EP 128: AI in VC - Changing the Investment Landscape

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How is artificial intelligence going to change the venture capital landscape? Our, our only, you know, are VCs only going to be investing in everything AI? Should you be throwing artificial intelligence into your company if you're a startup founder, entrepreneur? I don't know. I don't have all of the answers to these questions, but I have a very special guest today that can help us figure that out. So welcome. This is Everyday AI. This is your daily live stream, podcast and free daily newsletter helping everyday people like you and me not just understand what's going on in the world of AI, but how we can actually use it. So if you are interested in the ever changing startup landscape, you know, and specifically even how artificial intelligence is really helping to form and shape the future of startups, today's episode is for you. So if you are joining us live, thank you. Make sure to get your questions in now. You know, what do you want to you what, what do you want to know about this changing landscape in venture capital and artificial intelligence and startups? So before we get to that, let's first talk about what's going on in the world of AI news. So first, Britain's AI summit is reportedly not off to a great start. So the UK government, we talked about this last week on the show, is organizing a global summit on AI governance with a focus on potential AI driven problems. Right. So this narrow focus however, has excluded some important voices from UK's own AI industry and has raised some concerns about the inclusion of Chinese officials. So this limited agenda for the summit has already drawn criticism for ignoring more real immediate, kind of just real world risks of AI in hindering the UK's ability to compete in the industry. So already a lot of criticism toward this Britain's AI summit that was supposed to bring everyone together and now it's already starting to draw a little bit of controversy. All right, next, a lot of Apple news over the weekend, y'. All. So we're, we're going to get to the two biggest ones. So first new report has said that Apple's some, some Apple insiders are leaking the company's AI plan for the next iPhone. So AI, or sorry, Apple rather may be playing catch up to some of its rivals. So Google's Pixel 8 and Pixel 8 Pro that were recently released are AI first smartphones with AI integrated both into the hardware and software. And this has kind of Left Apple scrambling a little bit to catch up in the AI race. And they are planning to test some new AI capabilities in the coming months before potentially releasing some of these AI software features in iOS 18. That's not the only Apple news. We'll cap it off with some more Apple news. So some new reports say Apple has a quote, lot of anxiety about the Gen AI momentum. So Apple was official, officially initially caught off guard by sudden focus on AI in the tech industry and now they're kind of working to catch up. So the companies get this, y'.

All.

The company's AI team, according to recent reports, has allegedly a budget of $1 billion to be working on generative AI. So Apple is exploring different ways to integrate generative, generative AI into various applications, from development tools to customer service tools, as well as implementing AI to improve user experience. I don't know about y', all, but like a billion dollar budget, like that's wild, right? All right, but let's, let's get back to why you joined us today. You probably are here to hear and to talk about artificial intelligence in the VC world and kind of the ever changing landscape. So with that, please help me welcome to the show. There we go. We have Leon Isen, an inventor, serial entrepreneur and venture partner of Network bc. Leon, thank you so much for joining the Everyday AI show.

Hi Jordan, thank you very much for inviting me. I am really happy to be here. I follow your everyday AI almost every day and I like and a lot of my friends were there. So thank you for inviting me.

No, absolutely. Hey, speaking of friends, we have some of our everyday AI regulars joining us on the show. So Brian saying Good morning. Dr. Harvey saying he's catching taxes. We have, we have the usual crew. So hey, if you have any questions for Leon, just about AI in the venture capital industry and how it's changing, please get those questions in now. So Leon, maybe let's start, start at the top. Can you tell everyone a little bit about kind of what you do? Because that's a lot. Inventor, serial entrepreneur, venture partner. What is it that you do with Network vc?

Yeah, but I would like to start from the beginning. I would say so. I have PhD in physics and did my postdoctoral research in quantum computers, specifically laser cooling. And this is created some basis where I am today. So I was working like then I left science, spent for a long time and became engineer and then moved to entrepreneur, entrepreneurial area. And in 2009, in the middle of crisis, I succeeded to raise the first million dollar. People laughed on me. So I was almost in a, in a level of bankruptcy but it was very difficult as I burned my bolts and finally succeeded and invented the world. First FDA cleared pulse oximetry monitor at wrist long before everybody else just got into this market. Today people use my device like predicate and successful in the market and for 10 years I was managing Oxyton Medical like CEO I was founder of this company and get this company to, to somehow success. And so I learned a lot through my experience for a long time and somehow all, all Planets align in 1. I think I should get into investment area because I didn't touch it yet and I all the time I was sitting in front of investors and I learned how they think and then I get into their play, into their chair, just sitting on their chair. Now I understand how wrong I was then. I raised a lot of millions but actually all the time today I understand how I was wrong with my approach to how investor really think. And now I understand this and now I teach a lot of startups and not only investing, I'm teaching, I mentor a founder institute, I mentor many accelerators and really the main problem that entrepreneurs, entrepreneurs, they're not ready to raise money. I didn't see any entrepreneur ready to raise money. 99% of entrepreneurs cannot give you elevator pitch for photos even 60 seconds and somehow they rise. They rise. And this is very interesting stuff.

So Leon, you obviously have an impressive a background from all different angles in venture capital, entrepreneurship and even the kind of being an inventor yourself. But let's just first kind of get a general understanding. So when we're talking about AI, I'd love to get your kind of vantage point of this, you know, because you do have a background that's more seasoned than most and more well rounded than, than a lot of you know, people that we talk to. But you know, when, when we talk about a general understanding of artificial intelligence, you know, what are your thoughts on that, you know and do you think it's something that's going to eventually bring us together or could AI be something that you know, could kind of fracture us and you know, also with different startups in the industry as well.

Yeah, very interesting question. Thank you very much. First of all, we have to understand what is it AI? I know it's, it's, it's interesting to tell you AI everyday I to talk about what is it AI but I want to share my understanding. So as you know, IBM 50 years ago defined AI like software that mimics decision making and the problem solving by the human mind. I Consider AI like some kind of mirror of the human mind mirror so way how we understand ourselves because we are like a war of humanity are totally unconscious and how to bring us to consciousness. That's why we have wars, that's why we have unjustice. That's why we are in a position where we are today in our world. And my view that AI should help us to understand ourselves and make bring our to some conscious level to awareness about who we are and what we are going to do to continue to thrive like humanity, like civilization. And this is my main mission. When I'm investing in AI, I always think about okay, there is a specific problem AI is solving now but how this problem look like a par. Looks like a part of the general vision I have to where we're going. And so I developed interesting approach. There is a AI agent and we challenge this AI agent. Some people tell us that it's disaster so AI will kill civilization. Other people think differently, they are optimistic, they think okay, AI will help to bring civilization to the next level. I don't know but to my understanding a human has some DNA which connected to, to the quantum field. I would say to the field maybe there is a life beyond our physical life and definitely we have connections to something that gives us power, gives us intuition and gives us something that I'm not sure any machine could have. So when people ask me oh, AI going to kill humanity because AI outperform humanity and will manage humanity back and I answer okay, we all know it's proof that when people die, their soul comes out of the body and people see themselves from the top. Now my question is machine can do it. Dying never. So I, AI asymptotically will continue to be close and close to human knowledge. I, I call it ultimate knowledge. Yeah. And human is growing. AI continuously will approach this growing but will never cross it. This is my understanding of a place of AI in our life.

Yeah, and Leon, you bring up a lot of interesting points there. Right. Because there is definitely, you know, not just in the startup landscape, but I think in the general population as well. You know, some people are very, you know, kind of looking forward to integrating AI into their everyday life. Some people aren't, you know, some people are hesitant and they say oh, you know, I don't, I don't trust it, you know, or hey, this could take my job. So I'm just not, I'm going to stay away from it. But, but I specifically want to even ask you about how this is how AI's rapid implementation into our daily lives is changing the startup scene. Because it seems like from my vantage point over the last maybe year or two now, every single startup that I see is somehow integrating AI into their product, into their service. Have you seen this? And is this a good thing or a bad thing for the startup landscape?

This is very important thing. Today I do not consider any startup if startup doesn't have AI elements or in their operations or in their product. It's very important because for us, for investors, we are, we are keen to see some, some optimization of money spent. And today if you cannot spend money and optimize this spending, you will not succeed. You will be out compete by other startups. So it's very important and this is what I teach startups and in my portfolio and like a mentor, an advisor, the first thing I start, let's start take a look on your operations, let's take a look on your business processes. How are you doing customer success? How are you doing marketing and sales? I think today AI should be involved and introduced in all these operation stuff. And if startup doesn't have this, I'm sure I'm not going to invest at all. I'm going to consider this startup at all. But I'm going to help this startup to implement it. Yes, I'm going to help but again it's too early to say how many startups will implement but in 2004, 24. I think the most important part of investment dynamics into startups is to have optimal processes that enable to invest less and to get return of investment much more.

You know Leon, something I'm always thinking of specifically when it comes to startups is it seems like, you know, kind of pre, we'll just say pre chat GPT because I think that kind of, you know, put this gen AI kind of onto the scene. But it seemed like, you know, something you would always see startups doing is investing heavily in maybe certain areas that they didn't need to, you know, how kind of. So going back to what you just said about, you know, startups needing to work generative AI with, with their operations, business processes, customer success. Is this changing how even startup teams should, should be operating? Do they need to have, you know, these huge six figure, you know, development teams, even when they're very small, working on an mvp, is this going to make leaner, you know, smaller startups able to compete whereas, you know, maybe three, five years ago they needed a large team?

Absolutely. This is exactly the point because when we invest we're looking for high performance and we're looking for having this startup on the cut edge of, of their development and technology today. Definitely. If they had for example have five salespeople and they don't use a CRM that includes AI, just very simple CRM like Excel or something like this. Definitely I'm not going to consider this startup like, like a potential winner. The problem is that it's not market is not ready. Not a lot of HR in AI space. So it's quite difficult to hire people who understand this. But also my approach, I hire in my companies I usually hire junior people. I never hire high level professionals. Okay, I can like advisor, right? Like Advisor. Very good. So my approach and this is what I ask startups to do. So you should have some junior that has a fresh mind and could learn everything from the beginning without some garbage that this guy bring by their himself by the age of 50, I know it by myself. It's a lot of garbage that really disturbs and you have to remove this garbage. Not, not everybody can do it. So you have to have the fresh mind and then you have to advise to, to hire advisor very professional, very senior guy who can help these young guy to grow. So kill two rabbits. First company will thrive in this case and second, this guy young guy has a huge opportunity to learn quickly and to grow in his career.

I love this. Yeah, I mean what literally as I say I love this. Tanya just said comment said I love this someone who is a visionary, he can spot potential. Absolutely. So thank you. If you are joining us please get your questions in. Dr. Harvey Caster saying great discussion. I'm working on my startup in AI and healthcare but a question for you here Leon. So someone asking, you know, maybe what AI tools are even VCs using these days. So I love that. So we're talking about you know, how AI is changing things in for startups but you know, what about for VCs is it changing? Are these AI tools changing how you operate and what tools are even VCS using that are kind of AI tools?

Absolutely. Today many VCs using AI tools and a lot of startup developing due diligence AI tools for VCS. I, I know I just got recently some PGTech a very interesting startup which enables VC to make due diligence for a couple of hours instead of couple of weeks. So it's amazing opportunity for VC to have the right decisions because usually VC decide on combination of emotional and analytical stuff and AI doesn't have emotional stuff. For example in network VC we put specific specific plan on investment. So we Try to eliminate emotional investment. We tried we invest in company having some numbers and figures already done like million dollar or two million dollar revenue, high growth, some very top 40 venture capital invested before this just eliminate some emotional so stuff. But again just a couple of days ago I had very interesting conversation with interesting accelerator and venture fund IT starter net starts. I I like this guy. I like this their approach and they use a very sophisticated algorithm for startups due diligence.

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You know, as we look forward. So if, if maybe a startup founder is, is hearing this and they're saying, oh you know, maybe we're not using AI in all of these places that we should, maybe we are still, you know, wasting, you know, some of our valuable time and resources by not being efficient with generative AI. Leon, maybe what are, you know, a piece of advice or two that you might have for, for people working in startups on if they are kind of struggling to get the most out of gen AI, how can they do so?

First of all, people working in startup do not have struggle with using AI. If they struggle of using AI, they don't have to work in startup. So startup is a very important filter of people who can and who cannot enable or not. So piece of advice or hire mentor. This is very important today. For example, recently I, I was a judge in one in one competition and it was a clear gap between startup founder who has mentor and startup founder, I call them asshole who thinks they know everything. They don't need anybody to help Them then they come to me back and say okay, I'm out of money now what I have to do. I said okay, you should come to me a year ago. Why, why didn't. So this is very important. Startup founder should understand if he struggle with something not, not about A.I. exactly. With something with, I don't know, personal issues with money issues with management issues, with everything with culture. It's very important to build appropriate culture. I have a specific course about how to build the culture and based on quantum business thinking, this is my methodology I developed specifically for startup growth. I invite people to my website so you will be, you will learn very interesting unusual things there. So I usually I tell I encourage such entrepreneurs to find mentor. A lot of free mentors around go to accelerator, take a mentor, learn. Because as I said before, 99% of startup founders cannot give you elevator pitch. I'm not talking about that. They have to do it in the middle of night when you just wake up. And they have to do it immediately. They cannot do it after, I don't know, 10 minutes of conversation. And that's why pitch deck is totally wrong. Because usually elevator pitch, you build from the pitch deck first. To build a pitch deck, you identify your objective, you identify your key results at the end of your journey, startup journey to understand what kind of exit you have to have. And then they don't know how to make elevator pitch. So if people cannot give me elevator pitch, it means I don't have to open pitch deck because pitch deck is totally wrong. This is what I understand because they didn't get anything from through writing this pitch deck.

Yeah, it's so interesting because I do think as we start to rely more on these generative AI tools, it does take away, I think some of the startup founders ability to think into rationale and to reason and to communicate. Because if you do come overly reliant on these generative AI tools, it almost comes harder I think Leon, to maybe show your work or you know, hey, how did you come from, you know, from point one to point B? Well, if you relied on, you know, two or three gen AI tools to do the heavy lifting, that's okay. But you have to be able to, like you said, you have to be able to still deliver the pitch and to explain the rationale behind the decision.

Makings exactly as, as you know, as I said before, AI is not me. IBM said AI by definition should mimic decision making, but should somebody should make decision making. So AI mimics, you make it and you have to calibrate your Understanding of AI in order to deliver what AI gave you.

Absolutely. So, you know, yeah, we've talked about it a lot in today's show so far. You know, everything from some best practices on how startups can better use generative AI tools, how the landscape is, is changing a little bit. But one thing I kind of wanted to, to end today's show on is, is how is AI changing everything for vcs, for you know, venture capitalists, maybe people in private equity. So you know, you kind of gave one example of, you know, there's startups even now working on generative AI tools to help vcs kind of, you know, do their due diligence a little faster. But you know, outside of that, you know, kind of specific example, how even for you, how is generative AI changing the role of a venture capitalist and you know, private equity and these companies that are investing in startups.

Dramatically for me, dramatically. Because first of all it accelerate my job very much accelerate and second, it accelerate my understanding what I'm looking for because again I can use AI to, for my decision making. It's very difficult to think out of the blue. Okay, here is a list of cons, here is a list of pros. No, I ask AI, what do you think? But very important to make a correct prompt but actually change my, even change my understanding how I'm going to invest, how I'm going to build the company. And yeah, it's critical but I cannot consider how AI help vc, VC industry without considering all the industry. As you know that price Water Waterhouse said that by 2030 AI will increase our industry growth by 14%. So all goes together. It's like in frontal, you know, like in front. All goes together. So AI introduction in horizontal and vertical, vertical in industrial enterprises. And the whole industry is growing and venture capital should thrive because optimization of, of startups, optimization of investment make, automation of investment tools, reducing some emotional components. To some level it's important but to some level for people who cannot give their emotions. But in any case, what I have to say by conclusion, do not think that AI will help to entrepreneurs. This is what I tell to entrepreneurs. AI won't help you unless you have created wow effect. It doesn't matter using AI something else blockchain. It's just finally it will be commodity. It's commodity and it yeah, it's just tool you like a human being, you should create craft wow effect to success in your business.

So much, so much great advice, you know Leon, so thank you. Like I said we, we covered so many things on this. Thank you so much for coming on the Everyday AI show and just sharing about kind of AI's impact in venture capital. We appreciate your time.

Thank you, Jordan. It was a great conversation. Thank you.

Oh, agree. And hey, there was a lot, you know, Leon mentioned, you know, his website. So make sure you also go to your Everyday AI dot com. Sign up for the free daily newsletter there because we're going to be recapping not just everything that that Leon talked about, but there's going to be a lot more. So sharing some different insights and, and really helping you all unpack this extremely valuable conversation. So thank you for joining and we hope to see you back for another episode of Everyday AI. Thanks, y'. All.

Thank you.

And that's a wrap for today's edition of Everyday AI. Thanks for joining us. If you enjoyed this episode, please subscribe and leave us a rating. It helps keep us going for a little more AI magic. Visit your everydayai.com and sign up to our daily newsletter so you don't get left behind. Go break some barriers and we'll see you next time.