Y Combinator's Garry Tan wants US labs to distill frontier models too

When it comes to Chinese AI labs using distillation techniques to extract knowledge from frontier model makers, Y Combinator CEO Garry Tan is hoping regulators stay out of it. In fact, he thinks U.S. AI labs should perhaps play the same game. “I would do nothing,” he told CNBC in an interview this week. “We could argue that there should be an American distillation regime.”

He elaborated to TechCrunch that this means he wants smaller, American open-weight AI labs to use the same kind of training techniques on American frontier AI labs, giving the U.S. a more robust set of open-weight options that aren’t Chinese. Distillation is when a model maker extensively prompts another model to learn how it works and reasons; it is commonly, and legitimately, used by AI labs to help train new models.

Anthropic this week released its second report alleging that Chinese labs are engaged in “illicit distillation attacks,” hiding their identities to distill without permission and relying on fraud and stolen credentials to do so. Anthropic CEO Dario Amodei had previously publicly called on U.S. regulators to crack down on distillation. It’s notable that the head of Silicon Valley’s prestigious and prolific startup accelerator doesn’t agree.

To be clear, Tan isn’t advocating for American AI labs to use stolen credentials to distill — he wants them to be free to come in the front door. His argument is twofold: he feels it’s an overreach for AI labs to dictate what their customers can do with the information their models share with them, and he notes that proprietary AI labs didn’t ask permission when they trained their models on as much human knowledge as they could gather, including copyrighted material.

“Controlling what users and customers do with API calls to closed weight models feels constraining, and there’s a role government can play here to normalize the fact that access to intelligence that was trained on broad public access data should itself also be more a form of a public good than something locked away behind restrictive terms of service,” he told TechCrunch. Tan, who has himself described being such an avid AI user that he has “cyber psychosis,” wants to see a balance between open-weight and frontier labs. “They are at the frontier and driving it forward. We want that to be fundable, and be a great business model ongoing,” he told CNBC. “You want open weight models to give people freedom and access.”

To him, the real AI doomer scenario is all the power of frontier AI winding up with a single powerful, proprietary provider. “The nightmare scenario, the doomer scenario for AI is that there’s just one company,” he said. “It has the best access to capital. It has the best AI researchers. It runs away with it and suddenly there’s one company that’s monolithic. And that would be bad.”

Why it matters

Tan’s stance puts one of Silicon Valley’s most influential startup gatekeepers at odds with Anthropic’s push for a distillation crackdown, framing the debate less as security versus theft and more as open competition versus a single dominant AI provider.