Microsoft is also a very large investor in OpenAI and a recent investor in Mistral, another LLM startup. The “$650 million” license fee is essentially a way to circumvent the growing hostility in Washington DC towards “big tech” companies buying “startups.” *This isn’t technically an acquisition, but it is a good way to get all its benefits.* If the DoJ had any real desire to do something meaningful, it would go after Microsoft. Otherwise, we are going to see this innovative technique become very common in Silicon Valley. Smaller public companies have been using this structure regularly for their “acquisitions”.
when you hammer a nail, the compression forces are huge, sending shockwaves through its body, but the duration of the loading is just a fraction of a second. Smash the nail hard enough and it doesn’t have time to buckle. Part of the reason for this is the strange behavior of metals when loaded. The load at which they deform can depend on how quickly that load is applied: the quicker it’s done, the more force a metal can resist without failing.
sometimes we use the same technology for centuries before we suddenly invent a new material or process, and realize that we need to adapt existing technology to suit. Other times, it’s the other way around: we invent a new technology, like the incredibly strong fiber Kevlar, and then find purposes for it—in this case, bulletproof vests.
Chesterton’s Fence, described by G. K. Chesterton himself as follows:There exists in such a case a certain institution or law; let us say, for the sake of simplicity, a fence or gate erected across a road. The more modern type of reformer goes gaily up to it and says, “I don’t see the use of this; let us clear it away.” To which the more intelligent type of reformer will do well to answer: “If you don’t see the use of it, I certainly won’t let you clear it away. Go away and think. Then, when you can come back and tell me that you do see the use of it, I may allow you to destroy it.”
Most private equity firms are paid on the 2-and-20 model: a 2 percent annual fixed fee on all the money it invests and 20 percent of all profits above a certain threshold. The United States taxes money made from investments—so-called capital gains—at a lower level than money made through ordinary labor, whether at a factory or in an office. The distinction is ambiguous and unfair, but even more so, private equity firms have convinced the IRS that their 20 percent income should be taxed at the lower capital gains rate than at the higher ordinary income rate.
First, because private equity firms own the companies they buy for just a few years, they must extract money from them exceedingly fast; there’s simply not much reason for them to consider the long-term health of the companies they buy. Second, because private equity firms invest little of their own money but receive an outsized share of potential profits, they are encouraged to take huge risks. In practice, this means loading companies up with debt and extracting onerous fees. And third, partly because legally separate funds technically own the companies, private equity firms are rarely held responsible for the debts and actions of the companies they run. These facts of short-term, high-risk, and low-consequence ownership explain why private equity firms’ efforts to make companies profitable so often prove disastrous for everyone except the private equity firms themselves.
Private equity firms are different from investment banks, which originally centered on helping other businesses buy one another or issue stock. They are also different from hedge funds, which tend to buy and sell public securities, such as stocks and bonds. Rather than buying individual securities, private equity firms buy whole companies. And rather than doing so on behalf of other businesses, they do so for themselves.
