Logan Allin and Neil Datta on startups AI puts at risk, tech regulation, and H-1B reform | E1975
03 Jul 2024 (3 months ago)
David Weisburd intros Logan Allin, Neil Datta, and Jason Calacanis
- Logan Allin from Fin Capital.
- Neil Datta from NKD Advisory.
- Jason Calacanis from the Launch Fund.
- David Weisburd is the moderator and co-founder of 10x Capital.
- Many companies preparing for IPOs are struggling to go public.
- Dan Primack's recent article highlights the need for VCs to separate disruptive companies from failures.
- AI washing in the startup community is similar to greenwashing in the climate space.
- VCs need technical skills to assess if startups are building valuable technology.
- Vinod Khosla, a prominent venture capitalist, shared his thoughts on AI developments and regulation at the Collision conference.
- Khosla believes that AI will have a transformative impact on society, but it also poses risks that need to be addressed.
- He supports government regulation of AI to ensure its responsible development and use.
- Former US President Donald Trump weighed in on the H-1B visa program and green cards.
- Trump criticized the current system, arguing that it allows foreign workers to take jobs that should go to American citizens.
- He called for reforms to prioritize American workers and protect national interests.
- Carter, a data analytics company, released data on the time it takes to achieve success in a startup.
- The data shows that the median time to reach a $100 million valuation is 7 years.
- However, there is significant variation, with some startups taking as little as 2 years and others taking over 10 years.
- Logan Allin from Fin Capital:
- Invested in a company developing a new type of battery technology.
- Invested in a company using AI to improve healthcare outcomes.
- Neil Datta from NKD Advisory:
- Invested in a company providing cybersecurity solutions for small businesses.
- Invested in a company developing a new social media platform.
- Jason Calacanis from the Launch Fund:
- Invested in a company creating a new way to learn foreign languages.
- Invested in a company developing a new type of electric vehicle.
Vinod Khosla's talk on AI at Collision Conference
- Vinod Khosla, a prominent venture capitalist, expressed his concerns about the US potentially following the path of the EU in terms of regulating technology.
- Khosla believes that the EU's regulations have hindered its leadership in technological innovation.
- Khosla highlighted the Apple-OpenAI deal as a sign of confidence in Sam Altman's ability to lead AI developments over the next 5-10 years.
- Neil agrees with Khosla's premise that the passage of the ACT will significantly impact the tech industry.
- However, Neil believes the issue is more nuanced than simply government overreach in regulating new technologies.
- The ACT focuses on two primary areas: privacy and risk.
- The privacy section addresses concerns such as deep fakes and social scoring systems, which most people can agree on the need for regulation.
- The risk section is more concerning for hardware and software makers, as it includes regulations for companies based in America that sell products or software to the EU.
- The EU has a history of taking a leadership role in regulating technology, with examples such as the ePrivacy Act in 2002 and GDPR, which led to privacy laws worldwide.
- The EU's approach to regulating technology is nuanced and worthy of careful consideration.
Tech regulation, AI, and M&A's impact on portfolios
- EU regulations on tech companies, particularly in mergers and acquisitions, are considered overly restrictive and could discourage businesses from operating in the region.
- Premature regulation of artificial intelligence (AI) raises concerns about regulatory capture and hindering innovation.
- The EU's push for interoperability measures, such as mandating USB-C ports, benefits consumers but raises questions about market freedom.
- Blocking mergers and acquisitions, as seen in the UK's intervention in the Figma acquisition, harms the tech industry and discourages companies from launching products in the EU.
- Mergers and acquisitions are crucial for venture capital funds to provide liquidity and returns for investors.
- The uncertain regulatory environment and high taxes in the UK and EU pose challenges for venture capital investments in these regions.
- Many companies experimenting with AI without building true intellectual property or defensible models may struggle as the industry evolves.
- AI deployment in enterprises is essential for end customers, attracting significant investments in AI startups.
- Forward-thinking limited partners are rebalancing their portfolios towards venture capital due to potential changes in taxation, including increased capital gains tax in the US.
- Jurisdiction matters for investors, with many willing to relocate to places with favorable tax incentives, such as Singapore, the UAE, Dubai, and Florida.
- Remote work has amplified the trend of investors and entrepreneurs choosing jurisdictions based on tax advantages and quality of life.
- Governments should carefully consider regulations that may impact investors differently from startup entrepreneurs, as over-regulation of investors could harm the startup ecosystem.
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- Logan Allin and Neil Datta discuss the impact of AI on startups, the need for tech regulation, and H-1B visa reform.
- AI poses risks to certain startups, particularly those that rely on human labor for tasks that AI can automate.
- Tech regulation is necessary to address issues such as data privacy, algorithmic bias, and the potential misuse of AI.
- H-1B visa reform is important to ensure that the US remains competitive in the global tech industry by attracting and retaining skilled foreign workers.
Globalization and navigating AI in venture
- AI startups are being founded without clear use cases or monetization strategies, leading to concerns about the stability of the AI sector.
- Fintech is a promising application for AI, with potential use cases in various areas such as CFO stack tools, compliance automation, KYC/AML automation, operational and document processing, and improving cybersecurity capabilities.
- The adoption of AI in banking is hindered by regulatory constraints and the limited amount of bank data stored in the cloud.
- Apple's partnership with OpenAI is significant, but it is likely that Apple will seek additional partnerships similar to Microsoft's approach.
- Apple's decision not to enable AI capabilities in Europe due to regulations could lead to people circumventing these restrictions, potentially undermining their effectiveness.
- The lack of AI adoption in certain countries could put those countries at a competitive disadvantage compared to regions where AI is more widely used.
- Venture capitalists are increasingly incorporating AI adoption into their diligence processes when evaluating investment opportunities.
- VCs with access to proprietary data and the ability to separate disruptive companies from less promising ones will have a significant advantage.
- Apple's deal with OpenAI may be short-lived, with Apple either replacing it with a more favorable option or developing its own in-house AI.
- There may be multiple winners in the AI market, with different companies dominating in different sectors due to their specialized data.
- Major consumer brands like Amazon and Apple have been slow to proactively address the challenges posed by AI.
Logan Allin and Neil Datta on startups AI puts at risk, tech regulation, and H-1B reform | E1975
- Logan Allin and Neil Datta discuss startups that AI puts at risk, tech regulation, and H-1B reform.
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Trump's stance on H-1B visas and immigration policy
- Logan Allin and Neil Datta discussed President Trump's statements on H-1B visas and immigration policy.
- Trump initially supported increasing H-1B visas but later clarified that further vetting would be required.
- Allin criticized current immigration policies for treating talented immigrants as "second-class citizens" and suggested more support for visa sponsorships.
- Datta argued that immigrants understand the value of legal immigration and feel it is unfair when others cross the border illegally.
- Allin and Datta emphasized the need for a nuanced approach to immigration, separating compassionate immigration, recruiting, and illegal immigration.
- They proposed basing worker immigration on the unemployment rate and suggested an AB test approach to immigration policy.
- The speakers highlighted the positive contributions of immigrants to the US economy and proposed starting with highly skilled immigrants before gradually expanding to those with lower levels of education.
- Allin and Datta discussed potential key issues in the upcoming 2024 US presidential election, including cutting government spending, promoting a pro-business environment, and addressing immigration and crime.
- They expressed concerns about the high level of government spending and its impact on the US balance sheet.
- The speakers emphasized the importance of immigration, particularly in relation to crime and the economy, and highlighted the negative impact of potential changes to carried interest adjustments on the business environment.
- Allin and Datta also discussed the Russia-Ukraine conflict, the upcoming US election, and its potential impact on the economy, expressing concerns about the uncertain fundraising environment and emphasizing the importance of entrepreneurship and company creation for economic growth.
Logan Allin and Neil Datta on startups AI puts at risk, tech regulation, and H-1B reform | E1975
- Logan Allin and Neil Datta discuss startups that AI puts at risk, tech regulation, and H-1B reform.
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Carta data on incorporation to funding stage
- The average time to raise Series A funding is 3.1 years, while the median time to Series D is 8.1 years. This may be due to the current non-zero interest rate environment, which leads to longer negotiation times, more legal documentation, and less competition among investors.
- Companies that focus on improving gross margins and achieving top-decile SaaS metrics are more attractive to investors in the current environment.
- Many companies filing to go public or in the IPO queue are facing challenges due to the change in market conditions, with investors preferring slower growth with a path to profitability over high-growth companies that are burning money.
- Founders need to be aware of the overhang on their companies, including the amount of preference shares and the impact of raising too much money or at too high a valuation.
- There is a trend of companies taking longer to reach certain milestones, such as raising a Series A round, and many are raising large amounts of money through convertible notes without establishing a board or having a clear plan.
- The market is seeing a return of structure, with investors demanding more favorable terms such as liquidation preferences, ratchets, and warrants.
- The best venture capital vintages in history (2009-2011) occurred during a period of terrible macroeconomics, and investors who sat on their hands missed out on major opportunities.
- The current market conditions are similar to those of 2009-2011, and investors should be more selective and focus on companies that are serious about building meaningful businesses.
- The current market correction in the venture capital space is seen as a return to the mean, forcing companies to be more resourceful and creative in their problem-solving.
- Some SAS companies in the public markets are trading at absurdly low multiples, making them attractive investment opportunities compared to private companies with high valuations.
Lighting round on recent investments
- Logan Allin's recent investments include Lial (secure data transfer), Articulate (on-premise deployment of generative AI), and Healthy (AI agent for healthcare navigation).
- Neil Datta focuses on private credit investments, such as Blue Owl and Star Mountain, and has also invested in Guardian, a life settlement fund that uses AI to manage a diverse portfolio of life insurance policies.
- King.com is an e-commerce platform with a drag-and-drop interface for building customized customer sequences.
- Hello.io uses computer vision and AI to monitor drive-thrus and restaurant interiors for security and customer behavior insights.
- Valley is an AI-powered platform that automates sales development tasks by analyzing data from various sources.
- Launch.capital is a platform that connects early-stage startups with potential investors.
- Logan Allin, Neil Datta, and Jason Calacanis discussed startups at risk due to the rise of AI, tech regulation, and H-1B visa reform on the E1975 podcast episode, sharing their experiences and insights.