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Dealmaker
On Monday, I reported how much OpenAI was spending on stock-based compensation. It’s a lot: $4.4 billion last year, or more than five times its stock-based compensation the prior year, amounting to a whopping 119% of revenue.  Stock-based compensation expenses typically don’t cut into cash flow until a company goes public, so startup founders and investors don’t spend as much time worrying about these costs. But these expenses can hurt investor returns by diluting their stakes when the company issues new shares to employees. 
Jul 8, 2025

Dealmaker

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Welcome back! This is Sri.

On Monday, I reported how much OpenAI was spending on stock-based compensation. It’s a lot: $4.4 billion last year, or more than five times its stock-based compensation the prior year, amounting to a whopping 119% of revenue. 

Stock-based compensation expenses typically don’t cut into cash flow until a company goes public, so startup founders and investors don’t spend as much time worrying about these costs. But these expenses can hurt investor returns by diluting their stakes when the company issues new shares to employees. 

While that’s perennially a problem in Silicon Valley, as we’ve written about, dilution is a particular risk when it comes to investing in artificial intelligence. One investor told me that for early-stage startups, investors have typically expected the number of shares issued by a company to increase between 2% and 4% per year from stock-based compensation. But the rate of dilution for early-stage AI startups is higher than that because the battle for talent is so heated.

Startups need to be willing to offer 1% of equity for top AI researchers in some cases, the investor said. These researchers could add more value to the company down the line than what the dilution might be. 

Rising valuations should help offset the increased share count. AI database management provider Databricks, for instance, has told investors it increased its share count less than 5% year over year in the fiscal year that ended in January. That follows a 44% jump in its valuation to $62 billion in December compared to roughly a year earlier. 

Similarly, OpenAI is in the process of raising $40 billion at a roughly $300 billion valuation, up from a $150 billion valuation in the fall. 

To be sure, the OpenAI stock comp we reported on was projected before Meta Platforms dialed up the fight for AI researchers, prompting OpenAI executives to promise it would improve its pay packages. That won’t matter much to investors as long as OpenAI’s valuation keeps rising.

Now on to Natasha for what else is going on…

Just over a year ago, we wrote about how a group of tech executives had urged Sequoia Capital’s leader, Roelof Botha, to fire Shaun Maguire, following the early-stage investor’s strident tweets in support of Israel’s war in Gaza. Botha didn’t, instead choosing to retain a young investor who had grown close to Elon Musk, founder of some of high-profile Sequoia bets such as SpaceX and xAI.

Still, it was an odd look for Sequoia, whose leaders generally preferred to wield their influence on politics and policy behind the scenes rather than wading into (or kindling) social media firestorms.

Maguire is back in the hot seat again. On Friday, he accused New York City mayoral candidate Zohran Mamdani of advancing an “Islamist agenda” and said he comes “from a culture that lies about everything.” The remarks triggered an open letter from some startup founders, who accused Maguire of making a “deliberate, inflammatory attack” and pushed Sequoia to investigate his conduct.

Sequoia has let Maguire speak for his own actions, including in a 30-minute video in which he apologized, then in follow-up posts on X, where he addressed “haters and losers” and took a swipe at The New York Times. 

By midday Tuesday, 8VC founder Joe Lonsdale was among those applauding Maguire’s statements. 

And a new group of founders, investors and technologists said, in a letter supporting Maguire, “Whether one agrees with his views or not, his words were not hate speech,” and adding that those calling for an investigation into Maguire were engaged in “ideological mobbing disguised as a moral virtue.” 

Maguire is “a principled man who is defending Western values and is being the victim of a cancel-culture-era coordinated operation,” said David Marcus, founder of payment startup Lightspark, who signed the letter, in an e-mail to The Information.

As for Sequoia, the firm appears to be sticking to its strategy when it comes to Maguire—letting the social media firebrand do the talking. The firm declined to comment.—Natasha Mascarenhas

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Reporters Cory Weinberg and Natasha Mascarenhas tell you what’s coming next, who’s winning—and who’s losing—in the high-stakes world of startup investing.

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