“99% of AI Startups Will Be Dead by 2026 — Here’s Why” – a Medium article declared, connecting the exuberance of modern AI with the dotcom era which ended up badly.
My Response: I am not sure this thesis is new: every technology evolution will have winners and category-kings. In 1907, US Steel was the most valuable company in America as steel was the core tech. In 1957, IBM was the king as the mainframe ran the show. By 1983, GE ruled and this era has so far been ruled by Apple and Microsoft on valuations.
But in the midst of those kings, there were many failed companies. At a time, there were dozens of car companies in Detroit with Ford, GM, and Chrysler. How many EV cars failed in the age of Tesla. And as Fairchild Semiconductor evolved with Shockley, semiconductor companies mushroomed but only winners like Intel survived. As I was researching my book – Nanotechnology and Microelectronics – which received the IGI Global 2010 Book of the Year award, I noticed one thing: men lost companies but all created Silicon Valley!
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Yes, in the midst of the miry clay, technology empires rose and investors participated, and ego, owo, kudi and money were made. Nigeria did not participate and it is not better than America which did, and lost money in some and won in some. So, if someone will run away from AI because companies will fail, what is new about that? We have that in Africa where because of the fear of risk, we cannot even build boreholes in villages to avoid offending the gods of soil!
In the Igbo Nation, it takes the killing of one leopard to be called a killer of leopards. The deal is the power law of venture investing – the power law describes the principle that a small percentage of investments generate the majority of returns; this means that a few exceptional deals can drive the overall portfolio performance, often outweighing the returns from other, less successful investments – and that is what most global investors are going after in AI.
AI is not the same as dotcom because AI companies are generating revenue. As YCombinator recently noted, these AI companies are the fastest growing companies on record, and the margins are the best ever. So, even if you agree that 99% will die, the fact is that you are seeing startups which have raised say $300k unlike in the dotcom era where $millions were required to buy HP 9000 server series before the cloud era. So, the collapse of most AI companies would be marginal because many are cheaply funded. Yes, the loss of 1,000 AI companies (not foundation model makers) will be less than just one of those dotcom era companies on financial impacts!
If you are investing in AI companies, look for those which cannot be automated out easily, by making sure they are solving meatspace-level frictions in the physical world. Or they are full-stack AI firms within industrial categories; AI company that offers insurance, banking, legal services, etc and not just selling tech to those sectors
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Anyone investing in anything knows that failure is part of the option, so it’s not a new phenomenon. The only major problem is that all parts of the world are not growing at the same pace. While making money remains the main goal, countries also have critical areas that demand most attention. With each era comes with excessive focus in a new sector, while the old problems refuse to go away. You either invest in what will have largest impact on your people, or keep chasing more dollars. We either go up or down.
For now it’s AI for ‘global’ investors, let ‘local’ investors make their own pick.