HBO Dead Tree He is obsessed with money.
That’s because it’s a rough, poetic Western TV show about the Gold Rush, set in a lawless 1870s South Dakota town.
But here’s the thing: the show talks a lot about money, but the characters (and the audience) rarely I never have I’ve never seen it – I watched all of season 3 twice each and don’t recall seeing more than one or two gold bars on screen.
That’s what a gold rush is like: a wave of entrepreneurial risk-takers staking their claim, desperate to turn that claim into wealth through mining and experience. But by definition, very few see the life-changing gold. This is a corollary I’ve been applying to AI, and it got me talking to Rob Biederman, managing partner at Asymmetric Capital.
“Most people looking for gold are going to lose money, and most people who are backing the AI concept are going to lose money,” Biederman said. “A relatively small number of companies are going to benefit… I don’t mean to sound defeatist, but in most of these pretty obvious areas of AI, I think 80 or 90 percent of the people who invest are going to lose money.”
Our conversation comes as the VC sector is sifting through a mountain of new data: Crunchbase and PitchBook have each released their latest reports, and the numbers underscore that while the AI boom is thriving, venture overall is marked by limited liquidity and lingering uncertainty.
While PitchBook isn’t ready to declare a comeback just yet, deal volume is on the rise: In the second quarter of this year, U.S. VCs invested $55.6 billion across 4,226 deals, the highest quarterly deal count since Q2 2022.
Deal volume is also at an eight-quarter high, but with a caveat. This high is fueled by sluggers and superstars, like NBA star Luka Doncic who scored 73 points against the Atlanta Hawks last season. Of course, a win is a win, but the final score doesn’t reflect the team’s balance. This paradigm applies here too. CoreWeave’s staggering $8.6 billion Series C and Elon Musk-led xAI’s $6 billion Series B alone accounted for 26.3% of total deal volume in Q2, according to PitchBook analysis. AI startups raised $24 billion globally in Q2, making AI the top sector for funding for the first time since November 2022, when OpenAI’s ChatGPT launched.
While the rise in venture capital funding may be a positive sign for many in the industry, Biederman sees a problem with the numbers: too many investors are funding too many similar companies, resulting in LPs not seeing any return.
“My concern, and in some ways the reason I’m speaking out now, is that I don’t want venture capitalists to give up on some of their AI investments when the returns turn out to be disappointing,” Biederman said. “It just means that you might not need to fund 50 or 60 versions of the same idea.”
Biederman’s point is not that there’s no gold on the AI hill, and he makes it clear to me that he’s not against AI. His philosophy is summed up in a sign in Asymmetric’s offices that reads, “Traditional Methods, Traditional Results.” Applying this to AI means looking for startups in places that may not seem obvious and very specific. Think of a vertical market software application that’s “10x better” because of AI. The technology significantly improves processes for customers in the legal, medical, and insurance industries.
Other use cases he’s excited about include AI applications evaluating long-term disability or workers’ compensation claims, or where AI could convert physical blueprints into instructions for building, say, an airplane.
“The history of financial bubbles and hype has often shown poor or average returns in high-profile areas and surprisingly good returns in more secluded places,” Biederman added in an email.
Biederman’s paper got me thinking about a broader generational shift in the venture world, with some funds undergoing leadership changes while new funds are being spun out.
“Money gives power” Dead TreeIn the words of late villain George Hearst, “power belongs to those who have color” (and that color, naturally, is gold). And he’s right. Success is transformative, and success in this AI boom could tip the scales of power in Silicon Valley, especially for younger and smaller companies who can see gold in the ground less traveled.
Weekend reading…In this week’s “Ask Andy” column, Bonobos co-founder Andy Dunn answers a philosophical question: What’s the biggest challenge facing founders today that technology can’t solve? Dunn’s answer is multi-layered: “My first instinct was ‘fundraise.’ I think the kind of engaging, mission-driven enthusiasm that’s the basis for raising venture capital is unlikely to be replicated even by generative AI (whatever that might be). Then I thought more about your question.” Read the full column here.
See you on Monday.
Allie Garfinkle
twitter: Agarfinx
Email: Alexandra.garfinkle@fortune.com
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The Deals section of today’s newsletter was curated by Joe Abrams.
Venture Transactions
– HellsingThe Munich, Germany-based company, which provides governments and industries with AI tools designed to promote democracy, has raised €450 million ($488.8 million) in Series C funding. General Catalyst Leading the round, Elad Gil, accelerator, Lightspeed, multipleand Green Oaks.
– Element BiosciencesThe San Diego, California-based DNA sequencing company has raised $277 million in Series D funding. Wellington management Leading the round, Samsung Electronics, Faithfulness, Foresight Capitalothers.
– Acquired wealthA New York City-based financial services company for healthcare professionals has raised $200 million in funding. Summit Partners and Silversmith Capital Leading the round, Juxtaposition, Hudson Structured Capital Managementand Breyer Capital.
– Fireworks AIRedwood City, California-based generative AI inference platform has raised $52 million in Series B funding. Sequoia Capital Leading the round, NVIDIA, Am. and MongoDB.
– Build DotTel Aviv, Israel-based AI-powered progress management platform for construction projects has raised $15 million in funding. Intel Capital Leading the round, OG Tech Partners and existing investors.
– Seymosan Austin, Texas-based developer of acoustic sensing technology that provides subsurface data and insights into boreholes, pipelines and other enclosed structures, Edison Partners.
– sodaA New York City-based, AI-powered data quality management company has raised $14 million in funding from existing investors. Peculiar, Point Nineothers.
– Medalsa New York City-based platform for capturing and sharing short-form gaming content, Arcadia Capital, Peak 6, Horizons Venturesand Omars Ventures.
– Jacobi Roboticsa Berkeley, California-based developer of AI-powered technology designed to make programming and deploying robots more efficient, has raised $5 million in seed funding. Moxie Ventures Leading the round, Foothill Ventures, Humba Ventures, House Fundand existing investors Swift Ventures, Berkeley Skydeck Foundationand LDV Partners.
Unlisted stocks
– Bain Capital agreed to the acquisition Envestnet (NYSE: ENV)The company acquired the Berwyn, Pennsylvania-based company, which provides asset management technology to investment advisors, banks and other businesses, for $4.5 billion.
– Platinum Equity Advisors agreed to the acquisition Ellu DevtechThe company acquired Longueuil, Quebec-based aerospace products and landing gear manufacturer for approximately $1.35 billion.
– Madison River Capital The company completed a $190 million capital raise and a $70 million equity investment. JDC Power SystemsAn Armonk, New York-based electrical systems integrator for data centers.
– Longridge Equity Partners It has invested more than £100 million ($129 million). QX Global Groupis a Skipton, UK-based provider of consulting and other business process management services. Financial terms were not disclosed.
– Inforis a portfolio company of Cork Equity Developmentobtained Insighta London, U.K.-based revenue growth management solutions provider. Financial terms were not disclosed.
– Insurecomis a portfolio company of Summit Partnersobtained Soil Removal and Remediation ServicesThe disaster recovery company is based in Hooksett, N.H. Financial terms were not disclosed.
– Thrive,support Court Square Capital Management and M/C Partnerobtained of Longleaf NetworkThe Greensboro, N.C.-based IT managed services provider did not disclose financial terms.
end
– Valen Distributionis a portfolio company of Nautic Partnersobtained Eastland Engineering SuppliesA service provider for the supply chain and operational needs of MRO programs based in Dublin, Ireland. MML Growth Capital Partners IrelandFinancial terms were not disclosed.
people
– Life Sciences Team JPMorgan Private Capital Hired Joseph Stiletto As Managing Partner. Formerly Vivo Capital.
– Upfront VenturesThe venture capital firm, based in Santa Monica, California, Kesar Varma To the principal.
