VCs must beat public markets by 1000bps as AI startups pay the Mag 7 compute tax
FinanceYF5 · x · 2026-10-06
Part of a thread on AI investing:
On VC economics: nearly every AI startup today pays a compute and foundation model "tax" to the Mag 7 and cloud providers. LPs can simply buy those giants' stock directly without management fees or carry, so VC returns need to beat public markets by at least 1000 basis points to justify existing.
On the LP paradox: LPs want smaller funds and slower deployment, yet AI may be a generational platform shift requiring massive capital for compute. A VC that insists on slow deployment over years will find category winners taken by faster rivals while it hesitates.
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