100,000 Users, $10 Billion: A Carefully Crafted “Pass the Flower” Game
Hello everyone, I’m your financial observer. Today, we’re not talking about just another financing news story, but rather a grand drama surrounding a “valuation magic show” that’s taking place in Silicon Valley—and around the world.
The protagonist of this story is an AI startup called Instinct. Its story sounds almost like a fairy tale: the founder is only 23 years old, the company has been around for less than a year, the product is still in beta testing, and it has only 100,000 users, yet its valuation has soared from $2.5 billion to $10 billion in just one month.
Is this reasonable? Without looking at the underlying capital operations, it might seem crazy. But if we break it down, we’ll see that there’s a sophisticated, almost “scripted” capital game at play. Today, I’ll use simple language to peel back the curtain and show you how those $10 billion were created, and who’s making the money, and who’s paying the price.
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1. Core Summary: This Is About Buying Speed, Not Product Value
In one sentence: Instinct’s $10 billion valuation has nothing to do with its product capabilities, user base, or revenue. It’s artificial wealth created by venture capital (VC) through a technique called “tranched financing.” VCs are no longer pricing the company’s actual value; they’re pricing the speed at which it’s growing. This is a bubble orchestrated by top-tier capital, exploiting information asymmetry and the FOMO (fear of missing out) psychology, with ordinary investors, employees, and public pensions ultimately bearing the cost.
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2. In-Depth Analysis: Understanding the Capital Game from Five Dimensions
Dimension One: Weak Product, Strong Story – The Absurd Reality of “$100,000 per User”
Let’s take a look at what Instinct actually offers:
- Product: An AI personal assistant that receives your email, texts, and location data to help you with things like booking flights and shopping for groceries.
- Current Status: Still in an invite-only beta test with just over 100,000 users. There’s no public revenue, and the founder even says they don’t want to charge fees, planning to make money from ads.
- Valuation: $10 billion.
Doing the math: $10 billion ÷ 100,000 users = $100,000 per user. That’s several orders of magnitude higher than the value of Apple’s users.
Founder Noah Shinn is indeed impressive, having authored top-tier AI papers, but that doesn’t explain the valuation. In normal business logic, valuation should be based on revenue, growth potential, or technological barriers. Here, the product is just a tool. VCs are buying into the narrative of “a fast-growing AI company founded by a 23-year-old genius.”
Plain Language: It’s like someone selling you a lottery ticket claiming it could win $5 million, but the ticket itself is only worth $5. You’re buying the story of potential success, not the ticket itself. Instinct’s current valuation is like that unopened, potentially worthless “super lottery ticket.”
Dimension Two: The Black Box of Capital – How “Tranched Financing” Creates an Illusory Price
The news mentions a key term: “Tranched Rounds.” This is the key to understanding this sudden valuation surge.
How it works:
1. First Round (Real Deal): VCs invest most of their money at a lower valuation (e.g., $2.25 billion), which is the price they truly believe in.
2. Second Round (Marketing Tool): In the same round or the next, VCs invest a small portion of money at a much higher valuation (e.g., $10 billion).
3. Public Perception: Only the $10 billion valuation is made public.
Results:
- For VCs: Most of their money was invested at a lower price, with a small portion at a higher price, averaging out to a much lower cost than $10 billion.
- For the Market: The market sees the $10 billion valuation and assumes the company is worth that much, attracting more money (FOMO).
- For the Founder: Their book value instantly expands, making it easier to raise more funds or cash out later.
Examples: Mercor and Ineffable Intelligence have used this same tactic. Ineffable’s share price increased by more than 70 times within weeks. This isn’t the market discovering value; it’s the market being manipulated to create value. VCs are creating the illusion of value, not discovering it.
Dimension Three: Who’s Making the Money? Who’s Paying the Price? – The Behind-the-Scenes Profit Chain
Bubbles don’t appear out of nowhere; they need fuel and buyers.
Who’s Making the Money (Manufacturers):
1. Early VCs (e.g., Sequoia, Benchmark):
- Management Fees: They charge 2% of the fund size annually, regardless of the company’s success.
- Performance Fees: If the valuation doubles, they take 20% of the profit.
- Reputation: Investing in the “next unicorn” helps them raise larger funds for the next round.
2. Founders: They cash out through “old shares” in each round, getting their money without waiting for the company to go public.
3. Intermediaries (FAs, Law Firms): They earn 1%-3% of the transaction amount with no risk.
Who’s Paying the Price (Buyers):
1. LPs (Limited Partners): Pension funds, university endowments, insurance companies. They invest in these high-valued projects, and if the bubble bursts, their retirement funds are at risk.
2. Later Investors: Institutions and individuals attracted by the $10 billion valuation, buying at the peak.
3. Ordinary Employees: Holding options, thinking the company is worth $10 billion and their options are worth millions. If the valuation drops, their options become worthless, potentially costing them money.
4. The Public: Indirectly affected through related stocks like NVIDIA and Microsoft’s shares.
Plain Language: It’s like a “pass the flower” game. VCs and founders hold the cards and speed up the game to attract more participants. When the music stops, the one with the cards leaves first.
Dimension Four: Why Now? – Speed as the New Pricing Criterion
Why are VCs acting so wildly? Because the rules have changed.
In the past, VCs looked at:
- Revenue generation
- User growth
- Technological barriers
Now, they focus on:
- Speed: How fast the company grew from scratch to $10 billion.
- Narrative: How appealing the story is.
- Scarcity: Whether it’s the “next OpenAI.”
Data Support:
- Q1 2026: Global VC investment was $297 billion, with 81% going to AI.
- 10 unprofitable AI companies saw their valuations soar by $1 trillion in 12 months.
- Cognition’s valuation doubled in 4 months, with annual expenses of $800 million.
Logical Flaws: This pricing method is extremely fragile, based on emotions and speed alone. If growth slows (e.g., if Cognition can’t increase revenue from $900 million to $400 million in 3 months), the valuation will collapse.
Plain Language: It’s like “pump and dump” in the stock market. Developers buy land from insiders at a low price and then claim it’s worth a fortune, attracting retail investors to buy at a high price. Developers profit from the price difference and reputation, while investors buy into the illusion.
Dimension Five: Who’ll Be First to Fall When the Bubble Breaks? – The Chain of Risks
Bubbles don’t burst without cause; they need both fuel and buyers.
Who’ll Be Affected:
1. Early VCs (e.g., Sequoia, Benchmark): High management fees and performance fees.
2. Founders: Cash out early through share sales.
3. Intermediaries: Guaranteed profits from transaction fees.
4. LPs: Pension funds at risk if the bubble bursts.
5. Later Investors: Those who bought at the peak.
6. Ordinary Employees: Options become worthless or even result in debt.
7. The Public: Affected through related stocks.
Plain Language: It’s a domino effect. VCs and founders have the advantage; they set the rules and speed up the game. When it stops, the losers are those who bought in at the wrong time.
Conclusion: The Music Is Still Playing, but You Need to See Who’s Moving Towards the Exit
Instinct’s $10 billion valuation is a classic example of capital narrative. It reminds us:
1. Don’t Believe in Valuations: They’re the result of negotiations, not a reflection of value.
2. Be wary of Speed Worship: When the market rewards only speed over quality, bubbles form.
3. Understand the Power Structure: Who’s buying low and selling high? Who’s collecting fees? Who’s taking the risks?
For ordinary people, if you’re not a VC, don’t try to participate in this game. If you hold related stocks or options, closely monitor the fundamentals of companies with high valuations, low revenue, and high spending.
Finally, here’s a reminder: In a bubble, the real danger isn’t making the wrong investment; it’s being in the wrong place at the wrong time. The music is still playing, but those in suits with champagne are already heading towards the exit.