# Compute deposits can force startups to raise at huge valuations

Markdown copy of https://realalpha.app/s/compute-deposits-can-force-startups-to-raise-at-huge/ on Real Alpha, the best minutes from long interviews with the people building AI. Cite and link the page, not this copy.

- Speaker: [Evan Conrad](https://realalpha.app/builders/evan-conrad/) · Evan Conrad is CEO and co-founder of SF Compute. · Founded SF Compute, a GPU cluster exchange where buyers can resell unused compute time on contracts they can exit.
- Host: [Alex Konrad](https://realalpha.app/people/alex-konrad/) · Founder & editor, Upstarts Media · Ran Forbes' Midas List for ten years and co-created its Cloud 100 list; founded Upstarts in 2025.
- Show: Upstarts
- Episode: [The Accidental YC Founder Solving AI’s GPU Crisis | SF Compute’s Evan Conrad](https://realalpha.app/v/uYzQxxAD41g/), Oct 29, 2026
- Moment: 10:53 to 16:24 of the episode (6 min), playing on https://realalpha.app/s/compute-deposits-can-force-startups-to-raise-at-huge/; the episode from there: https://realalpha.app/v/uYzQxxAD41g/?t=653

## Quote

> “a **billion dollar valuation** right off the gate in order to pay for a big deposit, which then makes them, makes the whole thing financeable.”
> — [Evan Conrad](https://realalpha.app/builders/evan-conrad/) at [12:31](https://realalpha.app/v/uYzQxxAD41g/?t=751) · Upstarts

## Takeaways

1. Large labs can lock up capacity on lucrative long-term contracts.
2. New AI startups may need huge rounds to cover compute deposits.
3. A liquid market could let lenders focus on GPU value, not buyer credit.

## About this segment

Evan Conrad argues that clouds favor large labs because lenders cannot easily finance unproven customers. Startups then raise at ever-higher valuations just to cover deposits, limiting who can access compute.

From “The Accidental YC Founder Solving AI’s GPU Crisis | SF Compute’s Evan Conrad”, Oct 29, 2026. [Watch the full episode](https://realalpha.app/v/uYzQxxAD41g/)

## Transcript

Transcribed by machine (Whisper) from the episode’s audio, so a word may be off here and there.

[10:58](https://realalpha.app/v/uYzQxxAD41g/?t=658) compute access, right? Why are they not getting it done? If you were a GPU cloud today, you should be selling all of your capacity to the largest labs on a long-term contract. You will make unbelievable money doing that, like $50 billion of money doing that. Anything else is an afterthought. Trying to solve any of those problems is like a fool's errand if you were a normal cloud. Why aren't you just full-time selling to the labs yourself?

[11:26](https://realalpha.app/v/uYzQxxAD41g/?t=686) That's why this company is extremely difficult. We had to build all the capacity to become a GPU cloud, and then we had to decide not to become a GPU cloud. It's why we say that we have no competitors, because anyone who competes with us is basically stupid. But what makes you smart? Most of the time, it was just because we didn't have any other better option. For the majority of the company, it was that we were going to go bankrupt if we didn't do it.

[11:47](https://realalpha.app/v/uYzQxxAD41g/?t=707) Now, I think it's basically like, okay, we know that this is our path. We would like to solve this problem. If we don't solve this problem, what happens is all of the capacity in the world gets locked up by only a few buyers without a grid, without something like this. What happens is every AI lab, when they need to start, has to pay for a massive deposit. They have to pay for that massive deposit because they have no credit.

[12:11](https://realalpha.app/v/uYzQxxAD41g/?t=731) And so when the GPU cloud looks at them, they go back to their bank and they say, I would like to finance a new cluster. Can I finance it with this customer? And the bank looks at the customer and says, that is a two-person AI lab in a San Francisco Victorian. In order for them to actually get the cluster, the two-person... AI lab in a San Francisco Victorian, the new startup, has to go out to the venture capitalists and has to raise, you know, a billion dollar valuation right off the gate in order to pay for a big deposit, which then makes them, makes the whole thing financeable. This is the current state of the market. As we scale up into superintelligence, that's only going to get worse.

[12:49](https://realalpha.app/v/uYzQxxAD41g/?t=769) So, you know, a year or two ago, it was a hundred million initial valuation. Now it's like a billion initial valuation. It's going to be five billion and it's going to be 15 billion and it's going to be 30 billion and at some point it's going to become unreasonable that you cannot actually do that the way to solve that is you have to make it possible for the lender to think okay i know what this asset this gpu cluster is worth in the future and so i don't care about the credit risk of the buyer i don't care that it's a two-person ai lab because if you're not selling to the two-person ai lab you're going to sell to somebody else because this thing has an actual asset value that's what we're doing. If there's not enough compute, if the AI labs have a rapacious appetite for compute and can pay top dollar for that compute, what drives you to not just create a more efficient

[13:42](https://realalpha.app/v/uYzQxxAD41g/?t=822) market to funnel them even more compute and maximize your own profits in doing so? We expect at some point to sell to Frontier Labs. The thing we want to make sure happens is that that capacity is liquid. It's available to be sold to other people as well. I hear you. But are you intentionally arming the rebels or are you arming the rebels as just sort of the way to get started to kind of get to the scale that you did out of necessity at first?

[14:09](https://realalpha.app/v/uYzQxxAD41g/?t=849) We're intentionally arming the rebels to some extent. The thing we want to make sure is that if you were starting June Lark today, June Lark was our AI lab, you would actually be able to do that. Right now, what happens is the only way you're going to start something like June Lark today is you go out and you raise a billion-dollar valuation right out the gate. Right now, we're living in the good times.

[14:29](https://realalpha.app/v/uYzQxxAD41g/?t=869) We're living in super high valuations are possible, markets are hot. That's not going to be sustainable for a long period of time. We don't think that's possible. When it is no longer sustainable, what that means is all of the startups that could have existed are impossible to start because you can't go get a cluster. You can't raise money for the deposit. Therefore, you don't exist. We would like it to be possible for startups to exist.

[14:54](https://realalpha.app/v/uYzQxxAD41g/?t=894) And so from our perspective, we were like, okay, step one, make June mark. Oh, fuck. okay, well, I guess if we don't make this, we can't go and make DuneLark. Like, it won't exist. Like, it won't be possible to make. That was basically our logic. That if you don't solve this problem, there isn't another startup that we could do. But the hope is to empower more DuneLarks, not just more power law, like, big lab winners, basically.

[15:19](https://realalpha.app/v/uYzQxxAD41g/?t=919) I think the big labs have the same problem. They just have it at a bigger scale. If you look at, like, XAI, XAI is the situation in which you overbuilt compute, and then they were forced to sell it. The reason why they could sell it is they owned the hardware. They bought it. And so they had the residual value on that. If you were in a lease, you would not necessarily be able to sell that capacity, which is what happened to many AI labs.

[15:42](https://realalpha.app/v/uYzQxxAD41g/?t=942) They bought a lease of capacity, and they were not allowed to sublease that capacity. They were not allowed out of that. Even if they were able to sublease that capacity, they personally had to go find the subleaser. And because nobody's quite sure if you personally will be able to find the subleaser, This has lots of downstream effects against the lender who's worried that you're going to sell this capacity to someone who needs to sublease at all, who's in a not necessarily great situation.

[16:10](https://realalpha.app/v/uYzQxxAD41g/?t=970) And because they're worried that, oh shit, these people may not be able to afford this in the future, they're going to ask you to pay a big giant deposit to de-risk them, or they're going to not sell it to you.