Groupthink boom: What do three top venture capitalists think about the AI ​​craze?

This week in TechCrunch StrictlyVC event In Athens — part of Panathenaia Festival in the City – I sat down with Niko Bonatsos of Verdict Capital, Andreas Stavropoulos of Threshold Ventures, and Ben Bloom of Atomico to ask about the current state of venture investing, the wave of massive IPOs SpaceX is about to launch, and where they still see the ocean of opportunity. Our following conversation has been edited for length and clarity. You can see the full discussion at the bottom of the page.

With SpaceX reportedly eyeing a $1.75 trillion valuation upon IPO, and OpenAI and Anthropic likely not far behind, what will the impacts be on the broader market?

Andreas Stavropoulos: I remember how exciting Google’s IPO was, how it signaled the reopening of a market that had been so pessimistic about technology in the early 2000s — and how it was an empowering event that brought in a whole new generation of entrepreneurs. The same thing is happening now. With each subsequent wave of paradigm shifts, the scale changes by orders of magnitude, and this is to be expected. What is work today in the information age that is not considered technological work?

Ben Bloom: These are exceptional companies, and with each of these large-scale liquidity events, they generate wealth and returns that go back to the next generation of companies.

Niko Bonatsos: for me Co-Founder at Verdict was the first ever investor in what is now known as Cursor. So, if Elon feels like he’s having a good moment, maybe Cursor (who Musk recently revealed) is having a good moment.” Takeover option For $60 billion) it will have some good news, too. But more broadly, for the next generation of companies, as Andreas mentioned, they can target much larger markets, and immigrant founders, as we know, are the ones who have really big dreams, have nothing to lose, and can go the distance, and Elon Musk is an immigrant founder himself. So, for those of us who come from Greece or other smaller markets, this is a great example.

Some have suggested that SpaceX at this valuation could absorb so much public market capital that it hurts the companies that emerge in its wake. Is this a real concern?

Stavropoulos: You can choose to see most things as optimistic or pessimistic and make very good arguments for both. Something like SpaceX, in macro terms, will end up bringing more people into the market than the short-term effect of soaking up some liquidity. Over the past 30 years, consumer participation in markets has gone from something that wasn’t a real thing to something that people trade on their phones every day. These numbers add up.

Bloom: SpaceX is a one-of-a-kind company. For a long time, space has been the domain of government and the public sector. To give investors real financial access to it – I think that will capture widespread imagination. It may be mentally extracted from longer-term allocations that could have gone to the next 20 or 30 software companies, but I think the interest it generates is more than offsetting.

Is the current flood of capital into AI justified by future profits, or is this a case of extreme FOMO?

Bonatsos: If you are an AI founder or a company in the American dynamic space right now, you can live life in the fast lane. If you’re not in one of those two buckets, it’s really hard. In 17 years in Silicon Valley, I’ve never seen more groupthink. Three-quarters of the total venture capital raised over the past year went to five companies. Today, if you’re a 40-year-old tenured professor at Stanford and you’re not building something in AI, no one will want to meet you.

However, something is real changing. Two founders with existing AI tools can make more progress in two months with one round of funding than they were able to a year ago with ten people, two rounds, and a full year of work. This is changing the way companies start and how they will leverage themselves – potentially going straight from pre-seed to Series B.

Stavropoulos: There will be a correction that pushes some capital out of the market. The promise and optimism still greatly outweigh the ability to achieve results in the short to medium term. But on a long-term macro level, I don’t think we’re overly optimistic. The problem is that we shouldn’t make the mistake of thinking that every 19-year-old with an idea is the next big thing.

How do you actually price trades when things are moving so quickly?

Bloom: The best founders have no shortage of capital options. You have to think about what a meaningful ownership stake is for your fund, and then withdraw when you can’t get there. The interesting dynamic is that we… 500 million dollars The fund looks for the same opportunities that people would invest from a $10 or $15 billion fund. The additional value of the dollar to us versus them is very different. This distorts the rounded volumes and makes it difficult to stack displays like-for-like.

Bonatsos: We invest the first money – mainly instead of friends and family, rather than angels. We invest in what I call “freaks” – individuals, as in professional sports, where a few people break all the records. One day goes by and they’re learning, maturing, and making progress that takes the average smart founder a full week. Most of the founders we’ve backed so far are in markets that don’t have a name yet – which is exactly why valuations are low. Larger asset managers cannot ask their teams to research companies in a market that does not yet exist.

There’s a lot of talk about very young founders getting term sheets almost upon arrival. Is age really a proxy for anything meaningful right now?

Stavropoulos: In times of turmoil, when the world seems to be changing in a fundamental way, lack of experience is especially preferable. Experience can lead you in the wrong direction. This does not mean that things have changed forever – we are going through a phase where things have not yet settled down, and this creates fertile ground for new ideas, usually for young entrepreneurs. But I don’t want to overgeneralize.

Bonatsos: The exact same thing was happening when I arrived as a graduate student at Stanford in 2009. The iPhone was two years old, the App Store was one year old, and there were days when there were more venture capitalists on campus than students. Today is one of those unique moments again. If you’re 22 in San Francisco and you’re building something in AI, there might be a term paper in your inbox – but if you’re 19, gosh, that means you’re really good (laughs); You may already have a Series A (offer). And look, age is all relative at this point – I was talking to one of the founders here in Athens this week and he’s 24, and when I said he wasn’t that young, I meant it: I met the Mercur kids when they were 19, and Look where they are now.

Bloom: If you try to generalize based solely on age, I think you’ll miss what you’re actually looking for: a very high level of strength, the ability to go with the pace of the market’s movement, and the mental agility to adapt in a constantly changing landscape. If you have these things, they are more important than the age in your passport.

What do you think about the suspicious behavior that’s been happening around metrics – particularly how companies report ARR (annual recurring revenue)?

Bloom: People have become relatively liberal in how they define A, R, and R. New pricing models — token-based billing, free tokens counted as revenue — create a lot of ways to express these numbers. Our job as investors is to look past that and make decisions based on the actual facts. Is it good from a marketing perspective? probably. Is it a good idea to limit which companies get capital? No, but experienced investors can generally look past this problem.

Bonatsos: Sometimes, I’ll get an email with a really high ARR number from a portfolio company that I didn’t remember doing well, so I’ll contact the founder. The answer? It was 365 times what they had made the day before due to the success of the campaign. I said to him, can you use at least a quarterly basis? When a lot of money chases specific topics, some people develop a graft mentality for short-term gain.

In adventure, you can only lose your money once on a bad investment, but the right investment can return you 100x – so you write off the bad actors and move on.

For the aspiring founders in the audience, where do you see the white space now?

Bonatsos: Every venture capital firm used to have at least half of their partners doing online investing for consumers. Today, they probably have half a person, they have completely left the field. But one of the best AI companies of the last few years, OpenAI, has become huge thanks to ChatGPT. The consumer is coming back, which is almost a crazy statement. Today these founders probably have five investors who can pitch them in a first or second round. I believe there is also a new movement emerging that will help reclaim the American dream through new ideas in consumer fintech.

Bloom: The opportunity for AI to interact with the physical world is much greater than we have seen so far in automating digital workflows and processes. The physical world is still a large part of the economy. Betting on robots in all their forms – not just backflip robots – remains one of the biggest areas wide open over the next 10 years.

If you’re interested in learning more about what the three are thinking — including whether Stanford has become too cozy with the venture capital industry — you can check out the full conversation below: