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Jon Bradshaw & Peter Harris

As an AI language model, ChatGPT doesn't have any direct impact on venture capital. However, ChatGPT and other AI technologies may indirectly affect venture capital in several ways: Improved investment decision-making: AI technologies like natural language processing, machine learning, and predictive analytics can help venture capitalists analyze large amounts of data and make more informed investment decisions.

How is ChatGPT Affecting Venture Capital?

As an AI language model, ChatGPT doesn’t have any direct impact on venture capital. However, ChatGPT and other AI technologies may indirectly affect venture capital in several ways:

  1. Improved investment decision-making: AI technologies like natural language processing, machine learning, and predictive analytics can help venture capitalists analyze large amounts of data and make more informed investment decisions. ChatGPT, for example, can help investors quickly analyze large volumes of text-based data, such as news articles, social media posts, and earnings reports, to identify trends and patterns that could impact investment decisions.
  2. Enhanced due diligence: Venture capitalists typically conduct extensive due diligence before investing in a startup. AI technologies can help streamline this process by analyzing a company’s financials, patents, and other data to identify potential risks and opportunities. ChatGPT can assist in this process by analyzing large amounts of text-based information and helping investors quickly identify key information.
  3. Improved portfolio management: AI technologies can help venture capitalists better manage their portfolio of investments. For example, ChatGPT can analyze news articles, social media posts, and other data sources to help investors monitor trends in their portfolio companies and identify potential risks and opportunities.
  4. Increased efficiency: AI technologies can help venture capitalists automate many of their repetitive tasks, such as data entry and analysis, freeing up time to focus on higher-value activities like networking, due diligence, and portfolio management.

Overall, AI technologies like ChatGPT have the potential to significantly impact the venture capital industry by improving investment decision-making, enhancing due diligence, improving portfolio management, and increasing efficiency.

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Episode Transcript

Jon: All right. So, everyone, this is part two, a continuation of analysis on chat CBT. The last episode was what was the effect of chat GPT on start ups? This one is what is the effect of chat on venture capital?
Peter: And by that what we really mean is, is there still a need for venture capital? Okay, in a world of AI, because we've talked about in the past like, you know, will A.I. replace venture capital? I don't think it will.
Jon: But are we talking about all venture capital? Like, as there's like, there's the Iot side, there's the e-commerce side, you know, you know, you know, consumer brands or we only mainly talking about SaaS related startups.
Peter: Well, I think in this case we're talking about SaaS, right? But theoretically, it doesn't just have to be SaaS. It could be everything.
Jon: Okay, let's just focus on SaaS though. So in our last episode you talked about Paul Graham, founder of Y Combinator, said At what point does AI allow two founders and an able application to pound out a new startup over the weekend? Right.
Peter: Yeah. And then you don't have to hire any devs. You just, you know, you don't need venture money or blah blah. You just build it and go.
Jon: I go to ChatGPT and say, Hey, give me a clone of Callum Lee and let's not include these features and include these other features.
Peter: Yeah, or you know, Hey, I've got this new idea for this new thing, build it out.
Jon: Changed the color of the buttons to this add this logo.
Peter: Yeah, but I mean, it's one thing to go from like 1 to 2, which is just like an iteration on somebody else's app, but it's another like, I think A.I. theoretically, like you talked about in the prior episode, like I go on to Figma, I design out the app and then I hit like the Build This for Me button and boom, it builds out all the back end.
Peter: And I've got, you know, the next Instagram, right? Whatever that is.
Jon: Right? Yeah.
Peter: It's not iteration of Instagram as a whole. Brand new thing. Right. So in that case, I guess venture capital still need it.
Jon: And if you want to grow and scale for something like TikTok, yes or.
Peter: No y growth.
Jon: Capital to grow, you need speed no matter if you have the best app, even if it even if something even if it can perfectly build your application. I look at that as the the the easier of the two tasks, the harder task is always sales, adoption and things like that.
Peter: But what about like product led growth?
Jon: I think the misnomer of product led growth is it's usually led by an amazing sales team internally that knows either how to go after partnerships. I think there's very few apps today that are like, Hey, this app is 100 times better than what's out there. Like with the example, most people get there by having amazing partnerships.
Peter: Yeah, I mean, there's some sales component like.
Jon: Look at look at podium, right? I had a company like Podium.
Peter: Now the podium is now a product led to growth. Sorry, podium.
Jon: Right. But very few companies are product like growth.
Peter: Well, like Canva.
Jon: Very few companies.
Peter: Canvas very product led growth. Right.
Jon: And it's very feature rich. So besides Canva, what are what are two other examples of product?
Peter: Instagram, Facebook, Tik Tok.
Jon: But those are still like those are just very few companies that actually hit that.
Peter: I mean, there are a bunch of other companies that have product slack that have good product.
Jon: I mean, it's like my last company, Change, which was a company, was product growth. But the problem was two months later, all my competitors in my network copy me. It was extremely frustrating, would create something. Everyone would get upset that message that the platform.
Peter: Yeah, but that has more to do with like lack of barriers to entry or a true competitive advantage, right? Than. Than it does with. Anyways, the. Here's my take on it. My take is that venture capital. Well, yeah. So, So there's basically, like, two problems. One is creation. One is discoverability, right? And you're arguing like creation is relatively easy and discovery is the hard thing.
Peter: Right? And I think it actually the truth is it actually goes through waves. So there are times when discovery it gets solved. But creation is really hard. Right. So we think about like in the early days of the Internet, if you wanted to build enterprise software, it was really, really hard to build enterprise software. And because it was so hard to build enterprise software, you know, and so expensive, if you could just get over the hurdle of building the darn thing, you would have sales, right?
Peter: Because there was just like no competition. But then what's happened is over time, right, you've seen the cost of creation and come down. And what that's led to is a proliferation of apps. And now the challenge is discoverability. Right. And to a certain extent, like, I think you go through like these these waves were like sometimes creations really hard and really expensive to get to that, like next level that pushes things to the point where like, like, like it is product led growth, like it is 100 times better, right?
Peter: Creation of something 100 times better is super hard. And there's very few companies that have been able to pull it off. And those that do don't need a tremendous amount of funding. Right. Because they are 100 times better. But then pretty soon everybody kind of catches up. Right. And then all of a sudden, it's like discoverability is the really big challenge of like, hey, how do I tell the world that, like, our app will being somewhat similar is nuanced in certain ways that are different and better for certain customers.
Peter: And I need to raise a ton of money in order to communicate that to the right customers so they buy our app instead of our competitors app because we're a better solution for them. And so ultimately, I don't think I changes either of those things. I think it's going to make creation a lot cheaper.

Peter: which means that would be a flood of apps. And now the big challenge will be discoverability. And that's where V.C. money will still play a tremendous role is creating, you know, helping companies with marketing and sales. That whole discovery.
Jon: Function, which startup has the best charisma and let's enable it.
Peter: Yeah. Well, I mean, to a certain extent, which product is the best, right? And let's help them get their story out there.
Jon: Is that the best or which one can tell the story the best? Because I feel like a lot of the products that win. So amateurs talk about ometer. Okay. A lot of the developers inside of Ometer friends have now gone to like Facebook and Airbnb and other places like that. And they said Ometer was never the best product, they just had the best sales team and that those founders chose to spend more money on sales and product like, you know, marketing sales than they did on the product.
Peter: Well, yeah, I mean, Josh is like an amazing salesperson, right? So I think, yeah, look, some businesses are sales businesses and some businesses are product businesses. So both can be successful, right? But both require a lot of money.
Jon: So what about niches? There's been this phrase that the riches in the niches and I in in the last episode we talked about, you know, it used to be someone had a CRM, but now they're creating a CRM specifically for lawn care or a CRM specifically for plumbers. And at that point are these guys. So niched. So like, I mean, I would be a Sierra for plumbers, it might be a CRM for plumbers, specifically in Brazil.
Jon: And at that point.
Peter: But at that point, it gets so, like small. Yeah.
Jon: Is it because I see that?
Peter: But that's also like a product led growth type thing, right? Because if your product is so much better, because it is so tied into your niche right there and you start selling and then everyone starts using it because everyone else is using it and you have to use it in order to compete. Right? Becomes table stakes.
Peter: Then then it really like is product ladder growth. You don't need a bunch of venture money, but it's.
Jon: So small then. Yeah, So what? Well, the.
Peter: Market is not big enough to drive like, a big outcome and venture out of.
Jon: These markets becoming so small.
Peter: But then. But that's the case all the time, right? So what, like 97% of companies don't raise venture money, and probably 98 and a half shouldn't raise venture money. And so I don't know that that changes anything. I think we just shift from, you know, lifestyle businesses being something a little more physical to lifestyle businesses being a little more digital.
Jon: Okay.
Peter: Across the board. And that's fine. Like VC money should not go to lifestyle business. It should not go to small niches, Right? I mean, you could you can make the argument that like the corner store, down the street is like a super niche business. It should never raise venture money and wouldn't attract venture money. Right? But that doesn't mean it can't be like a nice little lifestyle business if one run correctly.
Peter: I think you just end up doing that same thing, but more on a digital, digital basis.
Jon: Okay, so you're not afraid of it and.
Peter: The VCs should be focusing on the big stuff.
Jon: Okay.
Peter: Right. The next Google and the next Ciara and like Salesforce, right? Like, whatever the that next huge business is the next Canva. The next.
Jon: Slack. So catchy. But did did it or did it not send waves to the VC community like it did through the developer start community?
Peter: I mean, I think it has right a lot of people have been debating it back and forth, even have a lot of ideas.
Jon: They're like, Am I going to have a job tomorrow?
Peter: Yeah, but you know, most VCs are going to be like, No, no, we're totally confirmation bias. No, no, totally confirmation bias. and look, like I want to say that it's not going to affect us that much, But I mean, I have the same bias, right? But I think it's the same thing of like discoverability will still be an issue.
Peter: You still will have to convince people to first know that you even exist and then convince you that by Yeah, right. And that the reality is the more stuff that's out there, the more costly it becomes to communicate that message.
Jon: Okay, So you think that in a world of chat and I see continues to be relatively unaffected by the number of positions or the amount of cash deployed?
Peter: Yeah, I mean, to a certain extent. Here's the thing. I'm hanging out of the other side of my mouth. Over the last couple of years, VCs have raised an insane amount of money and there have been an insane number of venture funds that have popped up. So if you extrapolate outside of that.
Jon: You think it'll be roughly the same?
Peter: Yeah. If we go back to where like Venture was probably like in the, you know, 2015 through 2019 range, right. in terms of number of funds, number of or amount of capital that's deployable, right. I think that's closer to like a healthy, steady state than where we are today. So I would anticipate that there will be a big drop off in terms of for sure, number of funds and a, from where we are today going forward.
Peter: But I don't know that that's going to be directly that that's going to be due to I guess it's going to be due to like just capital was essentially free for a long time and so everybody had great returns, especially in venture and a lot of people shifted like reallocated assets to venture because everything else was performing really poorly because, you know.
Peter: Capital was basically free and Venture was actually performing better on a relative basis. And so you had a lot of money flow there. And now returns are going to look terrible because everything was VCs invested in overpriced companies. Valuations will come down. A bunch of those VCs will shut shop. And shrink. But none of that will be due to AI.
Jon: Yeah. So I agree very little. One of the biggest things that people are asking me right now is when I'm starting a VC fund, I'm like, We didn't create the podcast to start a VC fund. At least I didn't.
Peter: I think that way Everybody starts a podcast so they can be a VC someday.
Jon: A VC podcast? Yeah, I mean, right now I think it's the worst time I would not want to be raising a fund right now. And if I could, I think you'd want prices to drop because there's going to be as interest rates increase, the rates that startups like, the valuations have to drop for the IRR for VCs to win like to occur.
Jon: And I think it's going to take another 12 months for startups to finally give up and drop to those valuations.
Peter: Yeah, I mean, you're already the problem is, is that it's already happening. It's just happening with the companies that have to raise right now. And there's a bunch of companies that don't have to raise right now and even if they're in market, once they find out that they're not getting the valuation they want because they don't have to raise immediately, they're kicking the can down the road and hoping.
Peter: so but the flip side is, no, none of the companies that are raising right now at like really low valuations are tooting their horn about it and so you don't hear about it, but it is happening. So I agree. I think over the next 6 to 12 months, there's going to be a lot more companies coming to the table for venture capitalist, and they're going to be in tight spots.
Peter: The flip side, though, is that a lot of these guys will have a lot of money to play. They've raised a lot and a lot of them are sitting on their hands. But there are a lot of incentives and pressures for them to be investing. And so I think, yeah, six months we're going to see a big uptick in number of deals, largely because companies will need cash and VCs will need to deploy cash.
Peter: And when that happens, my my best prediction is probably there will be a bifurcation along the lines of quality. So the very, very good companies will raise at crazy, well, theoretically crazy valuations, maybe not quite 2021, but still very high. And everybody else will raise at very, very, very low valuations.
Jon: Yeah. Yeah, I think I would not want to be a founder. Raising right now is the ultimate and I feel bad for the founders who are like, I got six months of capital left and I'm like.
Peter: I feel like you kind of should be fundraising right now, but they're probably like, I don't want to fundraise right now because valuations suck and it's so hard.
Jon: They are fundraising.
Peter: I'm going to wait three months, right?
Jon: They are wait five months.
Peter: They can't go out of business.
Jon: They are fundraising right now. I think a lot of them fundraising in December is usually slow. They're usually waiting for January. But I'm just like, man, I would not want to be running out knowing I'm running out of cash in 3 to 6 months in this compressed market.
Peter: Yeah, no, it's a tough spot. Yeah. And frankly, if you didn't if you didn't start cutting costs six months ago, you, you know.
Jon: Think you're too late. Yeah, I met with the wiki back company this, this, this past week, and that was like they're asking for advice and I don't know, you're kind of in trouble.
Peter: Kind of screwed.
Jon: But I don't know I mean, they had the crypto winter, they had the VC, you know crash and I think it just gets really hard for them to raise. Yeah. Especially as they're finally coming into public beta. It's like a private public beta, right?
Peter: Like it's out.
Jon: There, but people don't know what's out.
Peter: There. Yeah, I know what you're talking about. Okay. No, I agree. I think it's. I think they're in a tough spot, right?
Jon: Or I was on a.
Peter: Flight, but that's like a confluence of a lot of things. Outside of that.
Jon: There are a lot of things out of their control. So, yeah, I feel like love the team and like, this is just a tough market. Everything like lining.
Peter: Up. Yeah, like a year ago, the sort of been totally fundable.
Jon: Especially when they watch. There's another local company came into their team, bleep this out. But so Peter knows it's giddy and they launched a token at the perfect time. So they were just printing cash for their token. Yeah. And I don't know how much they pulled out of their token, but their market crashed. But like, they all have, like nice toys now, like BMW motorcycles and stuff that they didn't own, like, and they didn't have a product yet, but like, their timing was like, it's just because.
Peter: Every crypto company is a Ponzi scheme at the end of the day, right?
Jon: I don't know if.
Peter: We're going to like, take our token, we're going to push it out there and we'll buy our token. It's like free money and then we'll sell our tokens and use the money to go buy toys. But our tokens are actually not worth anything because it's all speculation.
Jon: I believe this, you know, the editing team. But, you know, like supposedly that same thing happened with McKagan at Mainframe. We bleep that, too. What? To watch these episodes very carefully. And so yeah, so they raised in the market crash for them and they didn't cash out.
Peter: In in cash out in time.
Jon: In cash out. So their, their fund, their fundraise was pointless and it crushed the company.
Peter: Well, that was a missed opportunity for them then, right?
Jon: Yeah. All these these war stories we should just do podcast on war stories that Peter and I have heard. Just bleep out the names.
Peter: We should that and also like, you know, give it about, you know, we should get more problems from entrepreneurs and get my $0.02.
Jon: Which is also what I want 2023 to be. We've done the last year like building an audience and now it's time to start leveraging that audience and like bring on other stuff. Do you think Peter will do a podcast every day with me?
Peter: Do you think anybody would listen to me and you every day?
Jon: I think you what I do is when you have someone you really like, you can start cherry picking. Hey, this one really relates to me. This is someone who's raising in a similar space.
Peter: Yeah, we'll see.
Jon: I think one thing, just so you guys know where we're going, when we first started this and I was trying to, like, say, Hey, Peter, let's do this podcast, he's like, I want to do a podcast, but I want to create a podcast specifically for VCs and target that audience.
Peter: Specifically for VCs. Yeah. Now there's a million podcast specifically for voices.
Jon: Who who like, like VCs for VCs.
Peter: See, I think what's more interesting about what we do is that we tackle like the hard stuff that VCs most VCs won't talk about. Okay, right. Maybe.
Jon: I don't know. I think a lot of these things VCs talk about.
Peter: So maybe not.
Jon: All right. Well, things we're watching guys go to venture capital. A lot of em you can subscribe to us. All of our links are there. YouTube, Spotify, Apple and the rest. This name theory we talk about because that's where 95% of all of our our plays come from for our analytics dashboard.
Peter: I can subscribe.
Jon: All right. See for the next episode. So you guys.