Learn · a trick with a name
Circular Money
the customer is funded by the vendor.
When the vendor funds its own customer, the revenue is real on paper and circular in fact.
How to spot it
- Investors who are also suppliers or customers
- Cloud credits counted as revenue or investment
- Deals where money goes out and comes straight back
The one question to ask“Who is paying whom, and where did that money come from?”
At work
When judging an AI company's traction, ask what share of revenue comes from its own investors or partners.
Caught in the wild
Every time we've caught it so far. Try calling each one before you open it.
- TRUE, BUTMistral's €3 billion raise is being sold as a win for Europe's AI independence. Per Tech Funding News, the round hands equity to three of Mistral's own chip and cloud partners, Samsung, ASML and Nvidia, the same Nvidia whose GPUs Mistral took on an $830 million debt facility to buy back in March.
- TRUE, BUTNvidia's CFO says its AI money loop isn't circular. The chip it sells pays the rent that buys the chip.
- TRUE, BUTNvidia may buy into the company that turns Nvidia's chips into $750 million of "revenue."
- TRUE, BUTA former Bitcoin miner nearly doubled its valuation to 10.5 billion dollars in four months. One of the investors is Nvidia, which two months before writing the check signed the company to an agreement covering Nvidia hardware purchases.
- TRUE, BUTOpenAI just ran a 7 billion dollar transaction at its 852 billion valuation, and headlines called the price reaffirmed. The only disclosed buyer at that price since March was OpenAI itself.