How to invest when everything is moving too fast

Last week, a vibrant gathering at TechCrunch’s StrictlyVC event in El Segundo, Los Angeles, featured two prominent investors in the AI space, Carter Reum and Chang Xu. Reum, co-founder of M13, a firm managing $2.5 billion and known for its early-stage investments in numerous unicorns, shared the stage with Xu, a partner at Basis Set Ventures, which has focused exclusively on AI since its inception in 2017 and is currently operating its fourth fund with nearly $1 billion in assets. The conversation revealed the complexities of investing in an AI landscape that is evolving at unprecedented speed. Xu discussed the dual nature of the current market, suggesting that while it may appear to be a bubble, the extraordinary growth rates—such as ChatGPT's rapid revenue increase—could justify high valuations. He emphasized the need for investors to adapt, citing examples from their portfolio, including Open Art, which saw its revenue soar from $1 million to $70 million within two years. Reum echoed Xu’s sentiments, recalling historical parallels in venture capital, from the rise of cloud technology to the advent of smartphones. He noted that today’s innovators face unique challenges, competing not just with each other but with some of the world's largest corporations that possess vast resources and expertise. As the discussion progressed, they explored the intricacies of pricing deals amid fast revenue generation, which often lacks clarity regarding sustainability. Reum mentioned the importance of understanding market dynamics and engaging in thorough assessments before committing to investments. Xu added that they remain focused on technical differentiation, given the rapid shifts in infrastructure needs as AI technologies evolve. Both investors highlighted the importance of being proactive and adaptable in a rapidly changing environment. Xu categorized markets into 'depth' and 'velocity' and explained their investment strategies accordingly. They revealed that while traditional sectors may be slower to evolve, areas like AI-driven healthcare and creative industries present new challenges and opportunities. The duo concluded with a forward-looking perspective, suggesting that current developments in AI will lay the groundwork for future innovations, which may be difficult to envision today. They expressed optimism about the upcoming SpaceX IPO, predicting it will inject significant capital into the local ecosystem, potentially sparking a new wave of innovation in Los Angeles. This sentiment reflects a belief that the city, often underestimated, retains a wealth of creative talent poised to drive the next evolution in technology and culture.