How CoreWeave finances GPUs through ring-fenced contracts

Transcript

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

1. 18:44

   that. Yeah. So CoreWeave has really been the innovator around a lot of the financing engines that have come to bear on this. We did the first GPU-based loans. And I think it's important, or I'm going to try to explain this in a way people can understand. So what we do is we go out and we find a client. Let's use Microsoft. You brought them up before, right? And Microsoft comes to us and says, we'd like to buy some compute for you. And we say, okay, great. We're going to sign a contract. Once I have a contract in hand, then what I do is I create something.

2. 19:19

   It's not a particularly creative name. It's called the box. And what I do with the box is I take my contract with Microsoft and I put it in the box. I go to Jensen and I buy the GPUs. I put it in the box. I take my data center contract. I put it in the box. And now the box governs cash flow. And it has a waterfall of cash flow that comes into it and goes out of it. And so the way it works is then I build the compute and then I deliver the compute to Microsoft and they pay the box. They don't pay me. Right. It goes into the box. And the first thing it does is it pays the data center. It pays the power bill. It pays the interest and the principal.

3. 19:58

   And then whatever's left. flows back to us, right? And so it is an incredibly well-structured, time-tested, pressure-tested vehicle to be able to borrow money against client paper and all of the other collateral around the deal, which is why CoreWeave, which is a company that many people haven't ever heard of, was able to go out and raise $35 billion in 18 months to build infrastructure at scale. But what's important to understand is the economics in this box are such that within two and a half years of a five-year deal we have paid for everything the principal has been paid off the principal has been paid off the interest has been paid off the return into the box is such that we are able to generate returns to our company at the box level which gives the most sophisticated lenders in the world whether it's banks or private

4. 20:58

   equity funds or whoever, confidence that they're going to be able to achieve the one rule of lending, which is give me my money back. Yes. It works better when that happens. So they look at this box and they're like, wow, we're really confident we're going to get our money back. And maybe they want 10 boxes. That's correct. And if any one box goes upside down, you can deal with it and it's not as acute. That's correct. And they don't cross pollinate.

5. 21:27

   They don't cause a contagion across the boxes. They're all independent and discreet, one. And number two is, as you do this and as you show the lenders how this financing tool and how this financing mechanism works, what they do is they continue to lend you money at progressively lower rates. And so when you think about our cost of capital over the last two years, we have dropped our cost of capital by 600 basis points. It is enormous. And so you're seeing a company that is driving its cost of capital down towards where the hyperscalers borrow, which will enable us to be able to be competitive with them over time. And we have been extremely militant and diligent about feeding, watering, and caring for those boxes so that we continue to have access to the capital markets in a way that allows us to build and drive our business.