A Booming Shadow Market of Sketchy A.I. Investments
Earlier this month, a self-identified venture capitalist and tech-startup adviser named Ash Arora went viral on X for a brag about A.I. investing: “Simply brokering an Anthropic secondary deal made me more money than my entire net worth from working in my 20s,” she wrote. Arora, who appeared on a European Forbes 30 Under 30 list in 2024, had apparently served as a middleman for a client buying equity in the A.I. giant, and had taken a hefty fee in return. Unfortunately for her, the online boasting invited scrutiny of that practice; one commenter wrote, “I assume she’s a licensed broker dealer. Otherwise; this is, of course illegal. @SECGov.” It’s unclear whether Arora is a licensed broker herself, or was working with one (she did not return requests for comment), but she soon deleted her post, and on May 11th Anthropic updated its guidelines for “Unauthorized Anthropic stock sales and investment scams” to read, “if someone purports to sell Anthropic shares without proper board approval, that transaction is invalid.”
There has long been a “secondary market” in startup equity, for buyers who want to grab a piece of a company before it goes public on the open stock market. A typical secondary-market deal might see an investment syndicate, in the form of a bespoke company entity called a special-purpose vehicle, or S.P.V., interact directly with a company’s founders or other stakeholders, such as early employees or angel investors, to arrange a purchase of equity. Currently, there’s a bonanza in the secondary market for A.I. companies, including Anthropic, OpenAI, and SpaceX, which recently merged with Elon Musk’s xAI, as those companies’ valuations have soared with a speed that the tech industry last witnessed during the cryptocurrency boom. Yet many of the investment deals on offer are sketchy and tenuously legitimate—the digital equivalent of a man in a trenchcoat offering his wares on the sidewalk. Mike Chan, who runs the venture-capital firm Deep Ventures, which invests in cryptocurrency and A.I. companies, told me that he’d been receiving a flood of e-mails in the last several months. “Some rando, from some emerging market somewhere, you’ve never heard of them, they’re saying they have access to some of the largest deals—the red flags go off,” Chan told me. His firm looked at a few of the offers for Anthropic equity but quickly backed off: “We said, ‘Oh, boy, this is getting crazy.’ ”
The deals as Chan described them are brokered by several layers of middlemen, like “Russian nesting dolls.” In a typical deal, Joe, a hypothetical Anthropic employee with a hundredth-of-a-per-cent stake in the company, might decide to sell his equity for a hundred million dollars, based on a reported valuation of a trillion dollars. A so-called “first-layer” S.P.V. would buy the equity directly from Joe and own it outright—that is a “clean” version of the secondary market, Chan said. A second-layer S.P.V. would invest money in the first S.P.V., and a third-layer S.P.V. would invest money in the second, making it three steps removed from Joe’s original equity. Many of the offers that Chan sees now are for third-layer S.P.V.s. “It’s ridiculous; you don’t even know what rights you have” as an investor, he said. As a third-layer S.P.V. holder, do you have any influence on when Joe’s bit of equity ultimately gets resold? Can it even be sold at all without the company’s approval? “People just want to throw their money in. They don’t read the fine print,” Chan said. As Gregory d’Incelli, the co-founder of Scenius Capital, a digital assets and blockchain investment firm, put it, “The structures become progressively more opaque as you continue to layer on different S.P.V.s.” Scenius has participated in A.I. S.P.V.s and developed others of its own, including for investing in a popular prediction-market company. D’Incelli continued, “You need to, at a minimum, verify—where’s the share certificate, how can you prove ownership?”
Venture-capital firms usually make the majority of their money from “carry,” a share of the returns on the money they invest. Many recent A.I.-S.P.V. offers instead come only with one-time set-up and broker fees, of the kind that Ash Arora bragged about, giving the dealmakers no long-term stake in the investments. The fees that Chan and d’Incelli have seen run fifteen per cent or more of the value of the investment, which is much higher than normal. “I would consider a five-per-cent fee pretty high,” Chan said. But the hype surrounding A.I. has created a “fervor around trying to get access, at almost any premium,” d’Incelli said, especially among Silicon Valley outsiders who have no obvious ways to get a slice of the pie. Chan said that he has seen first-layer A.I. S.P.V.s that require a ten or twenty-million-dollar minimum buy-in. A third-layer S.P.V., by contrast, might require only a five-thousand-dollar buy-in, drastically lowering the barrier to entry. (In theory, S.P.V.s still require buyers to be accredited investors.) A founder and investor in Belgium who has received second-layer offers, and asked that I use only his first name, Jan, described the situation to me as, “Your local butcher was sold the idea of being part of something big and shiny.”
It’s easy to see why even the most diluted investment deal might be tempting. Anthropic raised money at a three-hundred-and-eighty-billion-dollar valuation in February; just three months later, its price has more than doubled. Wary talk of an A.I. bubble has given way to a sense of unchecked bullishness as new data centers are rushed into construction to meet demand. Silicon Valley has already had the opportunity to load money into A.I. giants, as retail investors in the public markets—main street, not Wall Street—could only watch the boom from afar while wondering if A.I. was going to take their jobs. Sterling Crispin, an artist, software engineer, and digital gadabout, compared the third-layer A.I.-equity deals to the obscure cryptocurrencies that became investment commodities in recent years. If investing in a first-layer S.P.V. is akin to purchasing bitcoin, a buy-in with an air of legitimacy, then opting into a third-layer S.P.V. is people “hurling money at A.I. like it’s a shitcoin,” Crispin said.
The turbocharged A.I. secondary market is an extension of larger trends in financial gamification. Economics writers such as Kyla Scanlon have identified a “casino economy” made up of crypto, meme stocks, sports betting, and prediction markets. When gambling becomes the norm, taking risks in unproved investment channels start to look reasonable. Even within A.I., there are multiple modes of speculation. People can trade in equity shares on secondary marketplaces such as Forge or Hiive (which function as stock markets for startup investing), or profit from predicting price changes on blockchain-based derivatives platforms such as Hyperliquid. If A.I. is going to create a “permanent underclass,” as many prognosticators fear, then what choice is there but to try to cash in somehow while you can? As Chan put it, “Inflation’s crazy, housing prices are insane, people are discovering that the typical route of ‘Go to college, get a good solid job, then build wealth’ is really difficult nowadays.” As Chan sees it, one reason for the secondary-market fever is that OpenAI and Anthropic have stayed private for too long. By the time there’s an I.P.O., it might be too late for the little guy, because the hype-inflated valuations will have nowhere to go but down. “If and when these large companies go public at one-trillion-dollar valuations, retail is going to get hosed,” he said. “Because it’s just too high.” ♦