Palihapitiya Estimates VC-Backed Startups Dominate Spending by Top AI Buyers
He argues the dollars circle between startups and appear as revenue used to raise more venture money.
All-In with Chamath, Jason, Sacks & Friedberg · AI Cyber Panic, Ken Griffin's Bubble Warning, The Fall of France?In an October 2026 podcast discussion, investor Chamath Palihapitiya, who leads research at the investment firm Social Capital, offered rough, back-of-envelope math that about 1% of companies account for about 90% of spending on AI tokens, the units customers buy to get answers from AI models.
Of that top slice, he estimates about 80% comes from unprofitable startups backed by venture capital. His claim is about spending by that top 1% of AI buyers, not about all recorded AI revenue.
The loop, as he describes it, starts with pension funds, foundations, family offices, and other large investors. They give money to venture capital firms, which put it into a young company.
That company spends some of the cash to grow, including paying another startup for AI. The second startup records that payment as revenue, shows fast growth, and then raises more money from the same venture firms.
He puts it bluntly: "75 cents of every dollar is actually just a startup sending it back and forth so that they can mark themselves up." Palihapitiya said, "For AI to really scale as a predictable driver of long-term earnings, it has to diffuse out of the startup ecosystem."
He compared the pattern to the early days of cloud computing, when startups were also the first big users of rented computing and storage from Amazon Web Services. The difference, he said, is that Amazon's cloud grew out of its retail business, which was already roughly breaking even on a cash basis, while today's loop depends on money-losing companies funding each other.
The spending data company Ramp, which provides credit cards and financial services mainly to startups, had not yet published the chart behind his math as of the Oct. 22 discussion, Palihapitiya said. But he said Ramp's chief economist texted him that his estimate that venture money accounts for 80% to 90% of spending by the top 1% was pretty much correct.
Questions people ask
What is venture capital?
Venture capital firms pool money from pension funds, foundations, family offices, and wealthy individuals. They invest that money in young private companies in hopes that a few grow enough to repay the whole pool.
What does mark themselves up mean?
Private startups are often valued based on how fast their revenue is growing. So higher revenue can support a higher valuation, which lets existing investors report a higher paper value and helps the startup raise its next round at a higher price.