from Vermont — introduced the Block Flock Act, which would bar federal agencies from using automated license plate readers such as Flock.

Flock CEO Garretty Langley — who we’ll be interviewing on-stage at TechCrunch Disrupt — has called for a “compromise” between privacy and safety and offered an apology to women who have been stalked by law enforcement officers using the Flock system. And with all those cancellations, Flock has also reportedly offered voluntary employee buyouts as a way to shrink its workforce.

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Amazon responds to data center backlash, says it no longer uses NDAs

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Amazon Web Services CEO Matt Garman said the company has stopped using nondisclosure agreements (NDAs) in its dealings with government agencies as it seeks approval to build new data centers.

Garman’s statement is just one sentence in a longer blog post in which he tried to push back against widespread suspicion of data centers, and to make the case that they’re actually good for communities.

NDAs are a significant piece of the broader data center backlash. For example, environmental activist Erin Brockovich recently said that the number one complaint she’s heard about data centers is transparency, with these projects following a common pattern: “projects announced after permits are already secured, developers who don’t return calls, local officials who signed NDAs before their neighbors knew a project was being considered.”

As a result of that backlash, New York announced a one-year moratorium on permits for large data centers, and according to Garman, there are more than 100 data center moratoriums currently being considered across the United States.

“If these measures are enacted, the U.S. could be writing its own losing ticket to this race, and the consequences would last generations,” Garman claimed. “As a country, we can’t afford to find ourselves in that position.”

Garman also attempted to puncture what he said are four big myths around data centers: that they consume too much water, that they increase electricity costs, that they emit an enormous amount of pollution, and that they don’t provide any benefits to their communities.

Pointing to an Amazon report about its own water usage, Garman said that “direct data center water consumption” only accounts for 0.5% of all industrial water usage in the United States, “orders of magnitude less than golf courses, almond farming, and many other industries.”

Nvidia recently said it’s eliminating “pretty much all water usage” inside a data center, but those claims — like Amazon’s — seem to ignore the broader water usage involved in electricity generation and chip manufacturing. Scientists have also said they need to study data centers’ water and energy usage independently, since there are no federal or state requirements around how tech companies report this data. 

As for electricity rates, Garman said they’ve only gone up in some states with large numbers of data centers, while they’ve gone down or at least grown more slowly in others. And he argued, “In instances where energy rates are going up, it’s primarily because the grid is old and hasn’t been invested in and expanded before the demand arrived.”

On the other hand, an independent watchdog said recently data centers were the main culprit behind a 76% year-over-year price increase on America’s largest electrical grid.

When it comes to pollution — an issue that the NAACP is currently suing Elon Musk’s SpaceX/xAI over — Garman complained that critics focus on the maximum amount of pollution allowed under data center permits. For example, a planned Amazon data center in Texas is permitted to release 33 million tons of carbon dioxide per year, which is more than any other power plant in the United States.

“The truth is data center generators almost never run,” Garman said. “They’re idle 99.9% of the time (they run roughly 10 hours per year, mostly for required maintenance testing).”

As for the community benefits, this is where Garman wrote, “We no longer use nondisclosure agreements with the government agencies we work with on our projects.” Plus, he said, “Over the past three years, Amazon has contributed more than $1 billion to communities across the U.S. in which we have a meaningful data center presence.”

Will this be enough to quell community suspicion? Perhaps not — Anthropic CEO Dario Amodei recently argued that the AI backlash is “fundamentally a crisis of trust,” where people assume governments and tech companies are always “cooking up some new way to screw them over.” Similarly, writer Jasmine Sun noted that when data center opponents are presented with the tech companies’ arguments, their response is usually, “I don’t believe them.”

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Amazon responds to data center backlash, says it no longer uses NDAs

Published

on

Amazon Web Services CEO Matt Garman said the company has stopped using nondisclosure agreements (NDAs) in its dealings with government agencies as it seeks approval to build new data centers.

Garman’s statement is just one sentence in a longer blog post in which he tried to push back against widespread suspicion of data centers, and to make the case that they’re actually good for communities.

NDAs are a significant piece of the broader data center backlash. For example, environmental activist Erin Brockovich recently said that the number one complaint she’s heard about data centers is transparency, with these projects following a common pattern: “projects announced after permits are already secured, developers who don’t return calls, local officials who signed NDAs before their neighbors knew a project was being considered.”

As a result of that backlash, New York announced a one-year moratorium on permits for large data centers, and according to Garman, there are more than 100 data center moratoriums currently being considered across the United States.

“If these measures are enacted, the U.S. could be writing its own losing ticket to this race, and the consequences would last generations,” Garman claimed. “As a country, we can’t afford to find ourselves in that position.”

Garman also attempted to puncture what he said are four big myths around data centers: that they consume too much water, that they increase electricity costs, that they emit an enormous amount of pollution, and that they don’t provide any benefits to their communities.

Pointing to an Amazon report about its own water usage, Garman said that “direct data center water consumption” only accounts for 0.5% of all industrial water usage in the United States, “orders of magnitude less than golf courses, almond farming, and many other industries.”

Nvidia recently said it’s eliminating “pretty much all water usage” inside a data center, but those claims — like Amazon’s — seem to ignore the broader water usage involved in electricity generation and chip manufacturing. Scientists have also said they need to study data centers’ water and energy usage independently, since there are no federal or state requirements around how tech companies report this data. 

As for electricity rates, Garman said they’ve only gone up in some states with large numbers of data centers, while they’ve gone down or at least grown more slowly in others. And he argued, “In instances where energy rates are going up, it’s primarily because the grid is old and hasn’t been invested in and expanded before the demand arrived.”

On the other hand, an independent watchdog said recently data centers were the main culprit behind a 76% year-over-year price increase on America’s largest electrical grid.

When it comes to pollution — an issue that the NAACP is currently suing Elon Musk’s SpaceX/xAI over — Garman complained that critics focus on the maximum amount of pollution allowed under data center permits. For example, a planned Amazon data center in Texas is permitted to release 33 million tons of carbon dioxide per year, which is more than any other power plant in the United States.

“The truth is data center generators almost never run,” Garman said. “They’re idle 99.9% of the time (they run roughly 10 hours per year, mostly for required maintenance testing).”

As for the community benefits, this is where Garman wrote, “We no longer use nondisclosure agreements with the government agencies we work with on our projects.” Plus, he said, “Over the past three years, Amazon has contributed more than $1 billion to communities across the U.S. in which we have a meaningful data center presence.”

Will this be enough to quell community suspicion? Perhaps not — Anthropic CEO Dario Amodei recently argued that the AI backlash is “fundamentally a crisis of trust,” where people assume governments and tech companies are always “cooking up some new way to screw them over.” Similarly, writer Jasmine Sun noted that when data center opponents are presented with the tech companies’ arguments, their response is usually, “I don’t believe them.”

When you purchase through links in our articles, we may earn a small commission. This doesn’t affect our editorial independence.

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