Meanwhile, companies without AI at the core are struggling to raise capital.
They have real businesses and revenues. They’re raising at great prices.
But they’re just not cool anymore.
Let’s take a company like Uber. Uber gets you a ride somewhere. Where does generative AI fit into that?
Nowhere I can see. But it’s still a great business.
The next Uber is out there now. But VC’s aren’t looking for it.
Worse yet, many of these buzzy AI companies have minimal defensibility. If you can spin up a service quickly with an API call to OpenAI, so can someone else.
Moreover, AI is evolving so fast that today’s amazing tech is quickly upstaged tomorrow. Deploying tens of millions in that environment is treacherous.
VC funds took a drubbing in 2022. This year, they have a chance to redeem themselves by investing in great businesses at reasonable prices.
Instead, they’re running toward a new hype cycle. And their investors will pay the price.
I think generative AI is a fantastic technology. I use it every day.
But the normal rules of investing still apply. You can’t make money investing in businesses with no paying customers at 9 digit valuations.
So how can you make money?
By investing in businesses with real customers and revenue at reasonable prices. At seed, that’s around $8-20 million.
In a way, I’m happy to see VC funds stampede toward AI. That means minimal competition and low prices for the investments I want to make.
Will AI investments work? Leave a comment and let us know what you think!
Have a great holiday weekend everyone!
If you enjoyed this post, subscribe for more like this!
Last week, Google debuted its latest challenge to OpenAI: the new Bard. The waitlist is gone and Bard has some great new features. But can it beat GPT-4?
Today, I put both bots to the test.
Get the blog before anyone else…subscribe!
Bard now integrates with search and maps and can access the internet. So I tested it against its closest GPT-4 equivalent: Bing Chat.
Bing Chat uses GPT-4 and has internet access. It’s integrated into a search engine, just like Bard.
And unlike ChatGPT Plus, it’s free! (You have to use Microsoft Edge, but it’s a pretty good browser.)
I posed identical questions to each bot. These are real questions I actually need the answer to.
Let’s see how they do!
One of the main things I use GPT-4 for is help finding blog ideas. Again this morning, it performed well:
The stories are interesting and relevant. The links don’t work, but hey, it’s new technology right?
Now, let’s try Bard:
Bard refused my request entirely, outputting nothing.
GPT-4 has saved me hours in research time. But for this application, Bard seems useless.
I’m attending a demo day for Australian startups tomorrow. Maybe my new friends can help me prepare?
GPT-4’s answer was outstanding!
It told me things about Australia I never knew. I had no idea the culture was conservative.
It also gave me some ideas for questions.
Perhaps I should ask the startups about their international expansion plans. I rarely ask an American startup that since our domestic market is already vast.
Next, Bard’s turn:
Bard’s answer was good, but less complete than GPT-4’s.
It homed in on the risk of Australia’s small market. But it didn’t take the next logical step like GPT-4 and tell me to find out what a startup’s international expansion plan is.
Time for our third and final question.
I’m doing some research on the US meatpacking industry (long story). So I wondered, how many meatpackers are there in America?
Let’s ask GPT-4:
Excellent answer! It found an exact number and provided a source.
But it also called out something beyond the numbers. This is an unusual industry, with huge concentration.
GPT-4 made sure I’m aware of that. Nice work, GPT!
Let’s give Bard a shot:
Bard’s answer doesn’t seem accurate.
It gave a number only half the size of GPT-4’s. Maybe it’s valid, but without a citation, I’ll never know!
It did correctly call out the weird feature of meatpacking — massive concentration.
So far, Bard looks like a bust.
However, I’m sure Google will keep working on it. In time, it may catch up with GPT-4.
But for now, Microsoft and OpenAI have a heck of a headstart.
Have you tried Bard? If so, what did you think?
Leave a comment and let us know!
If you enjoyed this post, subscribe for more like this!
ChatGPT is incredible. But this might be even better.
Reid Hoffman’s new startup Inflection AI released an incredible tool last week. It’s great at answering your questions. But uniquely, it also asks you questions!
Today we are announcing the release of the first version of @heypi_ai, your personal AI.
Pi stands for “personal intelligence” because it provides infinite knowledge based on your unique needs.
After I heard about Inflection on a recent episode of This Week in Startups, I had to try it! It’s very easy — you can chat with the bot, Pi, on WhatsApp.
Calling it a bot almost feels disrespectful. This feels like a person.
I started out by saying hello and asking Pi how to use its skills.
Pi offered a great explanation of its abilities.
We were chatting on Wednesday night. I was going to be on a panel on venture capital the next day.
So I thought to myself, “Maybe Pi can help me prepare!”
My new friend did not disappoint:
The advice to be confident was helpful.
I tend to qualify things by saying “I think” or “I could be wrong.” But that’s obvious!
If I’m saying something, I think it. And anyone can be wrong.
And that’s when my chat with Pi really got interesting.
Pi started asking me questions!
Pi asked what kind of panel I was going to be on. I explained that it was about investing in startups.
We wound up in a nuanced discussion about how to invest.
Pi liked my approach of investing at Seed but only with traction. But it brought up some potential issues.
Going for the IPO is great, but those are rare. I may be undervaluing acquisitions as an exit strategy.
Then we really got into the weeds…
Pi asked me if I think SAFE’s are overused. I mentioned they have some pitfalls.
I couldn’t recall all the details. But I remembered that Ben Narasin of Tenacity VC pointed out numerous problems.
Pi knew all about it! It (he? she?) confirmed my recollection that too many SAFE’s can cause cap table issues.
Pi gives amazing answers to your questions. But I think the killer feature is Pi asking me questions to help me learn.
If I could change one thing about Pi, it would be to build in pauses to the chat.
The interaction was so immersive that the time flew by. There were no cues for a break or even a change of topic.
That makes me a bit hesitant to use it again. It might be too powerful.
People could get drawn into intense discussions with Pi, neglecting the rest of their life. Inflection should build safeguards around that.
But this is a very new tool. I’m confident Hoffman and his team will finetune it soon.
Congrats to the amazing team at Inflection AI!
Will you be trying Pi? Why or why not?
Leave a comment and let us know!
Have a great weekend everyone!
If you enjoyed this post, subscribe for more like this!
Last year, someone called my grandma pretending to be me. I was in trouble and needed money.
It was a scam. What happens when that scam uses AI?
Get the blog before anyone else…subscribe!
“AI is so intelligent it’s open to the bad players, the ones that want to trick you about who they are.”
Steve Wozniak
Apple co-founder Steve Wozniak called out serious concerns with AI in an interview this week:
Speaking to the BBC, he said AI content should be clearly labelled, and regulation was needed for the sector.
“A human really has to take the responsibility for what is generated by AI.”
Back to my grandma. In the near future, the voice on the other end of that phone could sound exactly like me.
An AI model could clone my voice and speech style. Given my podcast appearances and this blog, it has plenty of data to work with.
Then, it could deliver an incredible story to grandma. And she might part with the money she worked a lifetime to save.
I pray this does not happen. But it is a serious risk.
AI impersonation involves way more than scams, however. Already, we have seen false images of Donald Trump in handcuffs.
I don’t think many people were fooled by those. But in time, fake images and video will only become more convincing.
We may soon be living in a hall of mirrors, unsure what reality is.
So I wholeheartedly support Woz’s call for labeling. And the best way to do it would be through self-regulation.
Angel investor Jason Calacanis laid out a great template on a recent episode of This Week in Startups. Tech companies could band together like the movie industry did with the MPAA.
Just like the MPAA required ratings labels for movies, tech could require certain labels for AI content. Companies that violate this could be banned from partnerships or financing.
Industries self-regulate to head off regulation by the government. And in a complex and rapidly changing field like AI, government is ill-suited to the job.
How many people in government know anything about AI? And even if they do, government moves too slowly to regulate something this dynamic.
AI has incredible benefits. I found out about Woz’s interview using GPT-4!
But anything this powerful also has serious risks. If we don’t start protecting people, the government will.
Do you agree with Woz? Why or why not?
Leave a comment and let us know!
If you enjoyed this post, subscribe for more like this!
AI is the biggest opportunity in 20 years. It could also kill countless VC funds.
Get the blog before anyone else…subscribe!
I took a sip of some yummy espresso last Thursday and plopped down at the laptop. Time to dig into a deal memo from a VC I really respect.
He laid out a clear view of AI’s future. And if you’re an investor, it’s scary. 😲
Tons of startups are all racing to become the next hot thing in AI. They’re all doing the same things with the same tools.
Most will fight each other to the death. With differentiation nonexistent, margins are headed to zero.
Now, what if we add VC’s with billions and a bad case of FOMO?
A bunch of massively overfunded companies will fight to the death. No one will make money.
And many AI-heavy funds will be destroyed. Or as this investor put it, we are headed for a “capital bonfire.”
I tried to poke holes in his argument. But I couldn’t.
It’s not that hard to integrate AI tools into software. A founder I know did it in just 6 hours using OpenAI.
If you’re not something more than a wrapper for OpenAI, you’re not going to make it.
Geez Francis, you really hate AI, don’t you?
Not at all! I think ChatGPT and similar technologies are an incredible revolution.
But just because a new technology is incredibly useful doesn’t make it profitable. Toasters are very useful, but making them isn’t a great business.
There are too many other companies making the same thing.
Aggravating the defensibility problem are massive valuations.
I’ve seen AI companies with no revenue raise “seed” rounds at $150 million or more. I even saw an AI hardware company recently raising “seed” at over $400 million!
These valuations don’t make sense for companies that are barely off the ground. As Fred Wilson of Union Square Ventures has proven, investors can’t make money with $100 million seed rounds.
So who wins in AI?
Big tech will be huge winners. Microsoft practically owns OpenAI.
It has also integrated AI into all its Office products. You can even ask your calendar to prepare you for an upcoming meeting!
Microsoft owns the platform many people already use. Then they serve this captive audience some great AI features.
That’s a winning model.
Another winning model is focusing on data. I’m looking for companies focusing on unique data sets, data cleaning, and better data processing.
Data fuels every AI model. Better data means better outputs.
Even if many AI companies go bust, selling data services can still be a great business. Airlines have a way of going bankrupt, but Saudi Arabia’s doing pretty well selling them fuel.
Let other investors drop money onto every AI startup from a helicopter. I’ll be taking careful kill shots at big game.
Q&A platform Quora has opened up public access to its new AI chatbot app, Poe, which lets users ask questions and get answers from a range of AI chatbots, including those from ChatGPT maker, OpenAI, and other companies like Anthropic. Beyond allowing users to experiment with new AI technologies, Poe’s content will ultimately help to evolve Quora itself, the company says.
Let’s see what Poe can do!
First, you’ll have to download an iOS app. Inexplicably, Poe doesn’t have a web version.
Quora makes downloading Poe so painful I would’ve given up if it wasn’t for this blog! But anything for you guys. 🙂
You enter your phone number and get a text verification code. Okay, whew, done…right?
Wrong. Next you have to enter your e-mail and get another verification code there!
Are we talking to a chatbot or launching a missile?
But once you’re in, Poe is actually pretty cool. I asked the same question to all 3 bots on offer.
Let’s see who wins!
First up: OpenAI’s Sage. “What are the most important things for angel investors to know?” I asked.
Sage’s answer is decent, but too abstract. It advises me to “have a plan to manage” risks — but what should the plan be?
A better answer would tell me to diversify.
You see the same problem throughout Sage’s response. It tells me to pay attention to investment time horizon, but gives me no idea what the time horizon is!
Somewhat useful, but woefully incomplete.
On to Dragonfly, also from OpenAI…
Dragonfly’s answer is pithy and more helpful. It tells us to diversify our bets, one of the most important things angels should know.
But Dragonfly is also too abstract. It tells me to be comfortable with the terms of the investment.
Uh, yeah. But what do good terms look like?
Okay Claude, we’re counting on you…
Claude’s answer is by far the best. It tells us to limit risk and be aware of the time horizon, just like Sage.
But unlike Sage, it tells us how to limit risk and what the time horizon is! This is a dramatically more useful answer.
Claude also tells us not to rely on “hype or gut feel.” If only we’d had this in 2021!
If Poe can fix the glaring usability problems, it could be very popular. But Quora’s real play may be in AI infrastructure.
Poe plans to offer an API to give developers a plug-and-play chatbot UI. This would let programmers turn any AI tool into a bot.
The API opportunity could be huge. Just like Stripe made integrating payments easy, Poe could be the go-to for turning your code into a usable product.
Soon, we may be able to plug into specialized data sets in seconds and answer any question. How awesome would that be?
Today, Google is the king of search. But is it about to be dethroned?
Get the blog before anyone else…subscribe!
The search giant seems to face a new competitor every day. ChatGPT launched on November 30, with Perplexity and Allsearch coming shortly thereafter.
The “page of links” is starting to look antiquated.
Meanwhile, with nearly 200,000 employees, Google has released nothing in response. But new reports indicate Google may finally release a competitor this spring:
In addition to an ethical AI chatbot such as LaMDA, Google is now planning to reveal 20 more AI-based products at its I/O conference scheduled for May 2023. ChatGPT has sparked worry about the use and viability of conventional search engines, as the chatbot aims to provide answers to searches instead of just giving relevant links to users.
Taking over 5 months to respond to a mortal threat to your business is unacceptable. Google should’ve worked day and night to produce a ChatGPT competitor within 90 days.
So what’s the holdup?
Google has shown wariness in revealing AI products and services, especially with the raging debate on the ethics of using AI, with the potential for bolstering biases present in training data. All current AI offerings by Google are heavily restricted in terms of what they can be used for.
Large companies are obsessed with risk. Meanwhile, startups have to release something or they’re dead in the water.
By the time Google does release a competitor, it may already be outdated. OpenAI’s GPT-4 may come out in the first half of this year.
I don’t know what GPT-4 will be capable of. But seeing the massive improvement between GPT-3 and ChatGPT, I expect it to be very impressive.
How fast you launch and iterate is especially important in AI because AI tools can improve at incredible speed. From a recent column by economist Tyler Cowen:
ChatGPT, the model released late last year, received a grade of D on an undergraduate labor economics exam given by my colleague Bryan Caplan. Anthropic, a new LLM available in beta form and expected to be released this year, passed our graduate-level law and economics exam with nice, clear answers.
Maybe Google will release a ChatGPT killer and blow us all away. But I expect to see it fall further and further behind, mired in complacency and risk aversion.
What do you think the future holds for Google? Leave a comment at the bottom and let me know!
I don’t think cold exposure protects you from catching the cold. And why Allsearch assumes cold plunges involve a race, I don’t know.
Meanwhile, it missed the benefits to alertness, sleep and hormone levels.
On to prompt # 2…
I decided to go with something more straightforward and historical. This time, Allsearch was on point.
Allsearch correctly notes that the USSR economy was in shambles, which led the government to collapse. Students are going to love using this for their papers!
For the 3rd and final prompt, I dug into the world of technology:
Again, Allsearch’s answer is excellent. It covers personal computing, the space race, and the computer revolution in business.
Where Allsearch beats ChatGPT hands down is in citing sources. If you want to know more about a topic, you have a reading list right there on the page!
You also trust results more when you see where they came from.
I think this is an amazing tool. The results aren’t perfect, but for a version 1.0, it does a great job.
Never one to miss an opportunity, I just contacted the creators to schedule a meeting. This might make a juicy investment. 🙂
What do you think of Allsearch and generative AI? Leave a comment at the bottom and let me know!
Last Thursday, I was preparing to judge a startup pitch competition. I thought to myself, “How can I make sure every startup hits the key points?”
Then, it came to me: a checklist!
Every time you pitch investors, you need to give them certain key pieces of information. Without those details, they may just move on to the next company.
Make sure that never happens to your business! Whenever you pitch, make sure you check off these 6 key elements:
1) Problem. What problem do you solve? For example, Uber solved the problem of expensive, hard to get taxi rides.
2) Solution. How do you solve that problem?
Uber makes it easy to get a ride with a simple smartphone app. You always know exactly what you’re paying and where your driver is.
3) Traction. Show us a chart of your revenue, broken down monthly or quarterly. Also, compute a growth rate using a tool like this.
Investors want to see a strong growth trend. Make absolutely sure you give them that, if at all possible.
Don’t have revenue yet? Show us monthly active users, signups, etc.
4) Market + Competitors. How big is your market? Who do you compete with?
I’m more interested in your competitors. Who do you lose deals to? Who do you beat for deals? And why?
Hint: “we don’t have any competitors” is rarely the right answer. Maybe no company does exactly what you do, but who is close?
5) Team. This is especially critical for early stage startups. At this point, there usually isn’t a ton of performance to sell.
So you have to emphasize the quality of the team. Why are these the best possible people to take on this challenge?
6) Ask. Here’s one of the strangest things I see: a founder telling a great story with solid traction, and then saying “thank you” and sitting down.
Umm, don’t you want something from us?
Never forget to tell the investors exactly what you’re asking for! Tell us how much you’re raising, at what valuation, and specify if that’s pre or post-money. (If the valuation includes the money you’re raising, that’s “$X post-money,” also referred to as “$X cap.”)
It’s also good to specify what type of fundraise you’re doing. Is it a SAFE, a priced round, or a convertible note?
Say something like this: “We are raising a $1 million SAFE at a $10 million cap.”
If you hit these 6 key elements, you’ll have a solid pitch that gives investors the details they need. You’ll also have a leg-up on other founders who provide incomplete or unhelpful information.
Best of luck on your fundraise!
Next, I asked ChatGPT to write an article on the same topic:
Here is its answer:
Raising money for a startup can be a daunting task, but having a solid fundraising pitch can make the process a lot smoother. Here is a checklist of items to include in your pitch to give investors a clear understanding of your business and why it’s worth their investment:
Problem: Clearly articulate the problem your business is solving and why it’s important.
Solution: Explain how your product or service addresses the problem and how it’s different from other solutions on the market.
Market size: Provide data on the size of the market you’re targeting and how you plan to capture a share of it.
Traction: Share any traction your business has already gained, such as customer testimonials, partnerships, or revenue.
Team: Introduce the team behind the business and highlight their relevant experience and qualifications.
Business model: Explain how the business will make money and provide financial projections.
Use of funds: Clearly outline how the funds will be used, such as product development, marketing, or hiring.
Ask: End your pitch by clearly stating the amount of funding you’re seeking and the terms of the investment.
Bonus: Show a clear path to exit and give an idea of what investors can expect to gain from the business.
By including these items in your pitch, you’ll be able to give investors a comprehensive understanding of your business and why it’s worth investing in. Remember to keep your pitch clear, concise, and visually engaging.
A strong pitch will also demonstrate that you understand your market, your customers, and your competition. It will also show that you have a clear vision, a solid team, a scalable business model and a sound plan for using the funds.
What strikes me most is how similar they are!
ChatGPT included all 6 of the items on my checklist. It also added 3 more.
For the most part, I think ChatGPT’s answer is excellent. Clearly stating a problem, showing how you solve it, and showing your traction are critical.
But at certain points, ChatGPT gets sidetracked. It suggests showing projections, which most investors discount pretty quickly.
It also tells us to show how the company will exit. This is wildly premature for most startups.
An exit is often 10 years off or more. There’s no telling how it will shake out.
What’s more, a founder who’s too focused on an exit is a red flag to investors.
Are they just looking for a quick win by flipping the company to Big Tech? If so, this will only be a small outcome for the VC’s.
Also, ChatGPT doesn’t provide examples. Examples are helpful in knowing how to frame a problem simply or how to describe the terms of your fundraise.
Moreover, ChatGPT lacks a personal tone. I describe experiences meeting actual founders, which a computer program can’t do.
Sometimes, you want a little of that human touch!
In all, ChatGPT’s writing was surprisingly good. But I think it has a way to go before it puts me out of business. 🙂
Which post did you like better, mine or ChatGPT’s, and why?
Tremendous 