Artificial intelligence (AI) has become one of the most significant areas of investment and development for technology companies in recent years. However, some investors remain skeptical about the potential profitability of AI and worry whether advances in this field will make money. This skepticism has led to questions about whether AI investments are wise and whether companies should spend more on AI research and development.
According to Gordon Ritter, establishing venture fund Emergence Capital in San Francisco evidences a remarkable advancement within AI (artificial intelligence).
Ritter’s firm, an early investor in companies like Zoom and other lucrative startups, has experience investing in budding organizations.
Gordon Ritter says:
“Everyone has stars in their eyes about what could happen.”
“There’s a flow [of opinion that AI] will do everything. We’re going against that flow.”
VCs of Silicon Valley find themselves between two dissonances: their enthusiasm for AI and the tech downturn, which has caused decreased investments in startups during the past, creating a current level of skepticism. This tension is evident among venture capital investors from the valley.
The emergence of generative AI tools such as ChatGPT, created by OpenAI, has sparked fresh excitement amongst many people over the possibility of these tools developing into industry-defining companies. ChatGPT is a chatbot that can answer complex questions by inputting Text in natural-sounding language.
Character.ai, a chatbot-maker, recently acquired more than $200mn from Andreessen Horowitz. The deal valued the company at about $1bn and was revealed by the Financial Times last week.
Inflection AI, a one-year-old company backed by DeepMind’s co-founder Mustafa Suleyman and LinkedIn investor Reid Hoffman, is in discussions to attract investment of up to $675 million. Since its inauguration last year, Inflection has already managed to raise an impressive $225 million.
The company confirmed Microsoft’s “multibillion-dollar investment” in OpenAI in January. People familiar with the talks revealed OpenAI is looking for $10bn from Microsoft, resulting in a proposed valuation of $29bn.
Despite some investors being wary about investing due to the immense capital AI startups need for constructing “foundation models” that entail a voluminous amount of data and computing power, they are highly interested in playing an active role in this realm, largely fuelled by upscaling valuations.
ACCORDING TO ONE INVESTOR, Generative AI is like “landing on the moon” because it took enormous wealth and computing resources to make massive technical leaps. Comparable to nation-state-level resources, this impressive achievement proves difficult to replicate and underscores its magnificence.
Another veteran investor says:
“Companies are extremely overvalued and the only justifiable investment thesis is to get in incredibly early.”
“Otherwise you’re only buying in because of FOMO.”
Microsoft recently struck a deal with OpenAI to give them access to Azure cloud computing. This was followed by Google’s foray with Anthropic when they purchased 10% worth $300mn of the AI startup and, at the same time, provided vast computing resources.
The enthusiasm surrounding AI, following recent investments from top players such as Sequoia Capital, appears unaffected despite the decline in cryptocurrency value over the past year. On the other hand, these investors are receiving some losses due to this.
The value of deals struck by US venture funds halved between the first and fourth quarters of last year, from $81bn to $41bn, according to PitchBook. Crypto deals plunged more than 80 percent over the same period.
Sarah Guo, heading up the crypto sector’s investments for venture capital firm Greylock and angel investor into cryptocurrency exchange FTX, has taken a keen interest in AI’s vast potential. A year ago, she also invested in FTX.
Guo suggests now is an apt time to invest in AI backed by her new fund Conviction, which she has sourced $100mn to fuel expansion. Additionally, she notices high competition for AI deals; on the flip side, some valuations are unacceptable.
While some investors may be skeptical about the profitability of AI investments, the potential benefits of AI cannot be ignored. Companies that invest in AI have the potential to improve efficiency, reduce costs, and generate significant profits.
However, addressing the challenges associated with AI, such as bias and lack of transparency, requires ongoing investment in research and development. Ultimately, companies that strike the right balance between innovation and caution in their AI investments will likely reap the rewards of this rapidly evolving technology.
Source: ft
