From Silicon Valley to Seattle: VC Wisdom on GenAI Startup Success
GenerativeAI has steadily been on the rise, with new startups racing to incorporate the technology into their products and stay on top of the new boom, fighting for top talent, funding, a share of the market… With the startup revolution greater than ever, there has been a gold rush of activity in AI investments from the venture capital community. Seattle has emerged as a nationwide leader in AI, boasting itself as the second-largest job hotspot. And here at Foothill Ventures, we are intimately investing in the new wave of AI with our fund located right in the heart of Silicon Valley.
At the end of April we had the privilege of hosting an AI frontier summit in Seattle, along with Future Builders, Microsoft Reactor, Ascend, Essence VC, and YoungTech Seattle. With over 200 attendees, this event was an exciting hub of invaluable insights, sharing, and networking.
Our VC panel included Xuhui Shao, managing partner at Foothill Ventures, Jennifer Savage, partner at Illuminate Ventures, and Tyler Churchill, Principal at Bonfire Ventures, and was moderated by Nate Bek, Associate at Ascend.
Here are some key takeaways we’d like to share from the panel:
- Seed-stage investments remain steady due to heightened interests in AI and more founders jumping in despite a 20% decline in general VC volume.
- Exciting sectors for new AI applications include legal technology, marketing and sales technology, conversation AI, and the further intersection of AI with the physical world.
- Non-compete agreements impact startup dynamics, with discussions on their influence in fostering or hindering innovation and talent mobility.
- Advice for prospective founders emphasizes emotional connection to a problem, thorough customer discovery, focus, and the ability to attract high-quality talent.
- Recruiting top talent requires founders to sell their vision convincingly, fostering trust and persuading experienced professionals to join their startup.
Below are notable insights from the Q&A section of the VC panel. Before diving in, check out a highlight video, also available on our Youtube channel here: https://www.youtube.com/watch?v=J7X4VsGlkRU&t=110s
At the end of Q1 with general VC volume down 20% but seed-stage investment levels still staying steady, what are your initial thoughts and reactions?
Jennifer: The deal flow in seed-stage investments certainly continued, and there’s a heightened interest in AI companies. A few reasons include it’s getting less and less expensive to get companies off the ground, so a lot of founders jumped in. There’s also an inflow of second or third-time founders who see a massive amount of opportunity and want to get back in the game as well.
What are you looking at now, compared to two or three months ago? Do you have any observations?
Tyler: At the height of AI, which we may still be in, we were seeing a lot of companies building things very quickly that solved a specific pain point. One of our observations is that at the speed at which small teams can very quickly build something that solves some acute pain point, I think one of the questions founders need to ask themselves when they’re building a venture and what investors ask when they’re meeting with these teams is is what you’re building — should it be a business? How are you going to bridge this from a wedge or a feature to a suite of solutions? Where is the platform play there? Is the market really there to support this as a standalone business that wants to raise venture capital money as opposed to cash flowing business? If this is a potentially large business, is it something you should be building or is it something some other platform is already going to have an advantage building? So one of our observations was the speed-to-market of a lot of different solutions in some categories like AI, SDRs, BDRs, and other categories getting extremely saturated extremely quickly.
Xuhui: Thematic investment is human nature, so the fear of missing out is real. A lot of VCs end up rushing into hot spaces such as Generative AI. It’s incredibly difficult to discern the top 1% of founders, versus who is just really good but not the greatest, which takes a lot of patience.
Are there specific sectors as we move to the application layer and think more critically about building AI applications that are exciting?
Jennifer: Legal technology brings a new deal a day, as well as marketing and sales technology, where early Generative AI was focused. The bar becomes high because there is just so much competition right now. There is a new opportunity to capture and scale some kind of expertise that is not digitized anywhere, but rather inside peoples’ heads. Lastly, looking for the intersection between the physical world and AI, to marry that using a combination of technologies.
How are non-competes changing how startups operate?
Xuhui: It certainly limits who can jump ship to competitors…and looking at it historically, might have something to do with why certain industries refuse to move to California and why other industries thrive in California, but I’d say we are definitely reaping the benefits in Silicon Valley.
Especially for the tech industry, healthy competition is so useful in promoting innovation and supporting the free flow of talent and ideas.
Do you have any advice for prospective founders, to manifest the feeling of going from good to great?
Tyler: Having an emotional connection to a problem in a space is the most important thing. Doing enough customer discovery — talking to people and understanding the depths of the critical problem you’re looking to solve though it’s exhaustive and might feel mundane, talking about price commercialization and not doing price hunting, being able to talk about the product, the market, and being able to express and help visualize that better future is so important. Additionally, focus is super critical. A lot of founders are super impressive but they want to solve everything for everyone, they don’t think there’s a bad ICP (Ideal Customer Profile) for their solution, and that’s just really hard.
Xuhui: Great founders can consistently hire high-quality talent. It requires the founders to do a really good job convincing in some cases more senior and talented people to leave their corporate job and take a pay cut, to join a startup and work for you. It requires a lot of trust.
Jennifer: If you can explain an insight that you uniquely have, that paints a picture of how the world can be, and you can tell that story very effectively and you are very passionate about it, that will both convince VCs that you have the wherewithal to get from where you are today to that vision, and it will help you do that recruitment that Xuhui mentioned.
About the VC Panel speakers from Silicon Valley to Seattle:
Xuhui Shao: Dr. Xuhui Shao is the Managing Partner of Foothill Ventures, a technology-focused venture fund investing in early stage startups in the US. His investment areas are AI applications, enterprise software and full-stack sensor/data/algo companies. Before that Xuhui has been Yahoo’s Vice President II Engineering for data and advertising platforms; Founding technologist of Ad Tech pioneer company Turn ($310M exit) and AI risk management startup ID Analytics ($170M exit). Xuhui earned his BS and MS degrees from Tsinghua University, and his Ph.D. in EECS from University of Minnesota. He is an early investor of Plus.AI, Weride.AI and Certik - all subsequent unicorn companies.
Jennifer Savage: Jennifer is a Partner at Illuminate Ventures, a B2B Seed-stage venture capital firm that accelerated successes like Xactly, Coupang, BrightEdge, Pex, and Contentstack. Illuminate portfolio companies include 2 IPOs, 8 strategic M&A exits, and more than $4B in follow-on funding. Illuminate invests in startups with initial market traction who value our operating expertise and Advisory Council to catalyze their growth. Uncommon potential and exceptional founder diversity shine in the Illuminate portfolio - more than 2/3rds include a diverse founder and nearly half a woman.
Tyler Churchill: Tyler has been working with software startups at the intersection of product and go-to-market for almost a decade. He also has operating experience shaping sales strategy through intimate work with startups, all which were later successfully acquired (EverString, acquired by ZoomInfo and TechValidate, acquired by SurveyMonkey). Prior to joining Bonfire Ventures, Tyler worked across the Motion Pictures and Business Development teams at Creative Artists Agency. He received his MBA from The University of Chicago Booth School of Business.
Nate Bek: Nate Bek is an associate at Ascend, the most active pre-seed venture firm in Seattle. He handles top of funnel sourcing and screening, as well as content creation. Nate focuses on AI infra and application layer startups at the idea stage. Prior to joining Ascend, Nate was a startups and venture capital reporter at GeekWire.
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Foothill Ventures is a $250M seed-stage technology firm. We back technical founders across software, life sciences, and frontier technologies.
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