Transcription
After the release of Chat GPT in 2022, OpenAI CEO Sam Alman became one of the most famous and powerful men in Silicon Valley. OpenAI was recently valued at $500 billion, making it the most valuable private company in history. Alman himself has an estimated net worth of $2.2 billion. Altman co-founded OpenAI in 2015. But where did Altman come from? How did he get to the position where he could found OpenAI? Alman doesn't even own an equity stake in OpenAI. His $2.2 billion net worth is from other investments he's made over the years.
In this video, we'll try to answer the question, who even is Sam Alman? How did he seemingly come out of nowhere to found one of the largest tech companies in the world? Understanding where your money comes from and where it goes is a big part of how people like Alman build their wealth. But most of us struggle to even track our basic spending. I definitely did until I started using today's sponsor, Monarch Money. Monarch Money is a unified financial dashboard that lets you link over 13,000 banks, brokerages, and institutions, so you can see your entire financial life in one place. It can track your credit score with helpful alerts, generate detailed custom reports, and even lets you collaborate with a partner or financial adviser without any friction. Monarch isn't just for budgeting, though it's great for that. It gives you a complete overview of your accounts, transactions, investments, and even physical assets like your car or home, so you can monitor things like equity and debt payoff progress. Unlike other apps, Monarch doesn't bombard you with ads, credit card pitches, or sneaky fees. It's clean, intuitive, and works beautifully on both desktop and mobile. Thousands of users have rated Monarch Money 4.9 stars for giving them clarity and control over their finances. If you want to try it out, you can get 50% off your first year with an annual subscription by scanning the QR code on screen or clicking the link in the description below.
Sam Alman dropped out of Stanford in 2005 at the age of 19. He dropped out to focus full-time on a startup he co-founded called Looped. He had good timing. That same year, an early internet entrepreneur named Paul Graham created Y Combinator. Y Combinator is a so-called startup accelerator. They provide seed funding and advice to young startup founders. The founders are typically recent graduates or even dropouts like Altman. Looped was one of the first startups that Y Combinator funded. Looped was a location-based social media app. It shows you where your friends are based on the GPS in their cell phones. The idea was that if you're walking around somewhere, you can see if any of your friends are nearby. You can also make posts about the locations you've visited. They intended to eventually monetize by allowing businesses to advertise themselves within the Looped app, kind of like what Google Maps does.
Between 2005 and 2012, Looped raised approximately $30 million from venture capital firms, including Sequoia Capital. Based on statements made by people who interacted with Alman at the time, his main talent was that he was very good at networking and convincing people to sign deals with him. For example, in 2005, before Loop had even launched its app, he somehow convinced Boost Mobile to preload the app onto all of its cell phones. While Alman was very good at cutting deals and raising money, his leadership of Loop raised concerns from many employees. During the period he was CEO of Looped, Altman was reportedly also working to develop a gay dating app. This was a side project he was doing, not owned or related to Looped. Alman allegedly diverted some of Loop's engineers to help him work on his unrelated dating app. These engineers were on Loop's payroll. Alman never launched his gay dating app. Looped was ultimately a commercial flop. It failed to gain traction with users. Its revenues were minuscule and it incurred operating losses during the entirety of its existence.
In 2012, Loop was acquired by a company called Green Dot for $43 million. This included $10 million which was paid to retain key Looped employees who were hired by Green Dot. So, the actual acquisition price paid to Loop's shareholders was $33 million. This was only slightly greater than the $30 million Loop had raised from venture capitalists throughout its lifetime. After the acquisition closed, Green Dot shut down the Looped app. They said they would utilize some of Loop's location technology. Acquiring Loop seemed like a strange decision for Green Dot to make. Green Dot's main business is selling prepaid debit cards. At the time, they were also developing a mobile banking app. They planned to integrate Loop's real-time location technology into their banking app. The idea was local restaurants and retailers would pay Green Dot to push promotions and advertisements to users when they're physically nearby. Eventually, Green Dot indeed launched a mobile banking app, but it does not appear to have any location-based features. I don't think Green Dot ever implemented any of Loop's technology, making the acquisition largely a waste. So, why did they do it? At that time, both Looped and Green Dot shared a major shareholder, Sequoia Capital. Sequoia Capital reportedly owned about 25% of Looped at the time. They also owned a significant stake in Green Dot. The Green Dot acquisition was organized by Michael Morris who was a partner at Sequoia. He lobbyied Green Dot to acquire Looped. Morris also had a close relationship with Sam Alman.
Remember that Loop got seed funding from Y Combinator. Alman developed a close relationship with Y Combinator's founder Paul Graham. Y Combinator had access to many lucrative investment opportunities. They incubated many startups which would go on to be very successful. Large venture capital firms like Sequoia often have difficulty finding such earlystage investment opportunities. Altman was able to get Sequoia access to investment opportunities in Y Combinator startups. For example, in 2009, Sequoia invested in the fintech startup Stripe, which turned out to be a huge success. Having an inside man at Y Combinator was very valuable to Sequoia. They were very grateful. It looks like Michael Morris returned the favor by lobbying Green Dot to acquire Looped. Looped was a commercial failure. Had it not been for the Green Dot acquisition, it probably would have gone bankrupt and been a zero. The acquisition really made no sense for Green Dot. Probably the only reason it happened is because Sequoia pulled some strings. Here we can start to understand Alman's skill set. His talents lie not so much in building anything or developing any new technologies. What he's really good at is networking, leveraging his connections, doing people favors, and getting favors back in return.
In 2009, a fintech startup called Stripe raised money from Y Combinator. When startups come to Y Combinator for funding, they typically receive very low valuations because most of the time the startup doesn't even really exist yet. It's just an idea from a few college grads. Y Combinator invests $100,000 or so for a few percentage points of equity in the startup. Most of the startups fail, but if they become big, Y Combinator's ROI can be insane because their cost basis was so low. When Stripe came to Y Combinator in 2009, Paul Graham instantly saw the massive potential of the deal. To fund the investment in Stripe, Graham did something very unusual. He invited Sam Alman to get in on the deal. Alman invested $15,000 of his own money for a 2% stake in Stripe. Alman's stake in Stripe is believed to be worth well over a billion today and probably accounts for about half of his current net worth. This was highly unusual. By this point, Paul Graham was a very rich man and Y Combinator was not short of funds. They didn't need the $15,000 from Altman. Furthermore, by this point, Sam Alman did not have any official role at Y Combinator. He was a CEO of Looped, a company which Y Combinator previously funded. It was highly unusual for Paul Graham to invite one of his previous investies to get in on a new investment. Paul Graham saw an amazing opportunity and let Alman get in on it because he took a personal liking to Altman. In addition to investing $15,000 of his own money into Stripe, Alman also introduced Stripe to his friends over at Sequoia Capital, buying himself a big favor from the powerful venture capital firm. Stripe became wildly successful. It is now one of the largest online payment processing companies in the world. Its private market valuation is reportedly $100 billion. Alman's 2% stake was diluted down over the years as Stripe raised more capital, but it's believed to be worth around $1 billion today, or about half of his reported net worth.
For some reason, Y Combinator founder Paul Graham took a liking to Altman. In 2009, Paul Graham published a blog post discussing the five most interesting startup founders over the past 30 years. The first four were the type of people you'd probably expect. Steve Jobs, TJ Roger, the founder of Cypress Semiconductors, Google's co-founder Larry and Sergey, and Paul Bukai, the guy who created Gmail. But his fifth favorite founder seemed a bit out of place. It was Sam Alman. He described Sam Alman as one of the few people with such force of will that they're going to get whatever they want. At this point, Sam Alman was a CEO of the failing location tracking app Looped. Hardly someone who should be put on the same list as the founders of Apple and Google. In 2014, Graham wanted to retire. He chose Sam Alman to replace him as president of Y Combinator. There was no formal search process. Graham reportedly did not even consider any other candidates. He only wanted Sam Alman to succeed him. Graham's liking for Sam Alman is very difficult to explain. Over the years, Y Combinator has incubated numerous extremely successful startups. Airbnb, Twitch, Reddit, and Stripe, just to name a few. If you just look at the performance of his startup, Alman was kind of a loser. Yet, he somehow became Graham's favorite.
Upon taking over, Alman made some big changes to Y Combinator. Under Paul Graham, Y Combinator mostly funded software and social media companies, startups that were trying to build a new app. Alman's ambitions extended far beyond just wanting to fund the next app. Shortly after taking over as president, he published a blog post saying why Combinator would shift his focus to breakthrough technologies. They started funding startups which can best be described as speculative science projects. For example, the synthetic biology company GKO Bowworks, the nuclear fusion startup Helon, the quantum computing company Regetti, and the supersonic airplane company Boom. To date, none of the hard science startups why Combinator has funded have produced a commercially useful product. Alman has zero formal education or experience in any hard science or engineering field. He studied undergraduate computer science for 2 years and created the looped app, which was a failure. As the president of Y Combinator, Altman sat at the top of Silicon Valley. This power seems to have expanded his ego. This motivated him to pursue science fiction investments like nuclear fusion and quantum computing.
One interesting thing about Sam Alman is that he is a doomsday prepper. According to a 2016 article by The New Yorker, Alman is scared that genetically modified viruses or a Terminator-like AI will cause an apocalypse. Alman claims to have stockpiled guns, gold, potassium iodide, antibiotics, batteries, water, gas masks, and a big patch of land in Big Su, California he can fly to on his private jet. To me, Alman's doomsday prepping isn't some quirky side note. It's part of the same worldview that led him to chase speculative sci-fi technologies. He seems genuinely convinced that civilization ending threats are right around the corner, but at the same time believes he can invest his way into breakthroughs that will save humanity. It's the same grandiosity expressed in two directions. Imagining himself among the chosen few who foresee the apocalypse and imagining himself as the visionary who will unlock quantum computing or nuclear fusion to avert it. In both cases, he assigns an outside significance to his own role in shaping the future. His doomsday prepping reads less like prudence and more like the flip side of his techno optimism, an almost mythic self-image where he alone understands both the dangers and the solutions.
In 2012, shortly after selling Looped, Albin created his own venture capital firm called Hydroine. He used some of the money he received from the Looped acquisition to fund Hydroine. He also received a sizable investment from PayPal co-founder Peter Teal. In total, Alman launched Hydroine with $21 million. Hydroine primarily invests in Y Combinator companies. Alman's investment strategy with Hydroine is as follows. Y Combinator invests in a bunch of startups. Most of them fail. A few years later, he checks and sees which of the startups are still alive and appear to be promising. Hydroine invests in the winners. Hydroine's notable investments include Reddit. They invested in the company's series B funding round. Reddit previously received a seed funding from Y Combinator. Hydroine has been extremely successful, yielding hundreds of millions of dollars of investment gains for Alman.
Sam Alman was a president of Y Combinator. Y Combinator also had about a dozen other partners. As president, Sam Alman enforced a policy whereby partners are not allowed to run their own venture capital funds. There was of course one exception to this policy. Sam Alman himself was allowed to run hydroine. The reason for this policy is obvious. All of the Y Combinator partners have a huge advantage in that they know a lot about the Y Combinator startups. If the other partners had their own VC funds as well, they could compete against Hydroine in subsequent funding rounds. Sam Alman wanted to keep these lucrative opportunities to himself.
In 2015, Alman convinced Elon Musk, LinkedIn founder Reed Hoffman, and a few other tech billionaires to fund his idea for OpenAI. Open AAI was originally a nonprofit. At first, Musk and Alman were co-chairman of the board. Musk wasn't able to devote very much time to Open AI. He already had multiple day jobs, being the CEOs of both Tesla and SpaceX. He eventually stepped down from OpenAI's board in 2018. Alman had a day job as well. He was the president of Y Combinator. Over the years, Alman would devote more and more of his time to open AI, neglecting his duties as Y Combinator President. By 2019, Alman's dereliction of duty had become so bad that his good friend Paul Graham could no longer turn a blind eye. Graham pressured Alman to step down. That same year, he officially became the CEO of OpenAI and signed a $1 billion comput deal with Microsoft. The rest is history.
If we look at the totality of Alman's career, it's frankly quite unimpressive. He dropped out of college to found looped which was a failure. The only reason he became president of Y Combinator is because Paul Graham happened to take a liking to him. He amassed a multi-billion dollar net worth. This came from his investments in Y Combinator companies including Stripe and Reddit. It would be unfair to credit his astronomical returns to investing acumen alone. About half of his net worth comes from Stripe. The only reason he had access to that investment opportunity is because Paul Graham decided to cut him in on the deal. Most of the rest of his gains came from hydroine. Hydraine had an unfair advantage because Alman banned all other Y Combinator partners from running their own VC firms, thereby reducing competition and allowing Hydroine to reap greater profits. He then maneuvered himself to become CEO of OpenAI by neglecting his duties at Y Combinator. Alman is not an AI expert. He was never the company's chief scientist. He was just better at office politics than anyone else.
All right, guys. That wraps it up for this video. What do you think about Sam Alman? Let us know in the comments section below. As always, thank you so much for watching and we'll see you in the next one. Wall Street Millennial signing