Interview with Dr. Oliver Schoppe - Why invest in AI?

Market researchers say: the AI Market is on fire!

According to the International Data Corporation, global spending on artificial intelligence will reach $154 billion in 2023, an increase of nearly 27 percent over 2022. In addition, market researchers predict that spending on AI-centric systems is expected to exceed $300 billion in 2026.?

AI products will grow at a compound annual rate of another 27 percent over the forecast period to 2026. Three technology groups with eight technology categories comprising ten technologies are relevant in this regard:?

• Hardware (servers and storage),?
• Software (AI applications, development, and deployment, AI platforms?
• AI lifecycle, AI software services, intelligent knowledge discovery software?
• AI system infrastructure software
• Services (business services and IT services)

UVC Partners has been sitting down with AI-based business models for nearly a decade, testing them for sustainability and profitability. That's why our team consists of some experts in this field. We would like to introduce one of them to you today in an interview: Dr. Oliver Schoppe, Principal at UVC Partners.?

Maria Poursaiadi: At the latest, with ChatGPT, the hype around artificial intelligence (AI) has gained new momentum. UVC Partners has invested in companies with AI as their foundation for a while. Why is AI such an integral part of our investment strategy?

Oliver: UVC Partners has invested in AI since we launched our first fund in 2011. But obviously, the tech looked quite different back then. Not a single technology out there is developing as rapidly as AI. It comes naturally that every new generation of algorithms enables new approaches to solving problems - a perfect environment for disruption by VC-backed startups. Furthermore, AI increasingly affects every aspect of our economy, how we do research, and even our private lives. Thus, AI is a major playing field for the venture, and we are still on Day 1 of an industrial revolution.?

While there have been several waves of excitement about AI since the 1950s, this time is different. Not only because literally everyone is talking about it (in contrast to prior hypes that were more confined to experts and academia) but also because it is based on a series of major technological breakthroughs in the past decade. The era between 2012, with the famous AlexNet revolutionizing image processing, and 2017, with the probably even more famous paper “Attention is all you need,” which kicked off transformer-based AI like GPT, changed everything. What we see right now, a few years later, is that these breakthroughs now become tangible and accessible to a broader audience with playful implementations such as image generation with Stable Diffusion or ChatGPT.

Maria: You have been out in the field for quite a while. Can you tell us how and why you specialized in AI, and what excites you??

Oliver: When I tell people how I got into the field, I tend to feel rather old because my first academic projects in AI seem almost medieval from today’s perspective. I did my undergraduate degree in electrical engineering and information technology, which I found rather dull if I am honest. Very early on, I tried to get more interdisciplinary exposure by moving closer and closer to neuroscience. During my Master’s, I worked closely with a group of neurobiologists from Oxford who studied how the brain processes information - single neurons- and at the system level. I contributed by modeling the information processing of biological neural networks with - admittedly simple - artificial neural networks. This was an incredibly inspiring time because it showed me that relatively simple building blocks (neurons), if connected correctly and at a massive scale, make up everything we call “intelligence.” And that we can probably recreate it.

However, this was in 2014, and neither my research nor the tools were comparable with what is happening today. To those who know the field: I ran all of this in MatLab in a CPU and implemented the backpropagation algorithm myself; TensorFlow or Pytorch did not exist back then. So after a few years in consulting, I returned to academia in 2018 to catch up on the revolution in AI. I spent 2.5 years doing my Ph.D. in Computer Science, getting my hands dirty building AI for mostly computer vision tasks and a bit of language processing. What I learned in that time set the basis of what I am doing now at UVC Partners: trying to stay ahead of the wave to spot the next big thing.

Maria: AI technology is versatile and is used in various sectors and areas. What would an AI-based business model look like for you as an investor to take a second and third look?

Oliver: To (over-)simplify things, you can think about AI investing in three buckets: AI-enabled application software, AI dev tools, and cutting-edge, fundamental tech. The third bucket is often closer to research than business, and tends to entail the most exciting advancements in the field of AI. However, there may be only a handful of startups that I would place here.?

AI dev tools form a steadily growing playing field that is still US-centric. They run commercial open-source business models and mainly sell to startups and scale-ups. While we have fantastic startups in this field in Europe, they often take a global go-to-market approach, especially to address the significant US market. Not surprisingly, these startups often attract funding from US VCs already in their seed stage. While this does make sense in the long run, founders often need help in the challenging and deciding early phases of their journey. European VCs need to catch up here to fill that gap. We at UVC Partners are keen on partnering with early-stage commercial open-source startups in AI, following our strong investment thesis on those models. Engaging a vivid developer community around their technology can be a scalable product-led growth strategy.

The bucket around AI-enabled application software is by far the biggest in Europe's startups and financing rounds. Their business models are often centered around advancements in AI that enable a new kind of automation or data-driven workflow. They tend to have a successful start, but sometimes need help maintaining a competitive edge.

Last but not least: every founder reading this interview is welcome to join our next AI Founders Office Hours for some 1-on-1 sparring. Follow me on LinkedIn to stay posted when we open up registrations for the next session!

Maria: The race between the USA and China is a much-discussed topic. Can Europe keep up, and what about Germany?

Oliver: That is such an important topic. The last decade, and of course, the previous year, has made it evident that Europe needs to do so much more to become a self-sustaining power in the world, not only for economic reasons but also to keep up with our societal values. Sovereignty in fundamental core technologies is a prerequisite for this endeavor. Be it in communications technology, aerospace, quantum computing, biotech, and many other fields. This topic holds especially true for AI, which will transform every aspect of our lives. We should be highly interested in developing a European backbone for AI that we can control, but also aligns with our laws and values. This matter goes way beyond data privacy. The European AI Act tries to address this but has substantial shortcomings as it knows no other tool than bureaucratic regulation. The act may rather strangle innovation and does not help to build up a sovereign ecosystem - as the recent survey from our colleagues at appliedAI demonstrates.?

However, Europe can keep up if we leverage our core competencies and double down on forming global champions. We are good at driving cutting-edge research; many of the field's top scientists and engineers are European. We need more ambitious founders that form globally competitive AI players - and a funding environment that fosters this. Our portfolio company Aleph Alpha is an impressive role model in that regard (check out the recent OMR podcast with its founder Jonas). There is no reason why Europe should not be home to the next generation of AI research companies.?

Maria: Thank you, Oliver.?

All Links of UVC Partners:?

https://linktr.ee/uvcpartners?

About Dr. Oliver Schoppe:?

Oliver is a venture capital investor and is truly passionate about deep tech and natural sciences, from biology to physics. At UVC Partners, Oliver focuses on startups in the areas of Artificial Intelligence, Data Processing, and Digital Health. Before joining UVC Partners, Oliver worked for several years for McKinsey & Company as the junior project manager in Germany, Switzerland, the UK, the USA, and China. He advised clients primarily in the technology and automotive industries, focusing on strategic M&A and sales. At McKinsey, Oliver also headed a recruiting team and pro bono consulting projects for social justice in the German education system. With research stays at Harvard University, MIT, and Oxford University, he holds degrees in Electrical Engineering and a Ph.D. in Artificial Intelligence from the Technical University of Munich. He published over ten peer-reviewed articles in journals such as Cell or Nature Communications.

About Maria Poursaiadi

Maria Poursaiadi is the director of marketing and communications at UVC Partners. She is a passionate storyteller with more than 15 years of editorial experience. Her motto is "understand, create, and inspire." In this way, she aims to take her readers and viewers on a journey and help them gain critical insights. Especially when the topics involve a certain complexity, she feels challenged. Whether as a journalist, an opinion researcher, a PR consultant, a marketing manager, or a corporate spokesperson: She develops brands, makes their stories and achievements visible, and positions them in the business and public spheres.