Support That Was The Week
That Was The WeekVenture is Good
The Paragraph version of That Was The Week
Support That Was The Week
That Was The WeekVenture is Good
The Paragraph version of That Was The Week
Subscribe to That Was The Week
Subscribe to That Was The Week
<100 subscribers
<100 subscribers
A reminder for new readers. That Was The Week collects the best writing on critical issues in tech, startups, and venture capital. I select the articles because they are of interest. The selections often include things I disagree with. The articles are only snippets. Click on the headline to go to the original. I express my point of view in the editorial and the weekly video below.
This Week’s Video and Podcast:
Content this week from @kteare, @ajkeen, KWHarrison13, @GeneTeare, @shaig, @cbinsights, @Samirkaji, @cartainc, @PeterJ_Walker, @BryceElder, @davewiner, @ianbremmer, @mustafasuleyman, @GaryMarcus, @benedictevans, @MTNGroup, @mastercard, @visualcapitalist
Dave Winer and Andrew Keen on Blogging, Podcasting and More
MTN, African Fintech
Emotional Investing is Bad for Your Wealth
In 2009 Facebook took a $200 million investment from Yuri Milner, the founder of Digital Sky Ventures (DST Global), in return for just under 2% of the company. 18 months earlier, Microsoft had paid $240m for the same stake.
DST’s stake turned into well over $4 billion in value. As he says on his web site:
DST Global invested in Facebook from 2009 to 2011 and divested its holdings in 2012 and 2013 following Facebook’s IPO.
I would date the 2023 crisis in venture capital as emanating from this period. Yuri, quite magnificently, showed the world that it was possible to invest in early-stage companies at high valuations and still make over twenty times your money. It was the dawn of growth investing in the venture capital ecosystem.
He went on to invest in Twitter in 2011 and made many more successful investments using the same strategy.
For the seed ecosystem, this was the beginning of the period that lasted from 2009 - 2022, when it was possible to see seed-funded companies grow into unicorns, often quickly, driven by rapid fundraises from growth-stage investors.
The period gave rise to Coatue, Insight Partners, Tiger Global, Fidelity, and other venture investors.
Q2 2022 saw the end of this period, and many of this week’s readings focus on the consequences but draw all of the wrong conclusions.
Kyle Harrison’s essay takes the lead spot, focusing on the “Greater Fool” meme that Venture Capital relies on the next investor making irrational investment decisions, and so is a place where Bernie Madoff-like fake value growth takes place. It’s somewhat clear that Kyle does not agree with the characterization (right ?). But he does think Hopin’s later investors bought into unfeasible beliefs to justify their valuations.
The Greater Fool theory suggests that the earlier investors were aware they were selling a dud and either remained silent or actively encouraged the hype.
The Financial Times definitely does believe venture capital is an extremely poor asset class. In “Venture Capital funds are mostly just wasting their time and your money,” Bryce Elder argues that venture funds underperform every other asset class.
the average VC fund doesn’t reliably outperform the average stock
From the point of view of this theory, Yuri Milner is probably the first “Madoff” venture investor, waiting for the fools to come. And future investors did come. But were they fools?
The real story of venture capital is different. There is no greater fool underbelly to venture capital. Founders and early-stage investors buy into world-changing ideas and try to build them. Often, they do not attract capital for years, and investors remain skeptical.
Even Hopin is one. When Seedcamp invested in Hopin’s seed round, it seemed clear that virtual events would grow rapidly under the Covid regime. It made a second investment as that thesis was borne out. Events grew, and revenue too. So more money was attracted to a likely good outcome. This optimism is not only normal in venture capital, it is required to enable large outcomes.
By the end of Covid, Hopin had raised all of its capital. I believe no single investor was hoodwinked by earlier investors or the founder. They wrote checks with glee and a belief in a world-changing moment.
To look at the period as somehow contrived is a re-writing of history.
That said, growth investors’ desire to allocate to high-value growth reached a limit in 2022 when public markets corrected and the multiples investors pay for revenue and growth contracted. At that point, IPOs froze, and later-stage investors had to write down the values of their investments. That process is still going on.
Clearly, lots of money will be lost, and pain will be felt. But to see that as a structural problem with venture capital is a mistaken diagnosis. Looked at as a whole, venture capital has catalyzed far more value than the money invested by it. As an asset class, it is the engine room of innovation. The Greater Fool theory is a cheap shot at a bad time.
This week’s X of the Week is a chart from Visual Capitalist showing how emotional investing loses money. It compares staying in the market versus jumping in and out based on short-term reactions. Venture Capital is currently a highly emotional asset class, and the trend is for jumping out, in reaction to the 2020-21 price and volume peak. But this is exactly the wrong thing to do. The counter-emotional imperative is to remain in the market and focus on quality long term opportunities.
Of course, that does not mean venture capital is perfect. I am on the record that data-first late-stage investing can produce outstanding returns from private markets, using a different, fresh, and bold approach to venture. That would risk-mitigate venture capital in a manner that can produce private market wealth growth products like those invented by Renaissance Capital, and championed by others, in public markets.
So this week, my theme is: Venture is Good. The next innovation in biotech, energy, AI, and more depends on it, which means we humans do too. And those who see the future will definitely invest in the next Hopin. But also in the next OpenAI, Google, Amazon, Apple, and Tesla. And thank goodness. Long Live Venture Capital.
AUG 12, 2023
Few case studies better sum up my grievances with various aspect of the venture capital industrial complex than does the story of Hopin.
Get it? Like, "what's happenin'?" Alright. Moving on.
In case you haven't seen the news, this is the best overview I've read. For the details, I'll summarize it real quick. In 2019, Johnny Boufarhat founded Hopin, a virtual events platform, in what may be the most well-timed founding ever.
COVID happened, and the company exploded. From November 2020 to August 2021, the company's valuation went from $2B to $7.7B. The company also reached $100M+ of revenue, serving 100K+ organizations running 15K+ events per month! Across 4 rounds in 14 months, the company raised ~$1B in funding! Boufarhat, the CEO, wasn't without his own enrichment. Over the course of those rounds, he sold ~$200M of secondary.
And then, wouldn't you know it, COVID restrictions started to lift, people could travel again, and Hopin's usefulness dropped from 15K events per month to 158. After several rounds of layoffs, Boufarhat announced he was stepping down and the company's flagship virtual events product was being sold to RingCentral for $15 million in cash with $35 million in potential performance-based earn outs. The acquisition was barely a footnote for RingCentral, with the CFO saying they “expect the acquisition [of Hopin’s assets] to have an immaterial impact on our revenue and expenses in 2023."
Man, oh man. So much to unpack here.
Hopin has joined some prestigious names in the hall-of-fame for capital destruction:
WeWork? Raised $22B in equity + debt at a peak valuation of $47B. Currently has $200M in cash, and a market cap of $431M. Recently announced their doubts about the company's ability to continue as a "going concern."
Peloton? Raised $1.9B at a peak valuation of $45B. Currently has $870M in cash, and a market cap of $3.4B.
Lyft? Raised $4.9B at a peak valuation of $20B. Currently has $638M in cash, and a market cap of $4.4B.
Quibi? Raised $1.8B. Currently has $0M in cash, and a market cap of $0.
Bird? Raised ~$1B at a peak valuation of $2.5B. Currently has $6.8M in cash, and a market cap of $22M!! 😱
Don't even get me started on any other SPACs (I'm looking at you Mr. Next Warren Buffett).
Granted, the $1B that Hopin raised didn't entirely disappear. There's still ~$400M, some of which the company might return to investors. And Hopin didn't sell entirely. They had previously acquired a live streaming business that is now the main product, with a valuation of ~$400M (a 95% decline from that $7.7B high).
But, like many of the examples of excess I've unpacked before, there's plenty to learn about some of the things that can be wrong with venture capital.
The first that I came back to is how unsurprising it feels like this is. Just about everyone working in startups has had some version of this experience: "this doesn't make sense, does it?"
Crypto mania. Billion-dollar valuations for pre-revenue companies. Investors branding themselves as "micro mobility investors." Even much of the current hype in AI. All of it leaves you scratching your head, trying to understand how that can make sense.
In the case of Hopin, you see a lot of instances of people being surprised. Here's a couple examples:
"Where things went wrong was behavior changed, consumer behavior changed in a way that the company didn't predict." (Former Employee)
"Nobody expected virtual events to go away as fast as they did.” (Former Employee)
But like... why not? Did anyone really, genuinely believe that life would forever be trapped lockdown-style? I think often of this tweet from early in 2020:
Investors are very much in the business of "dreaming the dream," but too often we have investors that assume the dream is supposed to be a fever dream.
Instead, the reality is that human behavior changes very little, and when it does it happens very slowly. More often than not, you can see these changes coming in the future. You may not appreciate the gravity of the future, but you can see trends like cellular bandwidth speeds acting as a clear catalyst.
But when things don't feel right (e.g. will the vast majority of people really want to be doing virtual events forever?) its probably because they're NOT right.
….
Venture capital is meant to enable companies to do unsustainable things in pursuit of scale that will eventually enable sustainability. But what if sustainability never comes?
In the piece, Venture Predation, the abstract contains a gut-punching line:
"Critically, for VCs and founders, a predator does not need to recoup its losses for the strategy to succeed. The VCs and founders just need to create the impression that recoupment is possible, so they can sell their shares at an attractive price to later investors who anticipate years of monopoly pricing."
Ohmygawd. Talk about saying the quiet part out loud. This gets to the crux of the Hopin question I raised at the end of the last section.
August 16, 2023
Only two companies joined The Crunchbase Unicorn Board in July — the lowest monthly count since we started tracking new unicorn pacing by month at the beginning of 2020.
Both new companies are in the Web3 sector, and neither are from the U.S.
The pace of new unicorn creation marks a big shift from 2021, when the average was more than two unicorns per work day. Even in 2022, new unicorns still averaged more than one per work day.
So far this year, new unicorns have averaged one every three to four work days.
July’s new unicorns:
Months-old Zyber 365, an India-based blockchain operating system company that raised a $100 million Series A funding led by Sram & Mram. The company was valued at $1.2 billion.
Three-year-old Flashbots, a developer of software for more efficient maximal extractable value mining on the Ethereum blockchain. The Cayman-based company raised a $60 million Series B round led by crypto investor Paradigm at a $1 billion valuation.
July also marked the lowest month for funding to current unicorn companies, with $2.2 billion raised compared to $6.6 billion for July 2022.
That’s yet another indication of how much investors have slowed their pace in investing in private high-growth companies.
August 10, 2023
The reset in private tech company valuations continued in Q2’23, especially at later stages. We look at how valuations, deal sizes, and deal terms are changing across the venture landscape.
Median tech valuations declined again for Series A, C, and D+ startups in Q2’23.
The latest stages — Series D and above — experienced the sharpest quarter-over-quarter (QoQ) decline (-33%) as valuations moved further away from unicorn levels. In contrast, startups at the earliest stages raising seed and angel rounds experienced slight growth (5%) in median valuation QoQ.
However, the median valuation was still down across the board year-over-year.
Below, check out a few highlights from our 20-page, data-driven Tech Valuations Q2’23 Report.
A few key takeaways from the tech valuation landscape in Q2’23 include:
Median tech valuations dropped again quarter-over-quarter (QoQ) for Series A (-14%), Series C (-9%), and Series D+ (-33%) startups.
The later the stage, the sharper the valuation decline year-over-year (YoY) in Q2’23. While the median valuation for seed/angel and Series A rounds fell 15% and 29% YoY, respectively, Series B to Series D+ valuations tumbled between 30% and 60%.
Deals negotiated with seniority or tiered liquidation structures gained share across every stage from Series A to Series D+ in H1’23.
Over half (60.6%) of Series D+ deals had seniority or tiered liquidation structures in H1’23.
Earlier this week, I wrote a post looking at the historical returns of Private Equity versus Venture Capital (Top decile/top quartile/bottom quartile).
For LPs, I'd heavily advise against choosing venture managers based simply where they place in benchmarks, especially in first 5-7 years. Why?
1) Persistence of returns is present, but fairly weak these days relative to the past. VC has shifted so much with fund sizes, management team transitions, competition, etc. Very hard to predict performance simply based on the past.
2) Over the last few years, particularly in seed, fast deployers were rewarded given the quick mark-up culture. I.e. if you deployed in 14 months vs. 36 months, there were more companies that were marked up. It's been shown that a fund doesn't settle in it's final quartile until about year 7.
3) Funds sometimes hold the same companies at wildy different marks. When diligencing a fund, should always the manager about valuation methodology, and what they are holding their breakouts at. This year, I saw the same company held at $600MM with one firm, and nearly $1.5B at another firm. Of course, the one that held at $1.5B benchmarked better.
4) Benchmarks treat VC as a monolith, and typically include funds of all types in a sample set.
I.e. The fact that a $3B VC fund may be included in the same sample set as a $40MM pre-seed fund reduces the effectiveness of a benchmark (particularly when looking at multiples). The two offer wildly different risk / return / time to liquidity profiles.
5) Survivorship bias: Sample sizes are often limited, and often include only self-reported numbers. This often skews benchmarks and results in survivorship biases being present
At the end of the day, LP investing is a long term ex-ante exercise. Instead of over-indexing on past results and benchmarks, it's critical to evaluate the go-forward position of a manager, and determine what is the appropriate absolute return and risk level to make the investment viable for you.
August 11, 2023
Peter Walker
Every startup begins as a pre-seed company. At Carta, we define “pre-seed” as any company that has yet to raise a priced equity round. These nascent businesses usually raise capital with convertible instruments, the most common being SAFEs (Simple Agreements for Future Equity) or convertible notes.
For the first time, we’re diving deep into our pre-seed cap table data to understand how founders at this stage raise capital from friends & family, angel investors, and pre-seed VCs. And there is a lot of data: Tens of thousands of startups that use Carta are currently pre-seed and 2,103 of them raised capital with convertible financings in H1 2023.
In this report, we touch on all the basics of pre-seed financing, including:
SAFEs, in all their many flavors
Convertible notes and their associated interest rates
Valuation caps and discounts
Angel check sizes and industry segments
Download the full report for everything you ever wanted to know about how fundraising works for the earliest startup companies.
SAFEs have taken over: Investment through SAFEs accounted for 80% of pre-seed invested capital in Q2 2023. However, certain industries such as medical devices, hardware, and biotech still see significant investment using convertible notes.
Valuation caps have gently declined: The median valuation cap for post-money SAFEs was $10 million this past quarter, down from $15 million at the beginning of 2022. This median is highly sensitive to round size, dipping down to $6.5M for raises between $250K-$499K.
Legacy venture ecosystems dominate the pre-seed stage: Of the 2,103 companies that raised some form of pre-seed financing in H1 2023, over half are headquartered either in California or in New York. Companies in these mature VC ecosystems were also much more likely to raise mega pre-seed rounds ($2.5 million or more on SAFEs).
Howling at the moonshot
Bryce Elder YESTERDAY
A good investment strategy is to only buy stocks that go up. Most stocks don’t go up though, at least not consistently, so an easier strategy is to buy lots of stocks and hope some will go up by more than most go down. It’s an application of power law, where just a handful of portfolio investments will generate nearly all of the returns.
A popular way to finesse this strategy to buy venture capital funds, because they’re arguably the purest expression of moonshot investing. Payoffs from private assets are much higher reward at lower probability than from public markets, generally speaking, so the power law concept has been very deeply embedded in the VC world.
The perhaps obvious catch is that power law applies just as much to funds as stocks. Just a handful of VCs generate nearly all of the sector returns.
Morgan Stanley equity strategists Edward Stanley and Matias Øvrum have run the numbers for the past 20 years of crossover investing and found that the average VC fund doesn’t reliably outperform the average stock….
All of a sudden, there was all this freedom:
David Winer on the origins of blogging, the self-publishing technology that has profoundly shaped the first quarter of the 21st century
Dave Winer is a software developer in New York. He led the early development of blogging, podcasting and RSS. He started two Silicon Valley tech companies, in PC and Mac development in the 80s. Dave is a former research fellow at Harvard and New York University. He led the early blogging movement, with the original blog, Scripting News, which he started 25 years ago.
Named as one of the "100 most connected men" by GQ magazine, Andrew Keen is amongst the world's best known broadcasters and commentators. In addition to presenting KEEN ON, he is the host of the long-running How To Fix Democracy show. He is also the author of four prescient books about digital technology: CULT OF THE AMATEUR, DIGITAL VERTIGO, THE INTERNET IS NOT THE ANSWER and HOW TO FIX THE FUTURE. Andrew lives in San Francisco, is married to Cassandra Knight, Google's VP of Litigation & Discovery, and has two grown children.
September/October 2023
Published on August 16, 2023
Daniel Liévano
It’s 2035, and artificial intelligence is everywhere. AI systems run hospitals, operate airlines, and battle each other in the courtroom. Productivity has spiked to unprecedented levels, and countless previously unimaginable businesses have scaled at blistering speed, generating immense advances in well-being. New products, cures, and innovations hit the market daily, as science and technology kick into overdrive. And yet the world is growing both more unpredictable and more fragile, as terrorists find new ways to menace societies with intelligent, evolving cyberweapons and white-collar workers lose their jobs en masse.
Just a year ago, that scenario would have seemed purely fictional; today, it seems nearly inevitable. Generative AI systems can already write more clearly and persuasively than most humans and can produce original images, art, and even computer code based on simple language prompts. And generative AI is only the tip of the iceberg. Its arrival marks a Big Bang moment, the beginning of a world-changing technological revolution that will remake politics, economies, and societies.
Like past technological waves, AI will pair extraordinary growth and opportunity with immense disruption and risk. But unlike previous waves, it will also initiate a seismic shift in the structure and balance of global power as it threatens the status of nation-states as the world’s primary geopolitical actors. Whether they admit it or not, AI’s creators are themselves geopolitical actors, and their sovereignty over AI further entrenches the emerging “technopolar” order—one in which technology companies wield the kind of power in their domains once reserved for nation-states. For the past decade, big technology firms have effectively become independent, sovereign actors in the digital realms they have created. AI accelerates this trend and extends it far beyond the digital world. The technology’s complexity and the speed of its advancement will make it almost impossible for governments to make relevant rules at a reasonable pace. If governments do not catch up soon, it is possible they never will.
Thankfully, policymakers around the world have begun to wake up to the challenges posed by AI and wrestle with how to govern it. In May 2023, the G-7 launched the “Hiroshima AI process,” a forum devoted to harmonizing AI governance. In June, the European Parliament passed a draft of the EU’s AI Act, the first comprehensive attempt by the European Union to erect safeguards around the AI industry. And in July, UN Secretary-General Antonio Guterres called for the establishment of a global AI regulatory watchdog. Meanwhile, in the United States, politicians on both sides of the aisle are calling for regulatory action. But many agree with Ted Cruz, the Republican senator from Texas, who concluded in June that Congress “doesn’t know what the hell it’s doing.”
Unfortunately, too much of the debate about AI governance remains trapped in a dangerous false dilemma: leverage artificial intelligence to expand national power or stifle it to avoid its risks. Even those who accurately diagnose the problem are trying to solve it by shoehorning AI into existing or historical governance frameworks. Yet AI cannot be governed like any previous technology, and it is already shifting traditional notions of geopolitical power.
The challenge is clear: to design a new governance framework fit for this unique technology. If global governance of AI is to become possible, the international system must move past traditional conceptions of sovereignty and welcome technology companies to the table. These actors may not derive legitimacy from a social contract, democracy, or the provision of public goods, but without them, effective AI governance will not stand a chance. This is one example of how the international community will need to rethink basic assumptions about the geopolitical order. But it is not the only one.
A challenge as unusual and pressing as AI demands an original solution. Before policymakers can begin to hash out an appropriate regulatory structure, they will need to agree on basic principles for how to govern AI. For starters, any governance framework will need to be precautionary, agile, inclusive, impermeable, and targeted. Building on these principles, policymakers should create at least three overlapping governance regimes: one for establishing facts and advising governments on the risks posed by AI, one for preventing an all-out arms race between them, and one for managing the disruptive forces of a technology unlike anything the world has seen.
Like it or not, 2035 is coming. Whether it is defined by the positive advances enabled by AI or the negative disruptions caused by it depends on what policymakers do now.
AUG 12, 2023
With the possible exception of the quick to rise and quick to fall alleged room-temperature superconductor LK-99, few things I have ever seen have been more hyped than generative AI. Valuations for many companies are in the billions, coverage in the news is literally constant; it’s all anyone can talk about from Silicon Valley to Washington DC to Geneva.
But, to begin with, the revenue isn’t there yet, and might never come. The valuations anticipate trillion dollar markets, but the actual current revenues from generative AI are rumored to be in the hundreds of millions. Those revenues genuinely could grow by 1000x, but that’s mighty speculative. We shouldn’t simply assume it.
Most of the revenue so far seems to derive from two sources, writing semi-automatic code (programmers love using generative tools as assistants) and writing text. I think coders will remain happy with generative AI assistance; its autocomplete nature is fabulous for their line of work, and they have the training to detect and fix the not-infrequent errors. And undergrads will continue to use generative AI, but their pockets aren’t deep (most likely they will turn to open source competitors).
Other potential paying customers may lose heart quickly. This morning the influential venture capitalist Benedict Evans raised this in a series of posts on X (formerly known as Twitter):
My friends who tried to use ChatGPT to answer search queries to help with academic research have faced similar disillusionment. A lawyer who used ChatGPT for legal research was excoriated by a judge, and basically had to promise, in writing, never to do so again in an unsupervised way. A few weeks ago, a news report suggested that GPT use might be falling off.
If Evans’ experience is a canary in a coal mine, the whole generative AI field, at least at current valuations, could come to a fairly swift end. Coders would continue to use it, and marketers who have to write a lot of copy to promote their products in order to increase search engine rankings would, too. But neither coding nor high-speed, mediocre quality copy-writing are remotely enough to maintain current valuation dreams.
Even OpenAI could have a hard time following through on its $29 billion valuation; competing startups valued in the low billions might well eventually collapse, if year after year they manage only tens or hundreds of millions in revenue. Microsoft, up for the year by nearly half, perhaps largely on the promise of generative AI, might see a stock slump; NVIDIA skyrocketing even more, might also fall.
Roger McNamee, an early pioneer in venture investing in software, and I were discussing this the other day. Perhaps the only use case that really seemed compelling to either of us economically was search (e.g., using Bing powered by ChatGPT instead of Google Search) — but the technical problems there are immense; there is no reason to think that the hallucination problem will be solved soon. If it isn’t, the bubble could easily burst.
August 17, 2023
Editor’s note: This is part of a series in which we interview active investors in artificial intelligence. Previous interviews were with investors at General Catalyst, Bessemer Venture Partners and Accel.
New York-based investment firm Insight Partners has invested around $4 billion in artificial intelligence companies over the past five years.
That’s according to George Mathew, a partner at the firm who has led some of its key investments in the AI sector.
“Every business is having a transformative moment,” Mathew said in a conversation with Crunchbase News, speaking to the new wave of innovation unleashed by the launch of ChatGPT late last year. Such generative AI models have raised the bar that will “reformat all of software,” he said.
Mathew joined Insight in February 2021 and made his very first investment at the firm leading the Series B in Weights & Biases, a machine-learning operations company used by OpenAI for tracking its transformer models. Seven months later, Weights & Biases went on to raise a Series C that valued it as a new unicorn.
Insight was already one of the most active startup investors in 2021 and into the first half of 2022, based on an analysis of Crunchbase data. The firm added 146 portfolio companies in 2022 alone, for a total of 750 primary investments with $50 billion in capital commitments, according to the firm.
The firm reportedly has $10 billion in dry powder, but is said to be scaling back on the $20 billion target size of fund 13 and deploying funds over a longer time horizon. Its funding pace in 2023 has slowed significantly from its peak in Q1 2022, per Crunchbase.
Most of Insight’s funding to its AI portfolio companies has come from its recent funds. Those are fund 11, a $9.5 billion fund announced in 2019, and fund 12, announced in 2022 and the firm’s largest at $20 billion (at a time when private company financings generally slowed).
Insight is tackling AI investments at three distinct layers. They include the modern data stack, MLOps (machine-learning operations) and generative AI applications.
The firm led the Series C in data orchestration platform Astronomer in 2022. However, the data stack is pretty well invested at this time, Mathew said. “A lot of our focus definitely shifted toward this next generation of machine-learning operations and specifically how LLMs are being built,” he said.
The acquisition of MosaicML by Databricks is indicative of a data stack company becoming a key player in MLOps, he said.
Mathew’s other investments in AI include data observability platform Acceldata, AI model performance management company Fiddler AI, and synthetic data creation company Tonic.ai.
Other investments in MLOps include data collaboration company Atlan, customer data platform RudderStack, and analytics company Kubit, which is built on top of Snowflake and Databricks.
As for what he’s looking for now as he seeks out generative AI companies to invest in, Mathew said it’s “companies that are building domain-specific models on top of private data sets with great user experiences and workflows.”
On the applications side, the firm is interested in vertical opportunities in financial services and health care as well as software — namely robotic process automation — that will be reimagined by this technology. Two portfolio companies reinventing robotic process automation with LLMs and transformers are Bardeen and Workato.
Insight is also interested in horizontal opportunities like Jasper, for which it led the $125 million Series A — a month before the launch of ChatGPT. The firm also invested in entertainment dubbing service deepdub, which translates not only voice but tonality into 40 different languages. And it led the Series C for Hour One, which provides virtual conferencing using an avatar built by a generative model.
AI experts cite ethical concerns over relationships humans may develop with such chatbots
Hibaq Farah UK technology reporter
Thu 17 Aug 2023 12.57 EDT
The next time you lie in bed and absent-mindedly ask your old friend Google for a piece of life advice, don’t be surprised if it speaks back to you.
DeepMind, the tech firm’s artificial intelligence arm, has announced it is testing a new tool that could soon become a “personal life coach”.
The project will use generative AI to perform at least 21 different types of personal and professional tasks, including life advice, ideas, planning instructions and tutoring tips, according to documents seen by the New York Times.
It is also being tested for how well the assistant can answer intimate questions about people’s lives.
Australian venture capital firm Blackbird Ventures has sold a portion of its stake in design platform Canva at a valuation of $25.5 billion. The secondary market sale to US investors, Coatue Management and ICONIQ Capital, brings Canva a step closer to its US listing. Blackbird first invested in Canva in 2012 at the seed stage with $250,000 and currently holds a stake worth around $5 billion.
Blackbird has been a shareholder in Canva since its founding in 2012. Over the years, the VC has supported the tech scaleup through eight funding rounds, with the most recent valuation of $54.5 billion in a $273 million raise in September 2021. However, in the past year, Blackbird, along with Canva’s other major VC investors, Square Peg and Airtree, had to reduce Canva’s valuation by 36% due to the impact of the pandemic on private tech company valuations.
Blackbird sold 3% of its 15% stake in Canva, generating $150 million. The funds invested in Blackbird’s early funds include AustralianSuper, Hostplus, HESTA, Telstra Super, Aware Super, and the Australian government’s Future Fund. This transaction is a significant return of capital to Blackbird’s investors.
Blackbird co-founder Rick Baker expressed his confidence in Canva and considered the sale to be a vote of confidence in the company. He highlighted Canva’s success and its strong performance driven by its Worksuite and AI product releases, which have led to user and revenue growth.
Canva, unlike other Australian tech giants like Atlassian, has been profitable since 2017. Cofounder Cliff Orbrecht stated that Canva is at a scale where it could consider an IPO. With the support of US investors, who have experience taking companies public, Canva is strategically preparing itself for a potential Nasdaq listing in the future.
The Nasdaq has shown interest in Canva, and the company’s presence has been highlighted on the Nasdaq’s digital billboard in New York’s Times Square. Canva aims to prove the repeatability and predictability of its big bets before going public, ensuring it meets the expectations of public market investors.
Venture capital is helping Beijing arm and Washington wants that to stop
Thu 10 Aug 2023 // 05:29 UTC
US president Joe Biden on Wednesday issued an executive order restricting stateside investors from sinking their funds into Chinese firms developing certain technologies, as part of an effort to prevent such products being used by China's military.
The order requires scrutiny of investments in Chinese companies that work on semiconductors and microelectronics, technologies used in quantum computers and networks, and certain software that incorporates AI and which is designed for military or intelligence-related uses.
As explained in the order, rapid advancement of technologies in the above fields "significantly enhances" the ability for "countries of concern" to conduct activities antithetical to US national security interests.
The US Treasury Department refers [PDF] to the effort as "narrowly targeted." Indeed the annex to the order identifies only China as a country of concern, along with Hong Kong and Macau – which are special administrative regions of China. The administration is open to expanding the list.
The White House reckons that "barriers between civilian and commercial sectors and military and defense industrial sectors" in these countries range from thin to non-existent, as tech developed in the private sector is funneled to military interests.
Advancements in the tech covered by the order is therefore felt to represent a risk as they potentially enable US adversaries to develop sophisticated weapons systems or crack encryption.
Biden called investment a "cornerstone" of US economic policy and clarified that the the nation supports cross-border investment when it is not inconsistent with US national security interests.
But investment provides "intangible benefits" – like managerial assistance, investment, talent networks and market access. And in the case of China, it must be controlled, he reasoned.
The program will target transactions involving acquisition of equity interests (e.g., via mergers and acquisitions, private equity, venture capital, and other arrangements); greenfield investments; joint ventures; and certain debt financing transactions that are convertible to equity, said the Treasury Department.
The Department stated it is considering exemptions for passive investment. Exemptions could include "publicly-traded securities, index funds, mutual funds, exchange-traded funds, certain investments made as a limited partner, committed but uncalled capital investments, and intracompany transfers of funds from a US parent company to its subsidiary.”
The public has 45 days to provide comments on the order and the policy it outlines, which the Treasury says will informs its draft regulatory text. Implementation is expected next year.
Top Chinese Uni fears Middle Kingdom way behind on tech – and US sanctions make catching up hard
China bans export of drones some countries have already banned anyway
American techies in China may be breaking the law by showing up to work
China chip material export controls just the tip of the iceberg, warns official
The order is likely to increase tension in US-China relations, which have in recent years seen tit-for-tat sanctions.
Most recently China banned exports of drones without a license and placed controls on the export of semiconductor precursors gallium and germanium.
Those restrictions followed a multitude of US export restrictions on semiconductors, telecom equipment and more, and bans on Chinese products from the likes of Huawei and ZTE.
"The EO follows the Biden administration approach to de-risk but not de-couple US-China economic, investment and trade relations. The major categories for the screening mechanism aim to be targeted and precise," Steven Okun, a senior advisor at trade consultancy McLarty Associates, told The Register.
"Still, 'certain AI systems' can be broadly interpreted, and more work needs to be done. Neither businesses nor Beijing should be surprised by the EO, and the fragile stability in US-China relations following the various recent high-level meetings between the governments should remain,” Okun added.
China's Foreign Ministry has unsurprisingly slammed the order.
In a Thursday statemenent, the Ministry labelled it "a clear act of overstretching the concept of security and politicizing business engagement."
"The move's real aim is to deprive China of its right to develop and selfishly pursue US supremacy at the expense of others," the statement adds, going on to describe the order as "blatant economic coercion and tech bullying."
"This is de-globalization and a move to phase China out."
Tage Kene-Okafor @ulonnaya / 3:14 AM PDT•August 14, 2023
Image Credits: Rebecca Bellan/Engage
Mastercard has agreed to purchase a minority stake in the fintech division of MTN Group, Africa’s largest cell phone provider, which it values at $5.2 billion. The signing of the formal investment agreements will likely occur very soon as both parties near the end of the regular due diligence process; the investment will be closed subject to usual closing conditions, MTN announced in a statement on the company’s half-year financial performance posted on Monday.
According to MTN Group president and CEO Ralph Mupita, the deal will be structured as a commercial partnership on payments and remittances employing Mastercard’s technical infrastructure to develop throughout Africa and an investment in a minority share. He stated that the share size would be announced after completing the transaction, per Bloomberg.
“We delivered a resilient performance in H1 23 and made good strategic progress against a tough macro backdrop. In South Africa, we were very encouraged by the improved network availability on the back of our power-resilience investment, resulting in a stronger Q2 23 performance than Q1 23,” Mupita said in the statement. “In Nigeria, we delivered a very strong operational result, having navigated the cash shortages in Q1 23 and increased inflation. The policy changes implemented in Nigeria in Q2 ’23 have short-term negative impacts, but we see these as being very constructive for the investment climate in the medium to longer term.”
This news comes a year after MTN Group said it was searching for minority investors to invest in its African fintech subsidiary after separating it from the carrier’s main telecom business to maximize development in the thriving division. The Johannesburg-based company’s aspirations were boosted after obtaining a mobile banking license in Nigeria, its largest market, which allowed MTN to offer financial services to millions of new clients.
For the first half of this year, the transactions recorded by MTN’s mobile money business increased by 37% to $8.3 billion; over 60 million active users executed them. At the end of June 2023, the MTN Group had over 290 million subscribers.
90% of investment decisions are influenced by emotions—this is amplified during extreme bull and bear markets, testing investors’ impulses
A reminder for new readers. That Was The Week collects the best writing on critical issues in tech, startups, and venture capital. I select the articles because they are of interest. The selections often include things I disagree with. The articles are only snippets. Click on the headline to go to the original. I express my point of view in the editorial and the weekly video below.
This Week’s Video and Podcast:
Content this week from @kteare, @ajkeen, KWHarrison13, @GeneTeare, @shaig, @cbinsights, @Samirkaji, @cartainc, @PeterJ_Walker, @BryceElder, @davewiner, @ianbremmer, @mustafasuleyman, @GaryMarcus, @benedictevans, @MTNGroup, @mastercard, @visualcapitalist
Dave Winer and Andrew Keen on Blogging, Podcasting and More
MTN, African Fintech
Emotional Investing is Bad for Your Wealth
In 2009 Facebook took a $200 million investment from Yuri Milner, the founder of Digital Sky Ventures (DST Global), in return for just under 2% of the company. 18 months earlier, Microsoft had paid $240m for the same stake.
DST’s stake turned into well over $4 billion in value. As he says on his web site:
DST Global invested in Facebook from 2009 to 2011 and divested its holdings in 2012 and 2013 following Facebook’s IPO.
I would date the 2023 crisis in venture capital as emanating from this period. Yuri, quite magnificently, showed the world that it was possible to invest in early-stage companies at high valuations and still make over twenty times your money. It was the dawn of growth investing in the venture capital ecosystem.
He went on to invest in Twitter in 2011 and made many more successful investments using the same strategy.
For the seed ecosystem, this was the beginning of the period that lasted from 2009 - 2022, when it was possible to see seed-funded companies grow into unicorns, often quickly, driven by rapid fundraises from growth-stage investors.
The period gave rise to Coatue, Insight Partners, Tiger Global, Fidelity, and other venture investors.
Q2 2022 saw the end of this period, and many of this week’s readings focus on the consequences but draw all of the wrong conclusions.
Kyle Harrison’s essay takes the lead spot, focusing on the “Greater Fool” meme that Venture Capital relies on the next investor making irrational investment decisions, and so is a place where Bernie Madoff-like fake value growth takes place. It’s somewhat clear that Kyle does not agree with the characterization (right ?). But he does think Hopin’s later investors bought into unfeasible beliefs to justify their valuations.
The Greater Fool theory suggests that the earlier investors were aware they were selling a dud and either remained silent or actively encouraged the hype.
The Financial Times definitely does believe venture capital is an extremely poor asset class. In “Venture Capital funds are mostly just wasting their time and your money,” Bryce Elder argues that venture funds underperform every other asset class.
the average VC fund doesn’t reliably outperform the average stock
From the point of view of this theory, Yuri Milner is probably the first “Madoff” venture investor, waiting for the fools to come. And future investors did come. But were they fools?
The real story of venture capital is different. There is no greater fool underbelly to venture capital. Founders and early-stage investors buy into world-changing ideas and try to build them. Often, they do not attract capital for years, and investors remain skeptical.
Even Hopin is one. When Seedcamp invested in Hopin’s seed round, it seemed clear that virtual events would grow rapidly under the Covid regime. It made a second investment as that thesis was borne out. Events grew, and revenue too. So more money was attracted to a likely good outcome. This optimism is not only normal in venture capital, it is required to enable large outcomes.
By the end of Covid, Hopin had raised all of its capital. I believe no single investor was hoodwinked by earlier investors or the founder. They wrote checks with glee and a belief in a world-changing moment.
To look at the period as somehow contrived is a re-writing of history.
That said, growth investors’ desire to allocate to high-value growth reached a limit in 2022 when public markets corrected and the multiples investors pay for revenue and growth contracted. At that point, IPOs froze, and later-stage investors had to write down the values of their investments. That process is still going on.
Clearly, lots of money will be lost, and pain will be felt. But to see that as a structural problem with venture capital is a mistaken diagnosis. Looked at as a whole, venture capital has catalyzed far more value than the money invested by it. As an asset class, it is the engine room of innovation. The Greater Fool theory is a cheap shot at a bad time.
This week’s X of the Week is a chart from Visual Capitalist showing how emotional investing loses money. It compares staying in the market versus jumping in and out based on short-term reactions. Venture Capital is currently a highly emotional asset class, and the trend is for jumping out, in reaction to the 2020-21 price and volume peak. But this is exactly the wrong thing to do. The counter-emotional imperative is to remain in the market and focus on quality long term opportunities.
Of course, that does not mean venture capital is perfect. I am on the record that data-first late-stage investing can produce outstanding returns from private markets, using a different, fresh, and bold approach to venture. That would risk-mitigate venture capital in a manner that can produce private market wealth growth products like those invented by Renaissance Capital, and championed by others, in public markets.
So this week, my theme is: Venture is Good. The next innovation in biotech, energy, AI, and more depends on it, which means we humans do too. And those who see the future will definitely invest in the next Hopin. But also in the next OpenAI, Google, Amazon, Apple, and Tesla. And thank goodness. Long Live Venture Capital.
AUG 12, 2023
Few case studies better sum up my grievances with various aspect of the venture capital industrial complex than does the story of Hopin.
Get it? Like, "what's happenin'?" Alright. Moving on.
In case you haven't seen the news, this is the best overview I've read. For the details, I'll summarize it real quick. In 2019, Johnny Boufarhat founded Hopin, a virtual events platform, in what may be the most well-timed founding ever.
COVID happened, and the company exploded. From November 2020 to August 2021, the company's valuation went from $2B to $7.7B. The company also reached $100M+ of revenue, serving 100K+ organizations running 15K+ events per month! Across 4 rounds in 14 months, the company raised ~$1B in funding! Boufarhat, the CEO, wasn't without his own enrichment. Over the course of those rounds, he sold ~$200M of secondary.
And then, wouldn't you know it, COVID restrictions started to lift, people could travel again, and Hopin's usefulness dropped from 15K events per month to 158. After several rounds of layoffs, Boufarhat announced he was stepping down and the company's flagship virtual events product was being sold to RingCentral for $15 million in cash with $35 million in potential performance-based earn outs. The acquisition was barely a footnote for RingCentral, with the CFO saying they “expect the acquisition [of Hopin’s assets] to have an immaterial impact on our revenue and expenses in 2023."
Man, oh man. So much to unpack here.
Hopin has joined some prestigious names in the hall-of-fame for capital destruction:
WeWork? Raised $22B in equity + debt at a peak valuation of $47B. Currently has $200M in cash, and a market cap of $431M. Recently announced their doubts about the company's ability to continue as a "going concern."
Peloton? Raised $1.9B at a peak valuation of $45B. Currently has $870M in cash, and a market cap of $3.4B.
Lyft? Raised $4.9B at a peak valuation of $20B. Currently has $638M in cash, and a market cap of $4.4B.
Quibi? Raised $1.8B. Currently has $0M in cash, and a market cap of $0.
Bird? Raised ~$1B at a peak valuation of $2.5B. Currently has $6.8M in cash, and a market cap of $22M!! 😱
Don't even get me started on any other SPACs (I'm looking at you Mr. Next Warren Buffett).
Granted, the $1B that Hopin raised didn't entirely disappear. There's still ~$400M, some of which the company might return to investors. And Hopin didn't sell entirely. They had previously acquired a live streaming business that is now the main product, with a valuation of ~$400M (a 95% decline from that $7.7B high).
But, like many of the examples of excess I've unpacked before, there's plenty to learn about some of the things that can be wrong with venture capital.
The first that I came back to is how unsurprising it feels like this is. Just about everyone working in startups has had some version of this experience: "this doesn't make sense, does it?"
Crypto mania. Billion-dollar valuations for pre-revenue companies. Investors branding themselves as "micro mobility investors." Even much of the current hype in AI. All of it leaves you scratching your head, trying to understand how that can make sense.
In the case of Hopin, you see a lot of instances of people being surprised. Here's a couple examples:
"Where things went wrong was behavior changed, consumer behavior changed in a way that the company didn't predict." (Former Employee)
"Nobody expected virtual events to go away as fast as they did.” (Former Employee)
But like... why not? Did anyone really, genuinely believe that life would forever be trapped lockdown-style? I think often of this tweet from early in 2020:
Investors are very much in the business of "dreaming the dream," but too often we have investors that assume the dream is supposed to be a fever dream.
Instead, the reality is that human behavior changes very little, and when it does it happens very slowly. More often than not, you can see these changes coming in the future. You may not appreciate the gravity of the future, but you can see trends like cellular bandwidth speeds acting as a clear catalyst.
But when things don't feel right (e.g. will the vast majority of people really want to be doing virtual events forever?) its probably because they're NOT right.
….
Venture capital is meant to enable companies to do unsustainable things in pursuit of scale that will eventually enable sustainability. But what if sustainability never comes?
In the piece, Venture Predation, the abstract contains a gut-punching line:
"Critically, for VCs and founders, a predator does not need to recoup its losses for the strategy to succeed. The VCs and founders just need to create the impression that recoupment is possible, so they can sell their shares at an attractive price to later investors who anticipate years of monopoly pricing."
Ohmygawd. Talk about saying the quiet part out loud. This gets to the crux of the Hopin question I raised at the end of the last section.
August 16, 2023
Only two companies joined The Crunchbase Unicorn Board in July — the lowest monthly count since we started tracking new unicorn pacing by month at the beginning of 2020.
Both new companies are in the Web3 sector, and neither are from the U.S.
The pace of new unicorn creation marks a big shift from 2021, when the average was more than two unicorns per work day. Even in 2022, new unicorns still averaged more than one per work day.
So far this year, new unicorns have averaged one every three to four work days.
July’s new unicorns:
Months-old Zyber 365, an India-based blockchain operating system company that raised a $100 million Series A funding led by Sram & Mram. The company was valued at $1.2 billion.
Three-year-old Flashbots, a developer of software for more efficient maximal extractable value mining on the Ethereum blockchain. The Cayman-based company raised a $60 million Series B round led by crypto investor Paradigm at a $1 billion valuation.
July also marked the lowest month for funding to current unicorn companies, with $2.2 billion raised compared to $6.6 billion for July 2022.
That’s yet another indication of how much investors have slowed their pace in investing in private high-growth companies.
August 10, 2023
The reset in private tech company valuations continued in Q2’23, especially at later stages. We look at how valuations, deal sizes, and deal terms are changing across the venture landscape.
Median tech valuations declined again for Series A, C, and D+ startups in Q2’23.
The latest stages — Series D and above — experienced the sharpest quarter-over-quarter (QoQ) decline (-33%) as valuations moved further away from unicorn levels. In contrast, startups at the earliest stages raising seed and angel rounds experienced slight growth (5%) in median valuation QoQ.
However, the median valuation was still down across the board year-over-year.
Below, check out a few highlights from our 20-page, data-driven Tech Valuations Q2’23 Report.
A few key takeaways from the tech valuation landscape in Q2’23 include:
Median tech valuations dropped again quarter-over-quarter (QoQ) for Series A (-14%), Series C (-9%), and Series D+ (-33%) startups.
The later the stage, the sharper the valuation decline year-over-year (YoY) in Q2’23. While the median valuation for seed/angel and Series A rounds fell 15% and 29% YoY, respectively, Series B to Series D+ valuations tumbled between 30% and 60%.
Deals negotiated with seniority or tiered liquidation structures gained share across every stage from Series A to Series D+ in H1’23.
Over half (60.6%) of Series D+ deals had seniority or tiered liquidation structures in H1’23.
Earlier this week, I wrote a post looking at the historical returns of Private Equity versus Venture Capital (Top decile/top quartile/bottom quartile).
For LPs, I'd heavily advise against choosing venture managers based simply where they place in benchmarks, especially in first 5-7 years. Why?
1) Persistence of returns is present, but fairly weak these days relative to the past. VC has shifted so much with fund sizes, management team transitions, competition, etc. Very hard to predict performance simply based on the past.
2) Over the last few years, particularly in seed, fast deployers were rewarded given the quick mark-up culture. I.e. if you deployed in 14 months vs. 36 months, there were more companies that were marked up. It's been shown that a fund doesn't settle in it's final quartile until about year 7.
3) Funds sometimes hold the same companies at wildy different marks. When diligencing a fund, should always the manager about valuation methodology, and what they are holding their breakouts at. This year, I saw the same company held at $600MM with one firm, and nearly $1.5B at another firm. Of course, the one that held at $1.5B benchmarked better.
4) Benchmarks treat VC as a monolith, and typically include funds of all types in a sample set.
I.e. The fact that a $3B VC fund may be included in the same sample set as a $40MM pre-seed fund reduces the effectiveness of a benchmark (particularly when looking at multiples). The two offer wildly different risk / return / time to liquidity profiles.
5) Survivorship bias: Sample sizes are often limited, and often include only self-reported numbers. This often skews benchmarks and results in survivorship biases being present
At the end of the day, LP investing is a long term ex-ante exercise. Instead of over-indexing on past results and benchmarks, it's critical to evaluate the go-forward position of a manager, and determine what is the appropriate absolute return and risk level to make the investment viable for you.
August 11, 2023
Peter Walker
Every startup begins as a pre-seed company. At Carta, we define “pre-seed” as any company that has yet to raise a priced equity round. These nascent businesses usually raise capital with convertible instruments, the most common being SAFEs (Simple Agreements for Future Equity) or convertible notes.
For the first time, we’re diving deep into our pre-seed cap table data to understand how founders at this stage raise capital from friends & family, angel investors, and pre-seed VCs. And there is a lot of data: Tens of thousands of startups that use Carta are currently pre-seed and 2,103 of them raised capital with convertible financings in H1 2023.
In this report, we touch on all the basics of pre-seed financing, including:
SAFEs, in all their many flavors
Convertible notes and their associated interest rates
Valuation caps and discounts
Angel check sizes and industry segments
Download the full report for everything you ever wanted to know about how fundraising works for the earliest startup companies.
SAFEs have taken over: Investment through SAFEs accounted for 80% of pre-seed invested capital in Q2 2023. However, certain industries such as medical devices, hardware, and biotech still see significant investment using convertible notes.
Valuation caps have gently declined: The median valuation cap for post-money SAFEs was $10 million this past quarter, down from $15 million at the beginning of 2022. This median is highly sensitive to round size, dipping down to $6.5M for raises between $250K-$499K.
Legacy venture ecosystems dominate the pre-seed stage: Of the 2,103 companies that raised some form of pre-seed financing in H1 2023, over half are headquartered either in California or in New York. Companies in these mature VC ecosystems were also much more likely to raise mega pre-seed rounds ($2.5 million or more on SAFEs).
Howling at the moonshot
Bryce Elder YESTERDAY
A good investment strategy is to only buy stocks that go up. Most stocks don’t go up though, at least not consistently, so an easier strategy is to buy lots of stocks and hope some will go up by more than most go down. It’s an application of power law, where just a handful of portfolio investments will generate nearly all of the returns.
A popular way to finesse this strategy to buy venture capital funds, because they’re arguably the purest expression of moonshot investing. Payoffs from private assets are much higher reward at lower probability than from public markets, generally speaking, so the power law concept has been very deeply embedded in the VC world.
The perhaps obvious catch is that power law applies just as much to funds as stocks. Just a handful of VCs generate nearly all of the sector returns.
Morgan Stanley equity strategists Edward Stanley and Matias Øvrum have run the numbers for the past 20 years of crossover investing and found that the average VC fund doesn’t reliably outperform the average stock….
All of a sudden, there was all this freedom:
David Winer on the origins of blogging, the self-publishing technology that has profoundly shaped the first quarter of the 21st century
Dave Winer is a software developer in New York. He led the early development of blogging, podcasting and RSS. He started two Silicon Valley tech companies, in PC and Mac development in the 80s. Dave is a former research fellow at Harvard and New York University. He led the early blogging movement, with the original blog, Scripting News, which he started 25 years ago.
Named as one of the "100 most connected men" by GQ magazine, Andrew Keen is amongst the world's best known broadcasters and commentators. In addition to presenting KEEN ON, he is the host of the long-running How To Fix Democracy show. He is also the author of four prescient books about digital technology: CULT OF THE AMATEUR, DIGITAL VERTIGO, THE INTERNET IS NOT THE ANSWER and HOW TO FIX THE FUTURE. Andrew lives in San Francisco, is married to Cassandra Knight, Google's VP of Litigation & Discovery, and has two grown children.
September/October 2023
Published on August 16, 2023
Daniel Liévano
It’s 2035, and artificial intelligence is everywhere. AI systems run hospitals, operate airlines, and battle each other in the courtroom. Productivity has spiked to unprecedented levels, and countless previously unimaginable businesses have scaled at blistering speed, generating immense advances in well-being. New products, cures, and innovations hit the market daily, as science and technology kick into overdrive. And yet the world is growing both more unpredictable and more fragile, as terrorists find new ways to menace societies with intelligent, evolving cyberweapons and white-collar workers lose their jobs en masse.
Just a year ago, that scenario would have seemed purely fictional; today, it seems nearly inevitable. Generative AI systems can already write more clearly and persuasively than most humans and can produce original images, art, and even computer code based on simple language prompts. And generative AI is only the tip of the iceberg. Its arrival marks a Big Bang moment, the beginning of a world-changing technological revolution that will remake politics, economies, and societies.
Like past technological waves, AI will pair extraordinary growth and opportunity with immense disruption and risk. But unlike previous waves, it will also initiate a seismic shift in the structure and balance of global power as it threatens the status of nation-states as the world’s primary geopolitical actors. Whether they admit it or not, AI’s creators are themselves geopolitical actors, and their sovereignty over AI further entrenches the emerging “technopolar” order—one in which technology companies wield the kind of power in their domains once reserved for nation-states. For the past decade, big technology firms have effectively become independent, sovereign actors in the digital realms they have created. AI accelerates this trend and extends it far beyond the digital world. The technology’s complexity and the speed of its advancement will make it almost impossible for governments to make relevant rules at a reasonable pace. If governments do not catch up soon, it is possible they never will.
Thankfully, policymakers around the world have begun to wake up to the challenges posed by AI and wrestle with how to govern it. In May 2023, the G-7 launched the “Hiroshima AI process,” a forum devoted to harmonizing AI governance. In June, the European Parliament passed a draft of the EU’s AI Act, the first comprehensive attempt by the European Union to erect safeguards around the AI industry. And in July, UN Secretary-General Antonio Guterres called for the establishment of a global AI regulatory watchdog. Meanwhile, in the United States, politicians on both sides of the aisle are calling for regulatory action. But many agree with Ted Cruz, the Republican senator from Texas, who concluded in June that Congress “doesn’t know what the hell it’s doing.”
Unfortunately, too much of the debate about AI governance remains trapped in a dangerous false dilemma: leverage artificial intelligence to expand national power or stifle it to avoid its risks. Even those who accurately diagnose the problem are trying to solve it by shoehorning AI into existing or historical governance frameworks. Yet AI cannot be governed like any previous technology, and it is already shifting traditional notions of geopolitical power.
The challenge is clear: to design a new governance framework fit for this unique technology. If global governance of AI is to become possible, the international system must move past traditional conceptions of sovereignty and welcome technology companies to the table. These actors may not derive legitimacy from a social contract, democracy, or the provision of public goods, but without them, effective AI governance will not stand a chance. This is one example of how the international community will need to rethink basic assumptions about the geopolitical order. But it is not the only one.
A challenge as unusual and pressing as AI demands an original solution. Before policymakers can begin to hash out an appropriate regulatory structure, they will need to agree on basic principles for how to govern AI. For starters, any governance framework will need to be precautionary, agile, inclusive, impermeable, and targeted. Building on these principles, policymakers should create at least three overlapping governance regimes: one for establishing facts and advising governments on the risks posed by AI, one for preventing an all-out arms race between them, and one for managing the disruptive forces of a technology unlike anything the world has seen.
Like it or not, 2035 is coming. Whether it is defined by the positive advances enabled by AI or the negative disruptions caused by it depends on what policymakers do now.
AUG 12, 2023
With the possible exception of the quick to rise and quick to fall alleged room-temperature superconductor LK-99, few things I have ever seen have been more hyped than generative AI. Valuations for many companies are in the billions, coverage in the news is literally constant; it’s all anyone can talk about from Silicon Valley to Washington DC to Geneva.
But, to begin with, the revenue isn’t there yet, and might never come. The valuations anticipate trillion dollar markets, but the actual current revenues from generative AI are rumored to be in the hundreds of millions. Those revenues genuinely could grow by 1000x, but that’s mighty speculative. We shouldn’t simply assume it.
Most of the revenue so far seems to derive from two sources, writing semi-automatic code (programmers love using generative tools as assistants) and writing text. I think coders will remain happy with generative AI assistance; its autocomplete nature is fabulous for their line of work, and they have the training to detect and fix the not-infrequent errors. And undergrads will continue to use generative AI, but their pockets aren’t deep (most likely they will turn to open source competitors).
Other potential paying customers may lose heart quickly. This morning the influential venture capitalist Benedict Evans raised this in a series of posts on X (formerly known as Twitter):
My friends who tried to use ChatGPT to answer search queries to help with academic research have faced similar disillusionment. A lawyer who used ChatGPT for legal research was excoriated by a judge, and basically had to promise, in writing, never to do so again in an unsupervised way. A few weeks ago, a news report suggested that GPT use might be falling off.
If Evans’ experience is a canary in a coal mine, the whole generative AI field, at least at current valuations, could come to a fairly swift end. Coders would continue to use it, and marketers who have to write a lot of copy to promote their products in order to increase search engine rankings would, too. But neither coding nor high-speed, mediocre quality copy-writing are remotely enough to maintain current valuation dreams.
Even OpenAI could have a hard time following through on its $29 billion valuation; competing startups valued in the low billions might well eventually collapse, if year after year they manage only tens or hundreds of millions in revenue. Microsoft, up for the year by nearly half, perhaps largely on the promise of generative AI, might see a stock slump; NVIDIA skyrocketing even more, might also fall.
Roger McNamee, an early pioneer in venture investing in software, and I were discussing this the other day. Perhaps the only use case that really seemed compelling to either of us economically was search (e.g., using Bing powered by ChatGPT instead of Google Search) — but the technical problems there are immense; there is no reason to think that the hallucination problem will be solved soon. If it isn’t, the bubble could easily burst.
August 17, 2023
Editor’s note: This is part of a series in which we interview active investors in artificial intelligence. Previous interviews were with investors at General Catalyst, Bessemer Venture Partners and Accel.
New York-based investment firm Insight Partners has invested around $4 billion in artificial intelligence companies over the past five years.
That’s according to George Mathew, a partner at the firm who has led some of its key investments in the AI sector.
“Every business is having a transformative moment,” Mathew said in a conversation with Crunchbase News, speaking to the new wave of innovation unleashed by the launch of ChatGPT late last year. Such generative AI models have raised the bar that will “reformat all of software,” he said.
Mathew joined Insight in February 2021 and made his very first investment at the firm leading the Series B in Weights & Biases, a machine-learning operations company used by OpenAI for tracking its transformer models. Seven months later, Weights & Biases went on to raise a Series C that valued it as a new unicorn.
Insight was already one of the most active startup investors in 2021 and into the first half of 2022, based on an analysis of Crunchbase data. The firm added 146 portfolio companies in 2022 alone, for a total of 750 primary investments with $50 billion in capital commitments, according to the firm.
The firm reportedly has $10 billion in dry powder, but is said to be scaling back on the $20 billion target size of fund 13 and deploying funds over a longer time horizon. Its funding pace in 2023 has slowed significantly from its peak in Q1 2022, per Crunchbase.
Most of Insight’s funding to its AI portfolio companies has come from its recent funds. Those are fund 11, a $9.5 billion fund announced in 2019, and fund 12, announced in 2022 and the firm’s largest at $20 billion (at a time when private company financings generally slowed).
Insight is tackling AI investments at three distinct layers. They include the modern data stack, MLOps (machine-learning operations) and generative AI applications.
The firm led the Series C in data orchestration platform Astronomer in 2022. However, the data stack is pretty well invested at this time, Mathew said. “A lot of our focus definitely shifted toward this next generation of machine-learning operations and specifically how LLMs are being built,” he said.
The acquisition of MosaicML by Databricks is indicative of a data stack company becoming a key player in MLOps, he said.
Mathew’s other investments in AI include data observability platform Acceldata, AI model performance management company Fiddler AI, and synthetic data creation company Tonic.ai.
Other investments in MLOps include data collaboration company Atlan, customer data platform RudderStack, and analytics company Kubit, which is built on top of Snowflake and Databricks.
As for what he’s looking for now as he seeks out generative AI companies to invest in, Mathew said it’s “companies that are building domain-specific models on top of private data sets with great user experiences and workflows.”
On the applications side, the firm is interested in vertical opportunities in financial services and health care as well as software — namely robotic process automation — that will be reimagined by this technology. Two portfolio companies reinventing robotic process automation with LLMs and transformers are Bardeen and Workato.
Insight is also interested in horizontal opportunities like Jasper, for which it led the $125 million Series A — a month before the launch of ChatGPT. The firm also invested in entertainment dubbing service deepdub, which translates not only voice but tonality into 40 different languages. And it led the Series C for Hour One, which provides virtual conferencing using an avatar built by a generative model.
AI experts cite ethical concerns over relationships humans may develop with such chatbots
Hibaq Farah UK technology reporter
Thu 17 Aug 2023 12.57 EDT
The next time you lie in bed and absent-mindedly ask your old friend Google for a piece of life advice, don’t be surprised if it speaks back to you.
DeepMind, the tech firm’s artificial intelligence arm, has announced it is testing a new tool that could soon become a “personal life coach”.
The project will use generative AI to perform at least 21 different types of personal and professional tasks, including life advice, ideas, planning instructions and tutoring tips, according to documents seen by the New York Times.
It is also being tested for how well the assistant can answer intimate questions about people’s lives.
Australian venture capital firm Blackbird Ventures has sold a portion of its stake in design platform Canva at a valuation of $25.5 billion. The secondary market sale to US investors, Coatue Management and ICONIQ Capital, brings Canva a step closer to its US listing. Blackbird first invested in Canva in 2012 at the seed stage with $250,000 and currently holds a stake worth around $5 billion.
Blackbird has been a shareholder in Canva since its founding in 2012. Over the years, the VC has supported the tech scaleup through eight funding rounds, with the most recent valuation of $54.5 billion in a $273 million raise in September 2021. However, in the past year, Blackbird, along with Canva’s other major VC investors, Square Peg and Airtree, had to reduce Canva’s valuation by 36% due to the impact of the pandemic on private tech company valuations.
Blackbird sold 3% of its 15% stake in Canva, generating $150 million. The funds invested in Blackbird’s early funds include AustralianSuper, Hostplus, HESTA, Telstra Super, Aware Super, and the Australian government’s Future Fund. This transaction is a significant return of capital to Blackbird’s investors.
Blackbird co-founder Rick Baker expressed his confidence in Canva and considered the sale to be a vote of confidence in the company. He highlighted Canva’s success and its strong performance driven by its Worksuite and AI product releases, which have led to user and revenue growth.
Canva, unlike other Australian tech giants like Atlassian, has been profitable since 2017. Cofounder Cliff Orbrecht stated that Canva is at a scale where it could consider an IPO. With the support of US investors, who have experience taking companies public, Canva is strategically preparing itself for a potential Nasdaq listing in the future.
The Nasdaq has shown interest in Canva, and the company’s presence has been highlighted on the Nasdaq’s digital billboard in New York’s Times Square. Canva aims to prove the repeatability and predictability of its big bets before going public, ensuring it meets the expectations of public market investors.
Venture capital is helping Beijing arm and Washington wants that to stop
Thu 10 Aug 2023 // 05:29 UTC
US president Joe Biden on Wednesday issued an executive order restricting stateside investors from sinking their funds into Chinese firms developing certain technologies, as part of an effort to prevent such products being used by China's military.
The order requires scrutiny of investments in Chinese companies that work on semiconductors and microelectronics, technologies used in quantum computers and networks, and certain software that incorporates AI and which is designed for military or intelligence-related uses.
As explained in the order, rapid advancement of technologies in the above fields "significantly enhances" the ability for "countries of concern" to conduct activities antithetical to US national security interests.
The US Treasury Department refers [PDF] to the effort as "narrowly targeted." Indeed the annex to the order identifies only China as a country of concern, along with Hong Kong and Macau – which are special administrative regions of China. The administration is open to expanding the list.
The White House reckons that "barriers between civilian and commercial sectors and military and defense industrial sectors" in these countries range from thin to non-existent, as tech developed in the private sector is funneled to military interests.
Advancements in the tech covered by the order is therefore felt to represent a risk as they potentially enable US adversaries to develop sophisticated weapons systems or crack encryption.
Biden called investment a "cornerstone" of US economic policy and clarified that the the nation supports cross-border investment when it is not inconsistent with US national security interests.
But investment provides "intangible benefits" – like managerial assistance, investment, talent networks and market access. And in the case of China, it must be controlled, he reasoned.
The program will target transactions involving acquisition of equity interests (e.g., via mergers and acquisitions, private equity, venture capital, and other arrangements); greenfield investments; joint ventures; and certain debt financing transactions that are convertible to equity, said the Treasury Department.
The Department stated it is considering exemptions for passive investment. Exemptions could include "publicly-traded securities, index funds, mutual funds, exchange-traded funds, certain investments made as a limited partner, committed but uncalled capital investments, and intracompany transfers of funds from a US parent company to its subsidiary.”
The public has 45 days to provide comments on the order and the policy it outlines, which the Treasury says will informs its draft regulatory text. Implementation is expected next year.
Top Chinese Uni fears Middle Kingdom way behind on tech – and US sanctions make catching up hard
China bans export of drones some countries have already banned anyway
American techies in China may be breaking the law by showing up to work
China chip material export controls just the tip of the iceberg, warns official
The order is likely to increase tension in US-China relations, which have in recent years seen tit-for-tat sanctions.
Most recently China banned exports of drones without a license and placed controls on the export of semiconductor precursors gallium and germanium.
Those restrictions followed a multitude of US export restrictions on semiconductors, telecom equipment and more, and bans on Chinese products from the likes of Huawei and ZTE.
"The EO follows the Biden administration approach to de-risk but not de-couple US-China economic, investment and trade relations. The major categories for the screening mechanism aim to be targeted and precise," Steven Okun, a senior advisor at trade consultancy McLarty Associates, told The Register.
"Still, 'certain AI systems' can be broadly interpreted, and more work needs to be done. Neither businesses nor Beijing should be surprised by the EO, and the fragile stability in US-China relations following the various recent high-level meetings between the governments should remain,” Okun added.
China's Foreign Ministry has unsurprisingly slammed the order.
In a Thursday statemenent, the Ministry labelled it "a clear act of overstretching the concept of security and politicizing business engagement."
"The move's real aim is to deprive China of its right to develop and selfishly pursue US supremacy at the expense of others," the statement adds, going on to describe the order as "blatant economic coercion and tech bullying."
"This is de-globalization and a move to phase China out."
Tage Kene-Okafor @ulonnaya / 3:14 AM PDT•August 14, 2023
Image Credits: Rebecca Bellan/Engage
Mastercard has agreed to purchase a minority stake in the fintech division of MTN Group, Africa’s largest cell phone provider, which it values at $5.2 billion. The signing of the formal investment agreements will likely occur very soon as both parties near the end of the regular due diligence process; the investment will be closed subject to usual closing conditions, MTN announced in a statement on the company’s half-year financial performance posted on Monday.
According to MTN Group president and CEO Ralph Mupita, the deal will be structured as a commercial partnership on payments and remittances employing Mastercard’s technical infrastructure to develop throughout Africa and an investment in a minority share. He stated that the share size would be announced after completing the transaction, per Bloomberg.
“We delivered a resilient performance in H1 23 and made good strategic progress against a tough macro backdrop. In South Africa, we were very encouraged by the improved network availability on the back of our power-resilience investment, resulting in a stronger Q2 23 performance than Q1 23,” Mupita said in the statement. “In Nigeria, we delivered a very strong operational result, having navigated the cash shortages in Q1 23 and increased inflation. The policy changes implemented in Nigeria in Q2 ’23 have short-term negative impacts, but we see these as being very constructive for the investment climate in the medium to longer term.”
This news comes a year after MTN Group said it was searching for minority investors to invest in its African fintech subsidiary after separating it from the carrier’s main telecom business to maximize development in the thriving division. The Johannesburg-based company’s aspirations were boosted after obtaining a mobile banking license in Nigeria, its largest market, which allowed MTN to offer financial services to millions of new clients.
For the first half of this year, the transactions recorded by MTN’s mobile money business increased by 37% to $8.3 billion; over 60 million active users executed them. At the end of June 2023, the MTN Group had over 290 million subscribers.
90% of investment decisions are influenced by emotions—this is amplified during extreme bull and bear markets, testing investors’ impulses
Share Dialog
Share Dialog
No activity yet