Wednesday, 8 May 2024

How to Navigate Investing in A.I., From Someone Who’s Done It

HALF MOON BAY, Calif. — Mark Zuckerberg’s “move fast and break things” mantra may no longer be Facebook’s modus operandi, but Silicon Valley’s demand for rapid growth is still strong. And the rise of the competitive landscape of artificial intelligence is only fueling it.

Last year, venture capital investment in A.I. start-ups increased 72 percent from the previous year to a record $9.3 billion in the United States, according to a PricewaterhouseCoopers report.

Reid Hoffman, the co-founder of LinkedIn and a prominent venture capitalist, said at The New York Times’s New Work Summit in California that he looked very carefully at A.I. ventures to see how they were making new, interesting things possible and how he could bet on them early. He said current machine learning techniques, which are transforming fundamental industries, gave an amazing glimpse of the future.

“My ideal investing is stuff that looks a little crazy now and in three years is obvious or five years is obvious,” Mr. Hoffman said.

He voiced some concerns around how A.I. could transform the global landscape, likening it to the shift from the agricultural age to the industrial age.

“You’ll see enormous changes from where the bulk of people find jobs and employment,” he said. “The first worry is what does that transition look like. That intervening transition is super painful.”

And how ethically the technology will be developed will tie into who wins the race to build it. Some groups will care about human impact, others will not, he said.

Mr. Hoffman recently released the book “Blitzscaling: The Lightning-Fast Path to Building Massively Valuable Companies,” which details his theory that the rapid growth of a company — above almost all else — is what leads to its success.

And this attitude, he said, is why Silicon Valley continues to produce impressive tech companies.

“Everywhere in the world recognizes that technology is super important, there’s super great talent everywhere,” Mr. Hoffman said.

“It’s this understanding of the network of learning and this playbook of the first to scale is what wins the competitive race.”

A recent report from KPMG noted there was a record $254 billion of venture capital invested around the world in 2018, up from about $174 billion the previous year.

Jeffrey F. Rayport, a senior lecturer at Harvard Business School who teaches an M.B.A. course on scaling tech ventures, said founders were often at the mercy of intense demands and the “financing treadmill” from venture capitalists — a funding model that some Silicon Valley founders are starting to reject.

“The world has become very sophisticated about how to scale technology ventures, and with that sophistication has come, in a sense, a very professional and very aggressive set of investors,” Mr. Rayport said.

“The flip side of that is that once you put a venture on a path of successive financing rounds that are betting on exponential growth, then the pressure is enormous to deliver, whether or not it makes sense for the venture.”

Young founders who “can’t scale into the opportunity they created” are a common occurrence. “They’ve got to figure out how to do 20 years of learning and development as leaders, as managers, as people, in a space of maybe two years,” Mr. Rayport said.

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