Are Venture Capitalists Being Bamboozled by AI Startups?
AI startups raised $16.8B from VC firms in 2018 and a staggering $18.5B in 2019. All that money, what did it buy? A closer examination reveals a few disturbing issues in the venture capital model.
Despite their bravado about helping “daring founders” and “pushing the boundaries of what’s possible”, the truth is that venture capitalists are in the business of making investment returns for their LPs. Early AI startups indeed did very well — for the VCs.
Self-driving startup Cruise raised a total of less than $20M in Seed and Series A funding between 2014 and 2015, and was sold to GM for $1B in 2016. This is a phenomenal win for the VCs. Even though after the GM acquisition, Cruise still had to raise over $5B in subsequent rounds. Today, the most widely used self-driving technology is actually from Tesla, not GM. But hey, VCs already won, so none of that bothers them.
DeepMind is another example. After raising a rumored $50M it was acquired by Google in 2014 for $500M, without ever making a dime in revenues. Again the VCs came out ahead…
