For tech startups, having an artificial intelligence strategy is the new mobile — table stakes.
And the rapidly accelerating advent of machine learning, a subfield of AI which aims to enable computers to learn on their own, has Greycroft LLC partner and co-founder Ian Sigalow deliberating over how to best invest to reap the rewards.
Sigalow told entrepreneurs, investors and other members of the startup community gathered Jan. 11 for the San Diego Venture Group’s Venture Outlook event the quickening rate at which computing power is advancing has made determining how to profit from that evolution a challenge.
“We’re entering some really freaky stuff, and I don’t know what to make of it, but in every industry — whether it’s waste management, or convenience stores, or driverless cars or security — there is stuff happening,” he said, after relating a story about one of the latest coups in the AI world, in which a poker bot called Libratus beat out top professional poker players — a feat until recently considered near-impossible because a player can’t see an opponent’s cards.
“I don’t know how to make money in this, because it’s happening at such a fast clip. But there is going to be insatiable demand for the talent that can solve these problems.”
That, however, doesn’t mean Sigalow, who traveled from New York to speak at the annual SDVG event at Qualcomm’s Irwin M. Jacobs Lecture Hall, is hesitant in deploying capital to startups using such technology.
“Almost every company we, as a firm, invest in has some machine learning component,” he said in an interview after the event. “AI used to be a vertical, like health care or retail. Then, I realized, it’s a horizontal. It’s a virus, and it’s infecting everything; every fintech, health care, enterprise software (company) … they all have an AI strategy.”
Sigalow conversed on stage with David Coats, founder and managing director of San Diego-based VC firm Correlation Ventures.
Correlation, with offices in San Diego, Palo Alto and New York City, uses analytics to determine whether to invest, and promises entrepreneurs a decision within two weeks. The firm acts as a co-investor, making two to three investments monthly in partnership with other VC firms and startups looking to complete a financing round.
Coats’ firm has built a proprietary database of venture capital data. He shared some of that information at the event, and used it disprove some “common truths” in the industry he considers myths.
“Many people think of venture as a hits-driven business,” he said. “Many people may not realize how right-skewed this distribution truly is.”
Based on the data the firm has collected, Coats said more than 75 percent of VC “wins” — defined as financings that generated the top 1 percent cash-on-cash multiples — are small deals, with less than $10 million raised.
And, the majority of wins were led by lesser-known firms. About 45 percent were led by the top 50 firms, he said.
He also revealed the East Coast and West Coast VC communities performed on par with one another over the past decade.
Asked about San Diego’s reputation as a startup town, Sigalow said, the city remains among the so-called “third tier” of geographic locations in terms of venture returns.
However, its population is more than that of many other cities in those ranks.
S.D. Not Measuring Up?
“I’m just not seeing the velocity of company formation one would expect for a city of this size,” Sigalow said.
However, that perspective doesn’t include the city’s robust life science and drug development companies, areas in which Greycroft does not invest, Sigalow added.
At Greycroft, which he co-founded in 2006, Sigalow has led investments in companies such as grocery-delivery startup Shipt, which Target Corp. recently acquired for $550 million; in peer-to-peer payments app Venmo, which was acquired in 2012 by payments company Braintree for about $27 million, and in Braintree, which PayPal subsequently acquired for $800 million in 2013; and Buddy Media, which Salesforce acquired for $689 million in 2012.
The Ohio Test
When it comes to consumer products, Sigalow says he employs the “Ohio test” when considering whether to invest: Asking his parents, who live where Sigalow grew up, in Ohio, whether they have heard of it.
“Most people when they’re funding consumer businesses think, ‘is it a good product for me?’” he said. “They don’t realize that 99.99 percent of the United States is not you.”
Outside the merits of the product or service in which he is considering investing, Sigalow said an essential element of a pitch from an entrepreneur is that person’s experience and story.
“People who have really unique perspectives and experience for what they’re doing … we’re investing in people: That’s my business,” he said.