Generative AI: An Investor's Perspective (b2venture)

Summary

• The popularity of ChatGPT has kicked off a new wave of investment in AI startups and interest in generative AI and large language models.§1
• b2venture describes itself as one of the most active AI investors in Europe, with a first investment in DeepL.§1
• The investment approach covers long-term momentum, competitive intensity, business models, defensibility and a deep understanding of the customer problem.§2
• The genuinely new element in generative AI is powerful foundation models such as GPT-4 that cover a wide range of use cases.§3
• Two extreme scenarios are compared: an oligopolistic structure of foundation model platforms and an open market with many models co-existing.§4
• The authors favor an open hybrid market model, comparable to cloud computing.§5

Key insights

1. In an oligopolistic scenario, investments in foundation models would be unsuccessful for almost everybody.§4
2. Application companies built on dominant platforms play in someone else's walled garden and can be cut off.§4
3. The open web created giant companies such as Google, Amazon and Meta, while mobile app companies stayed smaller by over an order of magnitude.§5
4. Cutting-edge foundation models and inference infrastructure are expected to remain very expensive.§5
5. The investor deliberately avoids short-term trends, such as no-code tools, which rarely scale to real-world needs.§2