Welcome to the land of overhyped unicorns (Q2 edition)

Every VC worth their salt needs at least one major AI investment, some even dozens. The roster of investors in AI includes heavyweights like Sequoia Capital, Andreessen Horowitz, and Kleiner Perkins, and they are all eager to place their bets on the next big thing in AI. It's a bit like a high-stakes treasure hunt, with billions of dollars on the line and everyone scrambling to find the X that marks the spot.

The VC industry thrives on high-risk, high-reward investments, where the goal isn't just to break even but to hit it out of the park with returns that make your eyes water—10x at a minimum. It’s a tough game, where only about 10% of investments actually pay off, but when they do, it’s enough to keep everyone coming back for more.

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Every VC below needs at least one, some dozens, major Ai investment:

1. Sequoia Capital
2. Andreessen Horowitz
3. Accel Partners
4. Benchmark
5. Greylock Partners
6. Bessemer Venture Partners
7. Kleiner Perkins
8. Founders Fund
9. Index Ventures
10. Lightspeed Venture Partners
11. New Enterprise Associates (NEA)
12. Insight Partners
13. Battery Ventures
14. General Catalyst
15. Union Square Ventures
16. Tiger Global Management
17. Coatue Management
18. Balderton Capital
19. Ribbit Capital
20. IVP (Institutional Venture Partners)
21. Thrive Capital
22. Sequoia Capital China
23. Redpoint Ventures
24. TCV (Technology Crossover Ventures)
25. SoftBank Vision Fund
26. GGV Capital
27. First Round Capital
28. Spark Capital
29. DFJ Venture Capital
30. Sapphire VentureS

The overlooked fundamentals of Venture Capital

The VC industry thrives on high-risk, high-reward investments, where the potential for disruptive innovation offers substantial returns. Every fund will make 10–20 significant investments, and that’s it — that’s what you have to wait at least 10 yrs to see if you were right or just collected some management fees.

The goal is not just to recover the initial investment but to earn significantly more, often aiming for a return of 10x the investment at minimum. Anything less is not VC backable.

Let’s consider a hypothetical scenario where each of 50 AI startups receives an investment ranging from $50 million to $1 billion.

• Minimum Investment Scenario: If each startup receives $50 million, the collective investment totals $2.5 billion.
• Maximum Investment Scenario: At the upper end, with each startup receiving $1 billion, the total investment soars to $50 billion.

Venture capitalists exit their investments through a sale of the company via M&A (99%) or an IPO (1%), and they target at least a 20x return to cover not only their successful investments but also to offset losses from other investments didn’t return anything.

• Calculating Exit Values: To achieve a 10x return, the total market exit value must be substantially higher, especially when considering that VCs typically own about 10% of each company they invest in.
• Minimum Required Exit Value: For the $2.5 billion investment, the required exit value would be $250 billion.
• Maximum Required Exit Value: For the $50 billion investment, a staggering $5 trillion exit value would be required.

While these numbers seem crazy, we’ve already exceeded the upper limit 3x in the last 3 years alone and are probably close to it already in Q1 2024. But the truly hard and unfortunate aspect is that 90%+ of that money invested will not return a penny. Some will see it as a waste, which some definitely got thrown at bad ideas, FOMO, etc., but that 10% that will return tens of billions to a lucky few founders, employees, VC, LPs, etc., is the hope that drives our industry forwards.

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Top AI-funded startups with significant investments

Here’s an expanded list of top AI-funded startups that have raised significant funding, showcasing the breadth and depth of venture capital investment in this high-potential sector:

• OpenAI — $10 billion from Microsoft.
• Anthropic — Over $7 billion in total funding, with significant investments from Google and Amazon.
• Inflection AI — $1.3 billion from investors including Microsoft and Nvidia.
• Cohere — $270 million Series C led by Inovia Capital
• Databricks — $685 million from investors including T. Rowe Price Associates and Nvidia.
• Tempus — $1.3 billion in debt financing from investors like Franklin Templeton Investments and Google.
• Waymo (Alphabet Inc.) — Over $3 billion in total funding for its autonomous driving technology.
• Nuro — Over $1 billion in funding for its autonomous delivery vehicles.
• Graphcore — Over $300 million in funding for its AI processors.
• Argo AI — Over $2.75 billion in funding from Ford and Volkswagen for autonomous vehicle
• Zoox (Amazon) — Acquired by Amazon, previously raised over $1 billion for autonomous vehicles.
• Aurora — Over $1 billion in funding for self-driving car technologies.
• SenseTime — Over $2.6 billion in total funding for facial recognition and other AI technologies.
• Megvii — Over $1 billion in funding for facial recognition and AI services.
• Zymergen — Over $1 billion in funding before pivoting to a new business model.
• Ginkgo Bioworks — Over $1.6 billion in funding for synthetic biology.
• CloudMinds — Over $300 million in funding for cloud-based AI services.
• Horizon Robotics — Over $1.2 billion in funding for AI chips for autonomous vehicles.

This list of companies, from self-driving car startups to AI biotech firms, shows how much AI can do. These startups aren't just changing their fields; they're leading the next big tech wave with strong support from venture capital.

So next time you see another amazing and hyped AI startup raising hundreds of millions, billions of dollars, with no product just remember while it might seem crazy, and it is, that’s just how the game works right now. And know that some of this technology will change the lives of millions/billions of people, even if it doesn’t return capital to investors.

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