Is AI Becoming A Casino? Keeping the 'Byrdes' from Harming ConTech Founders

May 26, 2025

Is AI venture capital turning into financial theater? This satirical deep dive compares today's AI funding dynamics to Netflix's Ozark—revealing how money may be moving in circles, not markets. Tune in and judge for yourself.

Shub Bhattacharya

Patric Hellermann

Is AI Becoming A Casino? Keeping the 'Byrdes' from Harming ConTech Founders

Two years ago, Shub and Patric launched our Practical Nerds podcast talking about the beginnings of the AI hype as we saw it. Turns out we were just getting started. Today, we're drawing parallels between the current AI VC ecosystem and Netflix's Ozark - because what we're witnessing looks increasingly like sophisticated financial theater where the owners of the house might have found a way to always win, whereas others might be left wondering what just happened.

A satirical review of what might be happening right now. Don’t take everything too seriously :)

But form your own judgment.

🎧 Listen To This Practical Nerds Episode

Satire: Do VCs Control Both Buyer And Seller In AI Ecosystem?

Consider ‘Ozark’ For A Moment

For those unfamiliar with Netflix's Ozark, here's the premise: A financial advisor named Marty Byrde gets caught laundering money for a Mexican cartel. To save their family, he and his wife Wendy move to Missouri's Lake of the Ozarks and must wash $500 million through local businesses. They buy businesses, collaborate with contractors, and eventually even open a real casino to control both sides of the cash flow. The show reveals how money laundering works - you control multiple businesses in a chain, move money between them, take cuts along the way, retain ownership of the money, and move it to back into your pocket clean.

Could Money Managers Inflate Books Without Risk?

Now fast forward to today and teleport yourself into venture capital for horizontal AI. A fund manager tells you their portfolio company hit 30 million ARR in ten months. That same fund - or his friends ! - also backed the companies buying those services. And the other way around.

Are we witnessing the venture capital equivalent of Ozark's casino operation, where Marty Byrde funnels dirty money through businesses he controls on both sides?

Think about it this way. What if generalist VCs manage massive funds from pension funds and sovereign wealth funds? These same VCs need to show impressive returns to raise even larger funds. Their incentive? Management fees that scale with fund size.

But here's where our satirical comparison gets interesting. What if these VCs don't just back one AI company and accept traditional venture risk? What if they back hundreds of generic AI companies - copilot for this, AI for that, sales automation, coding assistants? And then, hypothetically of course, when you dig into who's buying from these AI companies, you might find it's other VC-backed startups? The AI sales tool selling to the AI coding assistant. The AI coding assistant selling to the AI marketing platform. The AI marketing platform selling to the AI sales tool. Everyone reports explosive ARR growth. Everyone gets their next round. Everyone looks like a rocket ship. But could it be the same money, just moving in circles through entities the same VCs might control?

If this satirical framework holds any water, is this still venture capital? Or might it be something that resembles systematic market manipulation disguised as innovation investing? When you potentially control both the supply and demand sides of transactions, are you really taking entrepreneurial risk?

Also, consider a difference between this hypothetical scenario and 2008's mortgage crisis - one of the most cited ‘financial casinos’ in recent history. Back then, as bad as that casino was, at least the buyers of toxic mortgage-backed securities bundles (CDOs) by and large weren't controlled by the sellers. It was arms-lengths transactions. If our satirical Ozark comparison were accurate, this might represent complete vertical integration of financial theater. Something to consider.

Where Does That 30 Million ARR Actually Come From?

Real Numbers From The Field

Consider this conversation we had with a GP at a top-10 global VC firm just hours before recording this episode. He told us about an AI company that raised a massive round three months ago, claiming 16 million ARR. Until you learn their gross margin is minus 4%. Not after overhead, sales, and marketing costs. Their core service literally loses money on every deal. Where have we heard that before in this satirical metaphor.

When we asked who their customers were, the answer was telling: "Exclusively other startups." Oh, ok. You know, those firms who are part-owned by (the same group of) VCs.

For reference, in our recent SaaS benchmarking analysis, we profiled companies with gross margins ranging from 78% to 91%. Here we have a company with negative gross margins raising massive rounds based on ARR growth where every new dollar of ARR loses you 4 cents.

This anecdote unfortunately is not a single anecdote, it is much more the norm among horizontal AI than you might like.

Could This Be A Pattern?

This anecdote might present the broader pattern. If you dig into many (horizontal) AI companies claiming explosive growth, you might find significant percentages of revenue coming from other VC-backed startups. Are these arm's length transactions between independent businesses? Or could they be internal transfers within a controlled ecosystem?

VCs flood media channels claiming AI will transform everything except the job of the early-stage investor. They position themselves as the smart money riding the biggest wave in history. But what if they're circulating their own money between their own portfolio companies?

We've heard rumors that a famous accelerator allegedly advised companies in their latest batch to add "AI" to their company names. Sound familiar to anyone who remembers pets.com and the dot-com era?

When customer acquisition happens through shared investor networks rather than market demand, are you building a business or playing musical chairs with pension money? And what happens when the music stops?

What Happens When The Party Stops?

Historical Precedent Suggests Indiscriminate Damage

History offers perspective here. When the dot-com bubble burst, Amazon's stock dropped 95%. Not because Amazon was a bad business, but because the market couldn't differentiate between legitimate companies and speculative plays in real time. Everything with ".com" in the name got hammered indiscriminately.

Could history repeat with AI? If our satirical comparison holds any water, when this hypothetical money circulation scheme collapses, might the fallout hit everyone indiscriminately? The brand contamination could affect companies building real AI solutions for real customers just as much as companies participating in whatever financial theater might be happening.

Protection Strategies For Legitimate Vertical ConTech Players

So what might be the smart move if you're building legitimate AI tools for construction companies, manufacturers, or other non-VC-backed enterprises? Perhaps consider these strategies:

Distance yourself from the potential casino before it burns down. Position your company as solving specific industry problems that happen to use AI, rather than as an "AI company" that happens to work in construction.

Diversify your customer base away from VC-backed startups. Companies most at risk might be those dependent on VC-backed customers for the majority of their revenue. If those customers lose funding in a crash, demand could disappear overnight.

Focus on brand positioning that emphasizes business outcomes over AI capabilities. If your marketing leads with AI features, you might get lumped in with speculation plays. If you emphasize construction productivity or manufacturing efficiency that happens to leverage AI, you might be seen as a tools company.

The best defense against potential bubble contamination? Maybe never being seen as part of the bubble in the first place. Build for customers who pay with their own money to solve their own problems, not for companies spending investor money to participate in growth theater.

Conclusion: The Ozark Survival Framework

Has the generic AI VC ecosystem evolved into something that would make Marty Byrde proud?

If what this satire is observing were to be accurate, money appears to flow in circles through controlled entities, creating impressive metrics without genuine market validation. In this satirical framework of what might be happening right now, the wise approach might be to distance yourself from the casino before the music stops. Consider building niche solutions for specific customer problems outside the VC ecosystem and focusing on sustainable unit economics rather than circular funding metrics. Establishing clear differentiation from generic AI players through industry-specific value propositions seems prudent in this thought experiment.

When the fallout comes - if you agree with some of this satire - you'd want to be the one that survives because you solved real problems for real people and stepped as far away from that casino as possible.

The party always ends - the only question is whether you'll have built something real outside the casino walls, and make sure people understand this as much as possible.

This might be your best move today: You build a real business, you just happen to use AI.

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