AI investors share deal-pricing playbook for fastest-moving market yet
Two prominent artificial intelligence investors offered candid insights on navigating today's breakneck market during a recent StrictlyVC event in Los Angeles. Carter Reum, co-founder of early-stage firm M13, and Chang Xu, a partner at Basis Set Ventures, spoke publicly about the challenges and opportunities of investing in a landscape where startup valuations and revenue trajectories have entered uncharted territory.
M13 manages $2.5 billion in assets and has backed 17 unicorns at seed or Series A stage, Reum noted. Basis Set Ventures launched in 2017 as one of the first AI-focused early-stage funds and is now deploying its fourth fund with nearly $1 billion under management.
Xu described the current environment as paradoxical. He pointed to ChatGPT's leap from zero to $40 billion in revenue within six months as evidence of unprecedented growth. His portfolio company Open Art grew from $1 million to $10 million in annual recurring revenue in year one, then to $70 million in year two, while remaining cash-flow positive with just 20 employees.
"The bar for what is good growth has totally changed," Xu said. He warned that applying aggressive growth assumptions to every deal would not work across an entire portfolio.
Reum drew parallels to earlier technological shifts like cloud computing, the iPhone, and even the automobile in the 1920s. What sets this cycle apart, he argued, is the presence of hyperscale incumbents. "For the first time in history, the incumbents actually do have the advantage," he said, citing their access to technology, capital, data, and talent.
On pricing deals, Reum emphasized fundamentals. He described walking away from an AI software investment for brands because the numbers did not add up. Xu focuses on technical defensibility, noting the frontier shifts every quarter or even weekly. His firm invests either "below the AI" in infrastructure or "above the AI" in applications.
The conversation also touched on the upcoming SpaceX IPO and its potential impact on Los Angeles' startup ecosystem.
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📰 Source: TechCrunch