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The Desperate Waves of Venture Capital are Chasing Bots, Deep Learning, and AI, by Danny Crichton

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Nowhere is [groupthink] more obvious than in the the Great Bots Startup Explosion of the past twelve months. There doesn't seem to be a day that goes by than I don't receive some fundraise deck for another take on the future of our bot economy. Unfortunately, the "bot economy" is a bit like the economy of East Timor — it literally exists, albeit so small that it probably is irrelevant (and probably for some time!)

Everyone is looking for the next big thing:

In the 1990s, the wave was the Internet, which upended traditional consumer and enterprise businesses almost completely. In the 2000s, we had the combination of social, mobile, and cloud (which also includes SaaS) — absolute tidal waves that completely refactored whole industries. Ten years ago, there were no iPhones, barely Amazon Web Services, and Facebook had barely reached its infancy. It's almost hard to imagine that time today.

VCs need waves of change to drive returns, so we are always on the hunt for the next tidal wave. We were fortunate for ten years starting in the mid-2000s to be living during one of the most transformative times in technology. But those waves are starting to really ebb as maturation and saturation reach their peak.

Thus, investors are hyper alert to anything that might be the next change. Take deep learning. It's a new model in artificial intelligence (actually, it's not that new, but the processing power to operate it is now more commonly accessible). The thinking went from "this is academically interesting" to "this will completely transform every industry in the economy," almost overnight. Now I have seen dozens of fundraise decks that mention "deep learning" as one of their key features.

When we look at the waves that investors are interested in now like artificial intelligence/machine learning, bots, cryptographic currencies, virtual reality, containers, and more, we face a real problem: all of these trends are just super early. Not every startup in these categories are too early mind you, but it is hard to see how several hundred bot startups are going to find traction in the next 24 months.

The issue isn't that these new waves aren't meaningful; indeed, they may be just as fundamental as cloud and mobile were ten years ago. Instead, the problem is that VCs are jumping on top of these waves with such alacrity that new technologies barely have time to breathe before the money just starts to dump on them. It's the same story with bots, deep learning, containers in enterprise, and more. Like a mid-30s gent who suddenly realizes that the marriage market is losing its liquidity, VCs are glomming on to any trend that might just be the ticket to riches.

The answer is to take a step back and breathe. Each of these waves is super early and in its infancy, and each of them is going to have to mature over the next few years. The virtual reality company to invest in may be here today, or it might be here five years from now. I won't necessarily follow the wave up, but I also won't follow the wave back down.

If anything, that should hearten founders who are entering spaces that are already insanely competitive. The "one" can come at any time, and investors need to be more steady in reading the markets. Let the waves happen organically, without juicing them too early with capital showers. Innovation is hardly dead, but it does take time.


Equity deals to startups in artificial intelligence — including companies applying AI solutions to verticals like healthcare, advertising, and finance as well as those developing general-purpose AI tech — increased nearly 6x, from roughly 70 in 2011 to nearly 400 in 2015.

So far in 2016 (as of 6/15/2016), over 200 AI-focused companies have raised nearly $1.5B in equity funding.

Deals and dollars reached a new high in 2015. Last year, personal-loan startup Avant, which uses machine learning, raised a mega-round, a $325M Series E round, backed by investors including August Capital, DFJ Growth Fund, and RRE Ventures.

The 65% annual growth in funding to startups using artificial intelligence in 2014 was driven by 4 mega-rounds of $100M+ raised by Avant, sales startup, medical diagnostics company Butterfly Network, and deep-learning startup Sentient Technologies.


"Don't mistake a clear view for a short distance." ~Paul Saffo, quoted by Saar Gur

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