Is Artificial Intelligence Worth it?
How can investors and entrepreneurs think critically about the value of AI and what that means for the future of the technology ecosystem?
Compared to your average venture capital firm, we talk about Artificial Intelligence far less. This is not a result of a lack of interest in the technology itself (we find it fascinating), but rather the undisciplined investing behavior when it comes to the "next big AI company".
As an asset class, venture has become a consensus investing club that has created a frenzy of overpriced deals in AI just as we have seen during the dot com era, the advent of SaaS business models, and most recently with blockchain and crypto.
To put it simply, when investing in a pre-revenue, AI company at a $50M valuation, all of the value has been priced out.
But the video above of Alexis Ohanian (the fantastic founder of Reddit and now the cutting edge founder of 776 Ventures) and Sam Altman (who needs no introduction) begs so fascinating questions about AI.
As investors we have to reckon with how the technology will undoubtedly reshape the venture capital asset class, just as it is doing with so many other industries (you can read about a few reasons why here). Sam Altman (Founder of OpenAI) recently said that he believes we are not far from AI enabling the first single person, billion dollar company. A bold (and likely true) proclamation.
But we see a flip side to that prediction. The same technology will also lead to the proliferation of smaller, much more capital efficient businesses that choose to exit on a reasonable timeline for ~$100M. Very few venture capital firms are asking the hard, self-introspective questions on how to fund and generate returns from this next generation of startups.
At 11 Tribes, we've been building for this type of company for several years. We call these enduring companies. Not in the sense that they will last forever, but in the sense that they can endure hardship and emerge on the other side stronger.
So, what do these enduring companies need?
Thoughtful, properly sized capital infusions. The single largest expense for early-stage startups is payroll. With AI doing the work of an entire engineering, sales, or customer success department, these companies will need much less capital. Our goal has always been to stay small so as to meet the needs of our founders (multi-billion dollar funds cannot say the same).
Resilience and organizational health. For anyone who has built a company, you know the joy that comes from working in a small team.
But you also know how hard it can be when there is disharmony and no place to hide. The 11 Tribes Founder Resilience Commitment is a first of its kind allocation of capital that amplifies the amazing potential of our founders and mitigates the risk of a litany of people related issues that can kill companies.
This is a seminal moment in the evolution of venture capital. We would be naïve to suggest that the asset class will look the same in ten years as it does today. There has never been a better time to be part of 11 Tribes and to optimize for both founder and financial outcomes.