Guest Apoorv Agrawal, partner at Altimeter, discusses the rise of MANG VC, the impact of ChatGPT on investment strategies, the 'round trip' effect in investments, valuing AI businesses and market distortions. He also talks about raising capital from MANG VC and the future of AI in the next two years
Meng VC's dominance in the AI startup landscape is driven by their willingness to invest in generative AI and their unique ability to provide computing resources.
Valuing AI businesses requires considering future earnings, cash flows, and potential market distortions caused by significant investments from Meng VC.
Deep dives
The Rise of Meng VC and the Round Trip Phenomenon
The podcast episode explores the rise of Meng VC, which refers to Microsoft, Amazon, and Media at Google as venture capitalists. The host, Pratik Joshi, discusses this phenomenon with Appur Agraval, a partner at Altimeter. They highlight two factors driving this trend: the willingness of these companies to capitalize on the potential of AI, and their unique ability to provide the necessary computing resources for AI startups. The episode also delves into the significant investments made by Meng VC, totaling $25 billion in 2023 alone, with approximately a third of all AI investment dollars coming from Meng. The discussions also touch upon the launch of ChatGPT and its influence on the investment strategies of Meng VC. Additionally, the podcast raises concerns about the round-trip phenomenon, where investments are made in the form of compute credits rather than cash, thus potentially distorting the market and impacting future valuations. The episode concludes by exploring the benefits and drawbacks for entrepreneurs in raising capital from Meng VC, as well as the downstream effects of these investments on future growth stage VCs.
Implications for Valuing AI Businesses
The podcast delves into the challenges of valuing AI businesses given their lower margins compared to traditional SaaS companies. Appur Agraval discusses the historical patterns of overvaluing the short-term impact of technology and underestimating its long-term impact. He emphasizes the importance of considering future earnings and cash flows when valuing AI businesses, as well as the potential market distortion caused by the significant investments from Meng VC. The conversation also touches on the margin profiles of different layers in the AI stack, with the semis layer generating the highest gross profits, followed by the cloud layer and then the model infrastructure and applications. Overall, the podcast highlights the complexities and considerations involved in valuing AI businesses in the current landscape.
Considerations for Entrepreneurs and the Future of Meng VC
The podcast provides advice and considerations for entrepreneurs considering raising capital from Meng VC. It suggests that valuation, revenue concentration risk, and exit risk should be carefully evaluated when making funding decisions. The podcast also discusses the downstream effects of Meng VC's investments, particularly in relation to future growth stage VCs and potential difficulties in raising follow-on rounds. Additionally, the episode explores the evolving role of Meng VC in the AI landscape and predicts a continued strong presence based on the companies' dominant positions, growing investments, and market power. Moreover, the podcast highlights the benefits of listening to the earnings calls of public peers and gaining insights from the landscape and strategies employed by other companies in the market.
Key Insights and Trends in the AI Startup Landscape
The podcast episode provides key insights and trends in the AI startup landscape. It highlights the rise of Meng VC, driven by their willingness and unique ability to drive generative AI. Additionally, it discusses the specific investments made by Meng VC, which amounted to $25 billion in 2023, representing a significant portion of AI investment dollars. The episode also explores the impact and influence of OpenAI's ChatGPT launch on the investment strategies of Meng VC, leading to a concentration of investments in large language models. Furthermore, the episode addresses the round-trip phenomenon, where investments are made in the form of compute credits rather than cash. The implications of this phenomenon are discussed, including potential market distortions and revenue round-tripping effects. Overall, the podcast provides valuable insights and analysis of key trends and dynamics in the AI startup landscape.
Apoorv Agrawal is a partner at Altimeter, a tech-focused crossover firm with investments in iconic companies such as Snowflake, Twilio, UiPath, Uber, Okta, Roblox, HubSpot, GitLab, and more. He focuses on software and AI investments. He was previously an investor at Softbank and Steadview. Prior to this, he was building AI software at Rocket Fuel and Palantir as an engineer. He continues to code to this day and has built AltimeterGPT to augment their research efforts. He has a bachelors in computer science and an MBA from Stanford.
(00:33) The Rise of MANG VC (03:01) Capital Deployed by MANG VC (04:27) Impact of ChatGPT on Investment Strategies (07:16) The "Round Trip" Effect (10:05) Legality and Market Distortion (12:19) Margin Profiles of AI Businesses (15:28) Valuing Modern AI Businesses (18:30) Market Distortions and Downstream Effects (21:56) Considerations for Raising Capital from MANG VC (26:19) Role of MANG VC in the Next Two Years (35:02) Rapid Fire Round
Apoorv's favorite book: Man's Search for Meaning (Author: Viktor Frankl)
