Can AI Actually Make You Rich?

I think we're in the frenzy stage because I feel like in the eruption phase there's nobody who calls it a bubble. There's no one who says things have gotten extended because you're so focused on the optimism and the possibilities. The reason I think we're in the frenzy stage is privately I've talked to investors who are like, look, I know that this is frothy and insane, but I'm going to ride the wave it's.

The week of September 22nd. Welcome to the Learning Corner, a Precursor Ventures podcast.

Welcome to the Learning Corner by Precursor. I'm Mia Farnam and I'm joined by our GP and Managing partner Charles Hudson, where we will be talking through the articles and Goodreads that caught our team's attention over the past week. Our first topic is written by Jerry Newman, titled AI will not make you rich, and while extremely thorough, it turned out to be one of my favorite reads in a while. He uses economist Carlotta Perez's four phase tech wave framework, Eruption, Frenzy, synergy and maturity to Some tech phases favor investors far more than others. Newman draws a compelling parallel between AI and containerization, emphasizing that transformative technologies often start slow before gaining momentum, just as electricity and personal computers did, taking decades to reach widespread adoption through gradual, self reinforcing cycles of experimentation and practical use. When shipping containers revolutionized global trade, they eventually created a world of perfect competition where no company could sustain protected profits. The way the article describes it is AI is following a similar path. Despite early speculation and intense investment, widespread adoption quickly eliminated lasting competitive advantages. Instead of protected profits for innovators, we got a competitive free for all. As everyone gained access to the same AI tools, the lesson from it feels clear, transformative technologies frequently end up commoditizing the very advantages they initially promise. So Charles, there are so many routes to go here, so I wanted to pause first for your reaction.

I don't know anyone who hasn't read the book the Box. I highly encourage it. It's a great book on just the development of the standardized shipping container and how transformative it was. When I read it, I thought a lot about general purpose technologies and technologies like GPS and electricity where the benefits are really widespread and there are certain elements of I feel like my thinking on this has maybe evolved a little bit. Maybe a year ago I would have said AI is all general purpose. It's going to be hard for anybody to capture value. I think there is the distinct possibility that the large language model providers end up having some durable, lasting advantage simply because of the Cost, complexity and sheer scale required to develop, iterate on and maintain those models. But I continue to believe that they will capture a relatively small fraction of the total value created by AI and that more of the value. You know, I'm thinking very seriously about making this. One of the themes for our annual meeting later this year is just this idea that if you think about the surplus that's created by AI, everybody's focused on the surplus value that's created. No one's really focused on. At least I feel like enough attention being paid to the split between how much of it will be captured by the people who produce the AI versus people who build things using it. And again, I think it's hard for 90% gross margin software people to envision a world where the customer is the principal. And this sounds like software people are robber barons, but it's hard to envision a world where margins are lower precisely because the end user is getting more bang for the buck. More software, the power of, you know, if you just think about software in terms of how much power is there per dollar, software power per dollar will go up dramatically, which means you won't be able to charge as much. And I think it was a really good piece also. Just, you know, these things go in waves and cycles. So I don't know, I thought it was a really good piece and it was something that four or five different people sent to me and said, you should cover this.

I mean, to that same point, I want to go back to Ashley Perez's graph where it outlines the stages of tech waves. So it's eruption, frenzy, then you have synergy and maturity. And so I certainly feel like we're at the frenzy stage as it pertains to AI. But I know there are investors who actually believe they're at the eruption stage still. We haven't even started scratching the surface of nearing the end of the right time to come in, which is why they're dumping so much capital there. So from your perspective, are you kind of thinking that that door has closed?

I think we're in the frenzy stage because I feel like in the eruption phase, there's nobody who calls it a bubble. There's no one who says things have gotten extended because you're so focused on the optimism and the possibilities. The reason I think we're in the frenzy stage is privately I've talked to investors who are like, look, I know that this is frothy and insane, but I'm going to ride the wave. I'm going to play the game on the field, whatever analogy, whatever sports or nautical analogy you want to use, that's what they're going to do. And if that's your plan, all that matters is that you can get in and out before the bubble bursts, or you can get in and out while there's still money to be made during the frenzy. And I think there are certainly venture firms whose either public or privately stated strategy is to do just that well.

Our next topic is from Cameron Peek over at Restive Ventures titled Consumer Businesses Are Stronger than Ever. Where Are the Investors? The article walks through the phenomenon of a massive disconnect in consumer tech markets. So while Chime's successful IPO signals a comeback, VC funding tells a really contradictory story. Consumer shares of venture dollars crashed from 15% in 2020 to just 5% in near in early 2025, making recent wins like Polymarket and Bill just rare exceptions. But public markets are thriving. Consumer tech Companies crushed the NASDAQ 100, up 63% year over year, driven by strong earnings from Uber, Robinhood and Netflix. So despite recession fears, consumer startups are actually outgrowing B2B peers, especially in fintech, where it feels like uncertainty drives innovation. Peak identifies AI powered personalization as the next catalyst companies using AI for hyper customized services are defining consumer tech's next trillion dollar wave with OpenAI's ChatGPT evolution, proving this opportunity is really just the beginning. I was reflecting on this and being a generalist fund has allowed us to continue being bullish on sectors that have fallen out of favor for other funds. From your perspective, do you think AI is going to give that lift on consumer to really bring it back into good graces with the majority of investors?

I've read so many articles about how AI is going to be this catalyst in the next slave, and I see just a gigantic disconnect between the number of articles written and the number of checks written. And I've had this theory for a while that part of what's happening in consumer is I don't have that many GP level friends of mine who are focused on consumer outside of some very specific funds or people who've been doing this for a really long time. And I've gone to a few events that are more focused on associates and principals and there are tons of people there who are interested in consumer and so my working theory is that the people at a lot of venture firms who control the money and the investment agenda are not as interested in consumer as they once were either, because it's been a long time since they had A hit or they don't feel the same cultural connection to the site guys. For whatever reason, they're not as interested. And so what the firm invests in reflects what those people are invested. And right now that's AI infrastructure. Whereas maybe some of their younger teammates either haven't been scarred by consumer investing or actually just closer to today's consumer and can see trends and see things that others might miss. So I was surprised that it was even 5%. If you'd asked me what it was, I would have said it. Probably 1%.

Yeah, it feels like Vero.

Yes. Mm. And I look in our portfolio, I look at some of our consumer, both consumer software and CPG companies, they're some of the best performing companies in our portfolio. And I. I think the irony is for many of those companies, access to capital is not assumed. So you have to build a business that if need be, can be profitable and still grow. And I think it enforces a unique discipline on those companies to both build real businesses, but not real businesses that are small. Real businesses that end up being interesting. And so I'm not surprised if those companies outperform. They have it tougher.

Yeah, I mean, that's the internal dialogue I have with myself a lot about consumer. I find to your exact point that they have to hustle the hardest to get the smallest amount of money and then have to constantly be thinking about other streams of capital that they can pull to just make everything come together. And even when they've hit all of the metrics and attraction that investors told them they had to hit in order to unlock capital, they oftentimes just like, won't get it and will never get that interest. So if I'm a consumer founder, that's so defeating to just know that has it just completely fallen out of favor no matter how I dress it up? And if that's the case, shouldn't investors just be open? I'm doing absolutely no consumer. And here's the reason why. And it has more to do with scar tissue than anything else.

I've had some people tell me, like, hey, I'm just not doing consumer anymore. Don't send me any. We've also had other firms that have, you know, had big transitions in their consumer investing team, and it's unclear who they're still focused on it. I will say this, we're probably one or two more big consumer. You know, there's some big news from Aura today. Like we're probably only a few consumer wins away from people. Maybe now that you mentioned the Way you said it made me think of something. I think it's very possible that these consumer wins could start to stack up right as AI investing fatigue sets in and it could set the stage for people to once again say maybe we should go back and look at consumer again. Maybe there are like interesting, valuable companies companies here now that we've had our fill of AI. I'll be curious to see. But I find it very hard to fundraise for our consumer companies. But the ones that really do well seem to be able to attract capital.

Yeah, Cameron talked a lot about consumer tech companies getting a lot of attention, specifically on the fintech side during times of uncertainty. Think a looming recession or economic peaks in valleys. Do you think that something like what she mentioned, AI driven personalization is a specific factor that could bring everyday consumers a sense of peace? Or are there other things that we're missing that consumer startups could capture with the support of AI that could be really valuable and catapult them back into the favor of other investors?

I mean, I think a lot of my friends who used to do consumer who aren't doing it anymore. Their argument to me is most consumer waves are built on a distribution innovation. Social media, mobile phones, there's the app Store. Like something happens that creates a new channel to distribute stuff that people didn't understand before. And there are companies that rush in and take advantage of that void to build and they're like, we haven't had one of those. I think there's some hope perhaps that LLM based search will create something akin to SEO as an industry that will allow people to get discovered and there'll be a way to, you know, be seen by the LLM search engines in the same way that people figured out how to work through and work with SEO. But I think barring a new platform or some big new chance to get distribution, I think a lot of people are going to say that that's a necessary condition for me to get excited about consumers.

Well, our last topic is a New York Times article highlighting major tech news. Nvidia will be investing $100 billion into OpenAI. This deal allows OpenAI to use Nvidia's AI semiconductors and its data centers instead of spending tens of billions to build most of their own facilities. This follows OpenAI's pattern of partnering with companies whose services they can leverage. Microsoft being another investor that provides comput saving power with Azure's data centers, Oracle for additional data Center Infrastructure and SoftBank to help keep the US ahead in the AI arms race. This investment is completely separate from OpenAI's recent 40 billion funding round. That value the company at around 300 billion at that point. I know it's shifted and changed a little bit today. The interesting takeaway is that Nvidia has made several investments into companies that rely on their products and chips like Core Weave and Lambda. We actually talked about Core Weave three or four months ago. And that connection and calling into question that relationship. This raises just questions about whether Nvidia is artificially inflating its financial health by investing in companies that then buy its products. And again we've discussed that all through and through, but we're back in this interesting web between data centers, chip makers and foundational model companies. Why from your perspective, is it important to understand how interconnected all of tech's largest players are with one another?

When I first read about this deal I thought about and maybe this was like a knee jerk thing back when I first got into Internet investing when AOL and the big search engines would do these, these ad exchange deals where no money would change hands but both companies could claim offsetting value. And these round trip deals. I'll give you $100 to spend a hundred dollars on my platform. I get the logic of it. If you're Nvidia, you're like, look, I want to make sure that OpenAI doesn't feel like they have to go somewhere else to get chips like they need, they need, they're going to need silicon to do their compute. We would like to keep them as a customer. We'd like them to not have to go out. And if you're Sam Altman, I'm sure you're like, I'd like to not be in the data center building business and have to do all this other infrastructure, so why not? And in most businesses it generally pays for a big customer and a big supplier to have a good healthy relationship. I think an investment that also allows your customer to purchase almost an equivalent amount of services from you in the future. Kind of an interesting structure but I think right now so much stuff is blocked by Nvidia. I don't mean in a bad way. They're just at the center of so much with on both the software and the hardware side of the current state of AI. It reminds me a lot of again I keep using these like late 90s analogy. In that Internet era it felt like Cisco was at the center of everything because we were building these huge networks and everybody needed routers and routing and Cisco was this like really important router, no pun intended of value through the whole ecosystem. And it feels like so much of the value right now is tied up in Nvidia. And so if you're Sam Altman, you're like, we should have a close relationship with Microsoft, we should have a close relationship with Masa. You should have close relationship with the US Government, you should have a close relationship with Nvidia. These are all people who could have an outsized impact on your business and it's probably better to keep them close.

Yeah, I mean we are VCs in this space and all of our investments end up being intertwined whether you like it or not. It feels like down the road, what are things that we have to kind of consider day to day, especially if you're deploying a lot of money in this market and being very bullish on outsized returns in these pockets.

Yeah, I, I wonder if some of these businesses that are built on arbitrage or hard to get access to things Nvidia chips like, I wonder if some of these businesses go away because they were important in a moment in time and then we solve the supply issue. Like I think it's interesting that Andreessen has their cluster of GPUs that they operate and make available to portfolio companies. I never thought VCs would be in that business. I'm not sure that that's, I'm not sure that that's a long term business that Andreessen or any other VC fund will be in or should be in. But there's probably a moment of time and scarcity where that is a very useful asset to have. And if you think about, you know, what's one of the arguments for having a lot of management fees? It's the ability to do creative things that will both help your portfolio and hopefully give you an edge in winning deals. So I still think this goes back to your, the first article. I still think we're in this phase where like we don't have enough of all the stuff we need. We don't have enough power, we don't have enough data centers, we don't have enough GPUs, we don't have enough AI researchers. So people are doing all kinds of strange things to get their hands on scarce assets. That's why Zuckerberg is paying hundreds of millions of dollars for these very scarce AI researchers. And that's why Google is doing deals with power companies around power usage for some of these data centers. I think it's partially why nuclear power or nuclear whatever, whatever your chosen pronunciation is back on the agenda because people realize, like, we don't have enough of the stuff that we need to power all the AI that we want. And so people are going to get creative until those things are available in roughly appropriate supply relative to the demand. My worry is humans are very bad at forecasting demand at times of rapid change. And while we eventually needed most of that fiber we put in the ground in the late 90s, we didn't need it in the 2000s. And I worry that what happens if it turns out we don't need all of these data centers that were built? That's a whole. That's probably another podcast about, like, private credit data centers, power and the infrastructure, real asset investments that are happening outside that are all predicated on the ability to accurately predict future demand for AI. And I'm not so sure we've ever been good at doing that.

Yep. My one last thought is, I guess if you're a fund manager, that's early stage and you just create an entire thesis around AI, is your assumption that those things will be figured out by the time that your companies grow and grow and scale?

Yeah, I think either that or you hope that your companies get big enough that they can get a deal like this if they need it. Yeah, I think the hard thing is if you're big enough to need this deal, but not big enough to matter to the party on other side of the table. That's got to be awkward.

Well, we are all out of time for today. Thank you, Charles, for stopping by. Thank you to our listeners for hopping in. Please like and subscribe and we will talk with you all soon. Thank you. Bye.