437. Why Hardware is Attractive, The Most Interesting Areas in AI Outside of GenAI, and the Modern Data Stack (Jake Yormak)
Jun 10, 2024
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Jake Yormak discusses why hardware is attractive for investments, the most interesting areas in AI beyond GenAI, and the modern data stack. He focuses on early-stage companies, challenges and opportunities in hardware investments, and the impact of AI on workflows and profit pools, especially in computer vision and proprietary data. The conversation also covers the evolution of founders, the future of AI in computer vision, and the importance of computer vision in autonomous driving.
Investing in hardware companies offers unique challenges and opportunities for growth in the modern tech landscape.
AI commoditization impacts profit pools, emphasizing focus on computer vision and proprietary data for competitive advantage.
Encouraging users to contribute context in AI workflows enhances the value and effectiveness of AI-driven solutions.
Maintaining a concentrated portfolio of high-potential ventures balances risk and reward for outlier outcomes in venture capital investments.
Exploring historical narratives in various industries provides profound insights for informed investment decisions in technology and finance sectors.
Deep dives
Jake's Journey into Venture Capital and Story Ventures
Jake describes how he transitioned from practicing law to co-founding Story Ventures with his brother, Brian. Initially working in large M&A deals, Jake delved into early-stage tech in New York, gaining insights into startup legal practices. The birth of Story Ventures in 2016 marked Jake's shift from law to investing, leveraging thematic visions into founding technology companies.
Importance of Excellence and Vision in Investment Decisions
Jake emphasizes the critical need for founders to exemplify both excellence and vision for successful investments. Reflecting on past experiences, he underscores that compromising excellence for mere vision leads to ineffective partnerships. Jake asserts that founders must possess qualities like thoroughness in thinking, detailed orientation, and strong communication and leadership skills to ensure successful investments.
Investment Philosophy: Focused Approach on The Modern Data Stack
Story Ventures' investment thesis revolves around the 'modern data stack' theme, aimed at revolutionizing industries beyond automotive to finance and healthcare. Their strategy, initiated in 2016 with a $5 million fund, focuses on early-stage companies within this thematic realm, gradually escalating fund sizes to enhance leading roles in seed stage firms, highlighting a concentrated investment approach.
Unique Concentration Strategy and Investment Risk Evaluation
Jake discusses the unconventional strategy of maintaining an impressively concentrated portfolio of 12 companies per fund, challenging the industry norm of higher investment numbers. By strategically focusing on fewer investments with larger capital share in select companies, Story Ventures balances risk and reward, aiming for outlier outcomes in high potential ventures while reflecting on the challenges of remaining liquid in the venture capital landscape.
Embracing Data Complexity and Proprietary Data Acquisition
The conversation delves into the significance of proprietary data in AI-driven solutions, particularly in AI-driven workflows. Emphasizing the value of capturing data that traditional digital means do not provide, Story Ventures aims for enriching AI models using unique hardware-induced data and fostering partnerships for accessing enterprise data not readily shared among multiple vendors. The discussion culminates in the unraveling potential of computer vision in unlocking immense AI value.
Insightful Perspectives on AI Trends and Over-Hyped Areas
Jake discusses the transformative power of AI trends, particularly underscoring the potential of computer vision in unlocking untapped AI value. Addressing the saturation of AI-driven workflow companies, Story Ventures lingers on areas with unique data acquisition potential, avoiding sectors with limited defensibility. The conversation also touches on the nuances of public market and private equity investments within the technology domain, reflecting on the industry's future trajectories and challenges.
Recommendation on Investing in Technology Companies
Jake's ultimate recommendation centers on delving into the rich history of various industries, emphasizing the profound insights gained from historical narratives. Besides advocating for insightful readings on technology, finance, and geopolitics, he encourages exploring the intersections of technology and history to draw invaluable learnings for investment decisions.
Immersive Approach to Proprietary Data and AI Ecosystem
Jake elaborates on the paradigm of deriving insights from proprietary data sources through AI applications, emphasizing the pivotal role of harnessing unique data for AI advancements. With a keen focus on integrating hardware and software for data capture, Story Ventures navigates the data landscape by fostering client interactions and enriching AI models through diversified data acquisition techniques.
Strategic Insights on Investment Philosophy and Downstream Capital Risks
The conversation extends to strategic considerations in investment philosophy, balancing entry prices with conviction and the downstream capital impact on portfolio companies. Story Ventures' meticulous selection process revolves around identifying high potential founders adept at navigating market nuances while assessing startups with unique proprietary data offerings, shedding light on potential pitfalls and capital lock-ins with evolving investment scenarios.
Jake Yormak of Story Ventures joins Nate to discuss Why Hardware is Attractive, The Most Interesting Areas in AI Outside of GenAI, and the Modern Data Stack. In this episode we cover:
Concentrating on Early-Stage Companies with Potential for Growth
Investing in Hardware Companies, Challenges and Opportunities
Focusing on Power Law Outliers
AI Commoditization, Impact on Profit Pools, with a Focus on Computer Vision and Proprietary Data
AI in Workflows, Incentivizing Users to Contribute Context
The hosts of The Full Ratchet are Nick Moran and Nate Pierotti of New Stack Ventures, a venture capital firm committed to investing in founders outside of the Bay Area.
