E429: Dr. V on AI, Market Bubbles & Finding the Next Anthropic

David Weisburd (0:00)

Dr. V, you spent nearly a decade at Lightspeed before deciding to spin out, and before we started recording, you said that the market right now is undervalued in venture. Why is that?

Vaibhav Agrawal (0:10)

This is something I learned from Chris Sheppey, who was one of the founders of Lightspeed. He said, the market always seems to be overvaluing technology, and 10 years later, you realize it wasn't. I've kind of learned to tune these things out, but you look at the data, right? I mean, if you look at, let's say, 2000 and 2009, when I was starting my first company, on the aftermath of global financial crisis, the total market gap of private technology companies at that time was maybe close to $50 to $80 billion. And then the largest company was Facebook, $20 billion in market cap. And you fast forward today, we're talking about multi-trillion dollar companies.

We're talking about a private market that's in aggregate of about $5 trillion.

If somebody had said we would be sitting at a $5 trillion of private market cap, even three years or four years ago, it might have seemed ludicrous, right? And here we are. And mind you, we've only seen AI disrupt coding in the world in a realistic way. Most of the revenue of Anthropic and OpenAI are coming from coding. So whether it's medicine, engineering, physical automation, when I look at the degrees of possibility, it just feels very, very large.

David Weisburd (1:13)

And the very rough back of the envelope, as on that is market cap of the private companies versus venture capital going after those private companies.

Vaibhav Agrawal (1:22)

For perspective, if back in 2008 and 2009, the top funds in Silicon Valley were probably raising like $500 to $1 billion funds. And even that was like, wow, that's crazy.

There was no SoftBank, $100 billion Vision Fund, there are no mega hedge funds. And I look at like even just Lightspeed, Andreessen, Sequoia, now increasingly interesting benchmark and many others, like you're already in excess of $50 to $70 billion. The markets have completely reset in terms of the capital scale. And expected value.

David Weisburd (1:56)

And the big unknown is whether AI will actually disrupt labor.

Vaibhav Agrawal (2:01)

I don't think it's an unknown, right? If you look at the impact that Cursor and Claw are having on coding, which is inherently engineering labor from like writing sophisticated code and research level code to implementing basic systems, like systems implementation and stuff, very different levels of sophistication. You're seeing AI kind of eat into a whole bunch of that. For me, the question is less whether it can disrupt labor. The question is what kinds of labor get disrupted first. My point of view is that categories of labor where there is low cost to going wrong, i.e. there's a little bit of course correct available. You don't require a lot of trust. And then second, ones where there's a deterministic right answer, and you can actually close the feedback loop, improve the model on a continual basis, which is why coding is so perfect, right? Because when a code is written, it's expected to perform in a certain way. It either works or it does not. Along those two axes, you're going to see things evolve. And if one end is coding, probably the other extreme end is medicine. Cost of going wrong is very high.

Because of multi-systemic nature of biology, it's very hard to attribute a response or unintended response of something solely to the algorithm.

David Weisburd (3:13)

You've said that the old venture capital playbook no longer works. Why is that?

Vaibhav Agrawal (3:17)

The venture playbook has changed. Ten years ago, venture was not a media business.

It was a reputation business, where investors would invest it over decades, and they were known for investing in certain companies, and therefore became aspirational founders to raise capital from. Fast forward today, right? Sourcing, especially at the early stage, is very much a media business.

You've seen the advent of like TBPNs getting acquired, and recent horror videos talks about the new media.

David Weisburd (3:44)

Harry Stubbings has deployed over a billion dollars reportedly.

Vaibhav Agrawal (3:47)

There you go, and so there was kind of like this moment where a lot of podcasters were raising funds to varying degrees of success. It is now widely established that distribution is important for a venture firm to be able to see the best opportunities.

And then all the way at the end, when you're exiting, right? 10 years ago, investors were not really thinking about exits that proactively. The conventional assumption was, you're going to have 10 investments.