I have yet to discuss on this blog my trading and investing philosophy. The reason is that my last trade was in August and I’m taking a long break from financial markets. I’m fully committed to helping build transformative, legendary technology companies.
I was recently asked, how do I make venture investments? I feel like I should have some direct answer to this in my blog. Here’s my abstract answer.
There has been a Cambrian explosion of AI startups. Since 2012, investment in AI/ML startups has risen exponentially. The first cohort of AI startups and academic projects were horizontal. Horizontal AI views AI as an elixir to solve problems across industries. Horizontal AI startups build general tools related to perception and computer vision. This is the MLaaS model (Machine Learning as a Service).
Established incumbents enjoy significant structural advantages in offering MLaaS. They have a monopoly on AI talent and other resources like data and capital. Additionally, the open source ethos in AI limits the proprietary nature of algorithms. Incrementally improving natural language processing and computer vision does not build enduring companies. This is a common problem with many “AI-first” startups. They don’t become enduring companies and lose focus on real customer needs. Low-level AI tasks will likely be commoditized.
2017 sparked the next generation of “AI-first” startups. These startups applied AI to specific verticals. Vertical AI startups solve a problem and build data defensibility and avoid disintermediation. Owning the end customer enables real data network effects. Building full stack solutions strengthen defensibility around the customer need.
I’ve been recently thinking a lot about Ray Oldenburg’s third places. According to him, third places are neither work, nor home, and are places where community life can unfold. Some of the core attributes of third places are authentic, accessible, accommodating, casual, conversational, inclusive, and neutral.
In the pre-internet era, third places were coffeehouses, bars, and barbershops. In the desktop era, third places were intent messaging platforms like AOL. Today, the way people are experiencing third places are changing primarily with asynchronous social networks and communication.
Contrarianism is key to exceptional returns and legacy companies. I’ve noticed there is some sort of fetish of contrarianism in Silicon Valley. It’s mistaken for weak converse statements. Avoid lazy opposites, search for contrarian truths which yield actionable ideas with power.
“But leanness is a methodology, not a goal.”
– Peter Thiel in Zero to One: Notes on Startups, or How to Build the Future.
NFTs rose to prominence in late 2017 with the rise of CryptoKitties. Many have argued that non-fungible tokens (NFTs) and digital goods within gaming will drive the mass adoption of Crypto. Gamers are digital natives, and NFTs are a gateway to a future of online-offline integration secured by the blockchain.
The mechanics of games and attributes of NFTs blur the lines between the virtual and real worlds. Scarcity, ownership, markets, coordination, trading, and consumption are central to gameplay and the real world. New ERC non-fungible token standards are being experimented to secure digital ownership, protect intellectual property, track digital assets and more. These more exotic token standards can apply NFTs to commerce and the creation of securities products.
Despite the optimism, I think there needs to be a reality check on NFTs, starting with video games.