Follow the AI hype | #2

Friends,

Make sure you scroll all the way down. I don’t want you to miss reading David Gorgan’s view on the topic of AI hype. Moreover, there’s a link to a – I promise – quite entertaining, earworm-quality song.

Now let’s dive in.

I recently came across a “Fundraising Cheat Sheet” of an early-stage investor. It stated that if you “Level up by following the hype”, e.g. generative AI in climate tech you can not only raise significantly more but you will also have an easier time fundraising.

Fundraising is very hard. So if it’s easier to raise in 2023 as an AI-Startup should I not rethink my strategy, product roadmap, domain choice and hiring plans? Is that the missing piece for finally getting this sleep-stealing 1 million EUR pre-seed round over the line? You’ve thought anyway that this one “ML-enabled feature” was not too far off from the current plans. Why not anticipate it in the product roadmap?

It can work to raise a round on the shoulders of hype. However, you might sacrifice long-term success for short-term gains. Why?

If you’re optimising for what’s cool, your fundraising will suffer from an adverse selection of investors. You don’t want to raise from investors whose thinking is influenced by hype. Instead, optimise for angels and VCs whose judgement stands on solid grounds. Hypes are temporary, investors on your cap table aren’t. So be careful whom you take on this journey. Play long-term games with long-term people.

Furthermore, the fundraising part itself is only a means to an end and not the end itself. You should obsess about the end and not about the means. Your company exists because you make something customers actually want, you can actually build and you can actually capture a significant chunk of the created value long-term. If you’ve successfully tested your hypotheses that a fine-tuned co-pilot for lawyers makes sense, then build it. But don’t build it because a16z published an article about the proliferation of LLM-based chatbots. At best you’ve wasted months, at worst you’ve killed your company.

Hype ≠ growth. The first is a subjective noise. The second is a development you can measure because it has happened in the past or you forecast based on a foundation of solid reasoning and your (non-obvious) insights. In the context of AI: No doubt that recent breakthroughs in machine learning can play a substantial role in your company’s Why Now – one of the key questions for which you need to have a compelling answer as a founder.

Apple and Bytedance (TikTok), two of the most successful firms leveraging AI barely talk about machine learning. Cool people, don’t talk about being cool. Yes, these aren’t startups. Yet, I think the point remains the same.

Founder’s view: David from Nostos Genomics

I’m beyond excited to have David Gorgan join me for this piece. He has been deeply involved in the AI space since his days at Merantix in 2016. Nowadays he’s building Nostos Genomics together with his co-founder Rocío Acuña Hidalgo (CTO). It was probably not too surprising that he ended up founding a company after having initiated Europe’s largest entrepreneurial hackathon START HACK.

What has been your experience with hype cycles around AI?