Uncorrelated Ventures Founder: AI Is a Hot Mess Right Now

Summary

The transcript discusses the focus on infrastructure and crypto software, with an emphasis on the latter as a subset of infrastructure. The speaker's background in infrastructure software is highlighted, and the potential of AI as a value add to existing platforms is noted. The current state of AI investments is described as a 'hot mess' due to high valuations and crowded markets, yet opportunities exist, particularly in the tools and tool chains layer. The speaker also touches on the challenges of investing in the hardware and foundational models layers due to their nature and the involvement of larger entities. Despite the challenges, the speaker has made several seed investments and is optimistic about the prospects. The fund's strategy includes investments in crypto and crypto-adjacent startups, with a focus on decentralized infrastructure. The fund's $315 million size and its institutional backing are also discussed, as well as the speaker's concerns about the impact of high AI interest on valuations and the hope for a market adjustment to identify better investment opportunities.

Takeaways

• 🚀 The primary focus of the company is on infrastructure software, with 80% of the attention on this area and 20% on crypto.
• 🌐 The speaker's background is heavily in infrastructure software, which is a significant part of the crypto space, particularly decentralized infrastructure software.
• 💡 AI is seen as a value-add to existing software platforms and a subset of infrastructure software, providing a positive sentiment and 'feel good' value.
• 🛠️ Infrastructure software is differentiated from application software, and AI is very meme-friendly currently, with a lot of hype surrounding it.
• 📈 The speaker is interested in investing in the tools and toolchains layer of AI, despite it being crowded and high in valuations.
• 🏢 Venture investors are limited in investing in the lower layer hardware due to it being the realm of larger companies, while the foundation models layer is tough to monetize.
• 🌍 The speaker finds success in investing in seed series and series B, with a geographical focus on the U.S. market and an exception for India.
• 💰 The fund size of $315 million is considered sizable, and the LPs (Limited Partners) back the speaker's vision to invest in the AI layer despite the challenges.
• 🔄 The speaker invests in crypto and crypto-adjacent startups, particularly those working on underlying technology, sometimes through buying tokens.
• 🏦 The majority of the fund's investors are institutional, with the rest being a mix of family offices, individuals, and a university endowment.
• 📉 The speaker expresses concern about the high valuations in the AI sector but hopes for a trough of disillusionment to provide better investment opportunities.

Q & A

What are the two main focuses of the speaker's software interests?

The speaker's two main focuses are infrastructure software, which accounts for 80% of their interest, and crypto, which is 20%.

How does the speaker's background influence their focus on infrastructure software?

The speaker's background has been primarily in infrastructure software, which has led to their significant focus on it, especially in relation to decentralized infrastructure software.

What is the speaker's perspective on the current state of AI in software platforms?

The speaker views AI as a value add to existing software platforms and a subset of infrastructure software, indicating a positive sentiment towards the integration of AI in these areas.

What challenges does the speaker face when investing in AI startups?

The speaker finds the AI investment landscape to be crowded, with high valuations and fast-paced funding rounds, making it difficult to identify the right opportunities and to execute investments.

Which layer of AI investment does the speaker find most appealing to venture capitalists?

The speaker believes that the tools and toolchains layer is the best area for venture investors to focus on, despite the challenges of high competition and valuations.

How does the speaker describe the sentiment around AI currently?

The speaker describes the sentiment around AI as being very positive and 'meme friendly,' but also expresses concern that it might be too positive, leading to a potential overvaluation in the market.

What type of investments has the speaker made in the AI space?

The speaker has made seed investments in the AI space, though they acknowledge the high valuations and the competitive nature of the market.

What is the speaker's stance on investing in crypto and crypto-adjacent startups?

The speaker is open to investing in crypto and crypto-adjacent startups, particularly those focused on decentralized infrastructure, even if it means purchasing tokens as part of the investment.

How did the speaker's fund raise capital, and what was the composition of Limited Partners (LPs)?

The speaker's fund raised capital mostly from institutional investors, with the remainder coming from a mix of family offices, individuals, and a university endowment.

What economic environment is the speaker interested in?

The speaker is interested in the current economic and rates environment, likely referring to the impact of interest rates and economic conditions on investment opportunities and valuations.

What is the speaker's outlook on AI valuations in the short term?

The speaker is concerned about the high valuations and positive sentiment around AI in the short term, hoping for a trough of disillusionment to present better investment opportunities.

Outlines

00:00

🚀 Focus on Infrastructure and Crypto Software

The speaker discusses their focus on infrastructure software, which constitutes 80% of their interest, with crypto at 20%. They attribute this to their background in infrastructure software and see a significant overlap with crypto, particularly in decentralized infrastructure software. They also touch on the value AI adds to existing software platforms and categorize infrastructure software as non-application software. The speaker expresses concern about the current hype and high valuations in the AI space, especially in tools and toolchains, but sees potential in investing in the fourth layer of AI applications.

Keywords

💡Software

Software refers to programs or operating information used by computers to perform specific tasks. In the context of the video, the speaker differentiates between infrastructure software and application software, emphasizing the former as their area of focus. The speaker's background in infrastructure software is highlighted, which includes decentralized infrastructure software within the crypto space.

💡Crypto

Crypto, short for cryptocurrency, encompasses digital or virtual currencies that use cryptography for security. The video discusses crypto's intersection with infrastructure software, particularly in the context of decentralized systems. The speaker also touches on the challenge of investing in crypto projects, where sometimes the only investment avenue is through purchasing tokens.

💡AI

Artificial Intelligence (AI) refers to the simulation of human intelligence in machines that are programmed to think and learn like humans. In the video, AI is presented as a value-add to existing software platforms and a subset of infrastructure software. The speaker expresses concern about the current hype and high valuations in the AI sector, hoping for a trough of disillusionment to present better investment opportunities.

💡Investment

Investment in this context refers to the allocation of resources, usually money, into financial schemes, shares, property, or a business with the expectation of achieving a profit. The video discusses various layers of investment in AI and crypto, including tools and tool chains, foundation models, and hardware. The speaker also talks about the challenges of high valuations and crowded markets in these areas.

💡Valuations

Valuations refer to the process of determining the economic value of an asset or company, often used in the context of investments to assess the worth of a company or project. In the video, the speaker is concerned about the high valuations in the AI and crypto investment spaces, which they believe are inflated due to the current positive sentiment and hype around these technologies.

💡Trend

A trend is a general direction in which something is developing or changing. In the context of the video, the speaker discusses the trend of AI's impact on valuations and the investment landscape, as well as the potential for a shift in sentiment towards AI, indicating a cyclical pattern of enthusiasm and disillusionment.

💡Infrastructure

Infrastructure refers to the basic physical and organizational structures, facilities, and systems needed for the operation of a society or organization. In the video, the speaker's focus on infrastructure software indicates a concentration on the foundational technologies that support other applications and services, particularly in the realm of decentralized systems within crypto.

💡Decentralized

Decentralized systems are those in which no single entity has control, and decisions are made collectively. In the context of the video, decentralized infrastructure software pertains to the technologies that form the backbone of blockchain and cryptocurrency systems, which are distributed and not controlled by a single authority.

💡Token

A token in the context of the video refers to a digital asset or权益 that represents access or value within a blockchain-based system. Sometimes, the only way to invest in certain crypto projects is by purchasing these tokens, which may eventually convert into equity.

💡Venture Capital

Venture capital (VC) is a type of private equity financing where investors provide capital to startups and early-stage companies in exchange for equity or a stake in the company. In the video, the speaker discusses the challenges venture investors face, such as high valuations and crowded markets in the AI and crypto sectors.

💡Fundraising

Fundraising in this context refers to the process of collecting capital from various sources, such as institutional investors, family offices, and individuals, to finance a venture capital fund. The speaker shares their experience of raising a sizable fund, indicating a successful fundraising effort despite the challenges.

Highlights

The main focus is on infrastructure software with a significant 80% emphasis, while crypto represents a smaller 20%.

Crypto often falls under the category of infrastructure software, particularly in the case of decentralized infrastructure software.

AI is seen as a value-add to existing software platforms, particularly as a subset of infrastructure software.

Infrastructure software is distinguished from application software in its role and function.

AI is very meme-friendly currently, with a lot of hype and positive sentiment surrounding it.

The tools and tool chains layer is considered a good investment area for venture investors, despite the crowded market and high valuations.

The lower layer of hardware is not typically accessible for venture investors due to its nature and scale.

Foundation models in AI are challenging to invest in because they resemble operating systems, which are harder to monetize compared to databases.

The fourth layer, which involves leveraging AI, has been somewhat easier to invest in, despite the messy environment.

The speaker has made several seed investments in the AI space, with an uncertain outlook on their success.

Investments are primarily made in the seed series and Series B, with a geographical focus on the U.S. market and, with exceptions, India.

The fund also focuses on crypto and crypto-adjacent startups, especially those working on underlying technology rather than digital tokens themselves.

Investing in projects sometimes requires buying tokens, which may eventually convert into equity.

The $315 million fund consists mostly of institutional investors, with a minority from family offices, individuals, and a university endowment.

The fundraising process was smooth, with a mix of institutional and other types of investors.

There is concern about the high valuations in the market, particularly driven by the interest in AI, and a hope for a trough of disillusionment for better investment opportunities.

AI is recognized as a massive long-term opportunity that will change everything, but there is short-term worry due to the overhyped sentiment.

Transcripts

Two focuses software crypto, which is the bigger focus infrastructure software

is a larger focus. That's 80% y, crypto is 20%.

Well, partly it's my background. It's all been in infrastructure software

and a lot of crypto is infrastructure

software. Not all of it is, but portions of it are

just decentralized infrastructure software.

How much? I don't know how to put this feel good

there's spaces I infrastructure software SAS get from what's happening and I as

far as I can tell, the very basic pitch for AI is that it is a value add to

existing software platforms well as a subset of infrastructure software.

So it gets a lot of feel good value for me.

I infrastructure software is just software that is not application

software. So

AI is is very, very meme friendly right now.

Tell me about it. It's about Elon Musk.

Principally it's the sentiment is too positive.

It's a hot mess. Where I'd like to be investing is in the

tools and tool chains layer, but there's just too many companies.

It's too crowded, valuations are high. The lower layer hardware is off limits

to venture investors, right? That's the realm of larger companies.

The layer above that, the foundation models, those are also tough to invest

in because they're more like operating systems, which are tougher to monetize

than like databases which are easier to monetize.

So the third layer of tools and tool chains is the best area for venture

investors to be investing in. But it's a hot mess.

The fourth layer, which is just using A.I.

or leveraging A.I., that's been so far a bit easier for me to invest.

I keep saying that it's a hot mess, but there must be an opportunity or a way

for you to navigate the hot mess because you've raised a sizable fund and the LPs

must back your vision to to invest in that layer.

Yeah, there there are a lot of great opportunities there, just so many

companies that it's tough to weed through all of them and find the right

ones. And when you find the right ones, the

valuations are very high, the rounds are very hot, they close fast, so it's just

tougher to prosecute. I do have half a dozen or so seed

investments in that area. We'll see how well they do, but that's a

good point. So my next question would have been,

well, at what stage and where geographically are you finding my

success Initially Seed series, a small checks and Series B

and geographically U.S. or world markets with an exception for

India. The other focus of the fund is is crypto

and I'm guessing crypto adjacent startups that are working more likely on

the underlying technology. Is that right?

Well, as opposed to digital tokens themselves?

Well, yes, although sometimes the only way to invest in the projects is to buy

the token. Sometimes you buy equity, right?

And eventually the equity converts to tokens.

But yeah, to the extent that it is decentralized infrastructure, it's in

scope. For me.

Not all of crypto is infrastructure, though.

$315 million is a sizable fund and I'm really interested in this economic

environment, in this rates environment, what the LPs look like, where you were

able to raise those funds from and how quickly you were able to do it.

They were mostly institutional. So 70, 75% is institutional and there's

a long tail of family offices and individuals for the

rest of the year for sovereign wealth funds.

There's one university endowment. The the fund raising was not not too

bad. It was it was pretty smooth.

Let's really quickly go back to you, express your concerns about

valuations right now, or at least the impact of the interest in AI on

valuations. Do you feel like that is something that

will continue throughout the year or investors have kind of had their fill of

the high multiple names that they've gone into?

A.I. is a huge long term opportunity.

It's going to change everything. Everyone's going to leverage AI and and

AI is available to everybody through an API call.

But short term, I'm a little worried. The positive sentiment makes me a little

nervous, and I'm hoping for the trough of disillusionment

to invest more. But I.

Think beyond the trough of disillusionment.

It'll it'll be, you know, it'll be an uptrend again.