Silicon Valley is in the midst of an AI gold rush. This advance is driven by a wave of capital investment. Investor Vishal Verma insists it’s the sheer volume of capital looking for a home that fuels the AI frenzy. He addresses the inherent risks and talks about the future of frontier technology. Even as she praises public purpose at times, Verma misses the enormous scope of investment and goal-setting emanating from Silicon Valley. Estimates indicate that $1-10 trillion is on the sidelines and can be readily deployed today.

The confluence of that capital availability has supercharged the competitive landscape. This environment has created a climate of breakneck innovation and a tumultuous market with an 85% – 90% failure rate of AI startups. Verma points out that while AI success stories like OpenAI are grabbing headlines, thousands of other AI startups will succumb to disillusionment. The possible dividends are enormous. Take OpenAI, for instance. It went from zero to a $10 billion valuation in a matter of months.

Verma’s perspective sheds light on the ongoing tug-of-war that has defined the burgeoning AI ecosystem. Perhaps most critically, they spot broader implications for the future of work and technological advancement. He amplifies the conversation around the funding glut in venture capital and the next wave of frontier technologies.

Today’s Silicon Valley financial environment is one marked by a once-in-a-generation concentration of capital. Verma points out that the size of the possible investment is a big reason for the continuing AI rush, and he’s absolutely right. According to various estimates, the value of this uninvested capital in Silicon Valley is between $1 trillion and $10 trillion. This wealth of resources gives companies the ability to take moonshot projects, but drives fierce competition among players in the AI realm.

The venture capital firms are muffling the signal themselves, because they’re each managing larger and larger funds. The next year in 2022, Sequoia Capital – among the most prestigious venture capital firms on the planet – raised $7.25 billion. This was the first investment of Verma’s family into any fund from Sequoia in the late 1990s. That investment was just under $400 million and demonstrates the enormous growth in fund sizes over the last few decades. At the time, Sequoia was finishing the last steps of a monumental accomplishment. They were preparing to close the largest fund in their history, $339 million—for the late 1990s.

The current AI boom has seen the meteoric rise and valuation of a number of companies. OpenAI’s meteoric rise from nothing to a $10 billion valuation is a testament to the speedy growth and boom in this industry. Other companies like Anthropic have pulled in significant rounds too, raising billions at a $65 billion valuation. CoreWeave, another player in the infrastructure space focusing on the AI boom, has recently been valued at over $50 billion. Glean's financing reached an impressive $7.2 billion.

We need to be careful not to gloss over the more than 90% failure rate for AI startups. For every OpenAI, he highlights, there are thousands of equivalent AI startups that will fizzle. This Darwinian dynamic is a product of cutthroat competition. It’s a testament to the inherent risks of pursuing pioneering advanced technology. We recognize that the AI field is very new. Consequently, the vast majority of these ventures will struggle to identify a sustainable market and navigate technical hurdles.

Given the latest developments in AI—they’re starting to have a massive effect on the future of work. Verma especially puts a spotlight on data that found 80% of the jobs in 2040 haven’t been invented yet. This projection does a great job underscore AI’s transformative potential to automate the tasks currently performed and transform the future through new industries and occupations. As AI matures and becomes more ingrained in our industries, it will undoubtedly change the labor market in ways we cannot yet imagine.

According to Sam Altman, CEO of OpenAI, the new era of AI can be changed by small teams with great ideas. He’s spoken at length on this potential and its exciting implications.

Don't be surprised if there's a multibillion-dollar company run by just three people. - Sam Altman

AI tools are becoming more robust, further empowering individuals and small actors. This change has the potential to turn existing organizational hierarchies on their head.

To illustrate her point, Verma makes a comparison between the current AI boom and the creation of Nvidia in the late 1990s. He notes that Jensen Huang, the CEO of Nvidia, wouldn’t have much to show for it even with the company’s IPO in 1999. Back then, it was between $20 and $30 million. During that period, Nvidia—now a $1 trillion company—went public at a $500 million valuation. Today, Nvidia holds the most significant share of the AI hardware market, and Huang’s net worth has soared into the billions. Today’s example from history paints a picture of what is possible when a company realizes exponential growth—especially in the tech world.

Silicon Valley has an incredible deep bench of capital. In combination with the technological advancement of AI technology, this presents both incredible opportunities and immense challenges. Funding pushes innovation further and faster to develop new applications. It creates a very cutthroat, hyper-competitive and short term-driven climate. Given that most AI startups will not succeed, the costs and risks are considerable. At the same time, the longer-term effects of AI on the labor market remain a big question mark.

This isn’t to say that all this capital sloshing around the Valley is without its risks. This extreme competition for each deal, in turn, can inflate valuations and create wildly unsustainable business model assumptions. That’s because under current rules, companies are incentivized to prioritize short-term growth at the expense of long-term viability, which causes bubbles that later burst. The concentration of wealth and power in a handful of tech behemoths is deeply concerning. It does pose alarming issues related to equity and the potential for monopolization.

Looking forward, Verma is optimistic about the future. The next wave of frontier technologies would seemingly be driven by biotechnology, exploring the final frontier and advanced materials. These fields, similar to AI, promise significant disruption to existing industries and the fostering of new opportunities for growth and investment. At the same time, they pose important technical and ethical challenges that must be confronted.

This is the context in which our passion-fueled Silicon Valley cousins are enjoying an incredible generative AI boom. This wave is driven by a unique pairing of capital availability, technology acceleration and desire for creative disruption. The promise of accelerated innovation is substantial, and we should not overlook the inherent risks and challenges. Our goal should be to ensure that as AI grows, we nurture a responsible and sustainable ecosystem. This new innovation ecosystem must still spur innovation for the sake of it, but protect society too.