Greylock VC Seth Rosenberg on investing in A.I.

Greylock VC Seth Rosenberg on investing in A.I.

Investing in the Sweet Spot: A.I. Opportunities in Young Companies

By Anne Sraders, Technology and Media Expert

For Seth Rosenberg, an investor at VC firm Greylock Partners, the world of artificial intelligence (A.I.) investments extends beyond the traditional startup and incumbent categories. He sees great potential in companies that are around one to two years old but possess exceptional products or valuable offerings that can be significantly enhanced by incorporating A.I. technologies. According to Rosenberg, these companies occupy a sweet spot in the market, as they are more agile than incumbents and can readily adapt their business models and product development processes to optimize for A.I. technologies.

Rosenberg believes it is easier to integrate A.I. into an established but relatively young business, such as a mortgage origination company, than to retrofit A.I. into a fledgling startup. Startups often need substantial time and effort to build the necessary infrastructure, secure partnerships, and establish market presence before they can even consider adding A.I. capabilities. However, companies like Greylock’s portfolio company Pine, a digital mortgage lender based in Canada, have already completed these foundational steps. While A.I. wasn’t part of Greylock’s original investment thesis for Pine, Rosenberg now considers it a crucial aspect of their future strategy.

Rosenberg’s approach to evaluating competitive advantage in A.I. centers around determining whether 80% of a company’s value comes from its use of a large language model or from other significant factors. In the case of companies like Pine, he believes that their primary value lies in their fintech business rather than the specific A.I. model or technology they employ. This combination of 80% fintech and 20% A.I. can make these companies formidable competitors in the market.

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However, one question lingers: What prevents incumbents, whether Big Tech or financial services giants, from simply acquiring these startups or their A.I. teams to implement A.I. themselves? Rosenberg theorizes that even if incumbents are able to hire A.I. talent, it is much more challenging for them to overhaul their existing business operations. The level of transformation required may be too disruptive or costly, making it more appealing for incumbents to acquire and integrate A.I.-enhanced startups. Moreover, Rosenberg believes that many investors tend to overemphasize the importance of intellectual property moats in the A.I. competition landscape. He points out that many successful consumer technology platforms built in the last decade lack unique intellectual property assets but have still achieved massive success.

While Greylock Partners has not recently invested in companies following this particular investment strategy, Rosenberg has been exploring opportunities in this space. Additionally, the firm is actively helping its existing portfolio companies optimize their operations by incorporating A.I. technologies. One potential benefit of investing in startups that are still primarily perceived as fintech or healthcare companies is the ability to avoid paying inflated premiums solely based on the hype surrounding A.I.

Overall, Rosenberg’s key insight lies in identifying the untapped potential in young companies with exceptional products that can be accelerated with A.I. technologies. By marrying fintech strengths with A.I. capabilities, these companies can create a competitive advantage that is difficult for incumbents to replicate. With the right investment strategy and execution, the future of A.I. in these young companies looks promising, yielding substantial returns for investors like Greylock Partners.

See you tomorrow,

Anne Sraders

Twitter: @AnneSraders

Email: [email protected]

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Venture Deals

Kincell Bio

• A Gainesville, Fla.-based contract development and manufacturing organization focused on cell therapies.
• Raised $36 million in funding led by Kineticos Ventures.

Protect AI

• A Seattle-based A.I. and machine learning security company.
• Raised $35 million in Series A funding.
• Evolution Equity Partners led the round, joined by Salesforce Ventures, Acrew Capital, boldstart ventures, Knollwood Capital, and Pelion Ventures.

ev.energy

• A London- and Palo Alto, Calif.-based electric vehicle managed-charging software platform.
• Raised $33 million in Series B funding.
• National Grid Partners led the round, joined by Aviva Ventures, WEX Venture Capital, InMotion Ventures, Energy Impact Partners, Future Energy Ventures, and ArcTern Ventures.

Collaborative Robotics

• A Santa Clara, Calif.-based robotics company.
• Raised $30 million in Series A funding.
• Sequoia Capital led the round, joined by Khosla Ventures, Mayo Clinic, Calibrate Ventures, Neo Ventures, and 1984.vc.

GlossGenius

• A New York-based business solution for the beauty and wellness industry.
• Raised $28 million in Series C funding.
• The Growth Fund of L Catterton led the round, joined by Bessemer Venture Partners and Imaginary Ventures.

AutogenAI

• A London-based A.I.-enabled procurement and tender writing platform.
• Raised $22.3 million in funding from Blossom Capital.

Bunker

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• Alpha JWC, January Capital, Northstar Group, GFC, Money Forward, and other angels invested in the round.

Effectiv

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• Raised an additional $4.5 million in seed funding.
• Better Tomorrow Ventures led the round, joined by Accel and other angels.

Flipturn

• A New York-based EV fleet operations platform.
• Raised $4.5 million in seed funding.
• Accel led the round, joined by Comma Capital and Background Capital.

Materials Nexus

• A London-based deep tech company.
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• Ada Ventures led the round, joined by High-Tech Gründerfonds, The University of Cambridge, MD One Ventures, and others.

Space DOTS

• A London-based miniaturized in-situ testing developer for advanced materials in space environments.
• Raised $1.5 million in pre-seed funding.
• Boost VC, Sie Ventures, 7Percent Ventures, Blue Wire Capital, and other angels invested in the round.

This article is for informational purposes only and does not constitute financial advice. Please consult with a professional advisor before making any investment decisions.