Why are VCs Getting Generative AI Wrong?
Recently, more than 35 VC firms and over 15 companies have committed to responsible AI, guided by Responsible Innovation Labs (RIL). To support these commitments, a 15-page Responsible AI Protocol has been published, providing practical guidance for both investors and startups. While Responsible AI is not a bad idea, many in Silicon Valley believe it could slow down the pace of development. This is just one example of how VCs are entering the picture and interfering with the ecosystem. This is not the first time. VCs always get tech wrong. A report by Menlo Ventures has been circulating on social media, stating that enterprises spent approximately $2.5 billion on generative AI in 2023. The report further added that the market remains nascent. Breaking it Down Menlo’s report compares an estimated $2.5 billion spent by enterprises on generative AI in 2023, to traditional AI ($70 billion) and cloud software ($400 billion). Surprisingly, these figures are presented without a clear breakdown or context, making it challenging to assess the accuracy or relevance of the comparisons. Moreover, it does not make sense at all, as cloud is a crucial element of generative AI, and one cannot just segregate it like that. Interestingly, earlier this year, Menlo had said that they expect generative AI to eat into—and expand—the entirety of today’s $140 billion consumer and enterprise software markets, hence contradicting its own words. On the other hand, investment bank Goldman Sachs says generative AI could make work much more efficient, increasing productivity by over 1% yearly after widespread use. But, for this to happen, enterprises must invest around $200 billion globally by 2025 in technology and workforce. It seems that every investment firm, based on its own research, is coming out with numbers that fail to match each other. What VCs really think of generative AI Lux Capital recently published a blog ‘How Many Creators Will Survive Generative AI?’. The blog suggests that while AI has limitations, it may replace a significant portion of the creative work done by humans. The author argues that much of the work in fields like journalism, marketing, and social media lacks originality and could be automated. The Lux Capital report said, “About 90%, maybe even 98% of the creative class’ output can be replaced today with generative AI.” This is absolutely unnecessary and creates fear among the netizens. Expressing similar sentiments, Vinod Khosla said, “If I were to look at 2040, about 15 to 20 years from now, I believe 80% of all jobs will be done by AI and better than humans.” Furthermore, he added, “I’m a huge optimist who realises that we will have to be dynamic in responding to its negative consequences, which will be there.” On the flip side, in his latest blog, ‘The Techno-Optimist Manifesto,’ Marc Andreessen stated that the idea that technology takes our jobs, reduces our wages, and increases inequality is a lie spread by pessimists. Meanwhile, Sequoia Capital published a blog stating that generative AI is now entering its Act 2, with the aim of solving human problems end to end. The blog suggests that new applications of AI are not like the initial ones. Enterprises now use foundation models as part of a larger solution, rather than the entire solution. It seems that the tech ecosystem is confused and VCs are as new to generative AI as consumers. Thus, they may not be the best judge to realise the potential of new technology. Besides, there is another factor: The end goal of VCs is to make good returns, so there’s a chance they might manipulate the reports in their favour. Vinod Khosla, the founder of Khosla Ventures, the first investors of OpenAI, also offers a stern warning, suggesting that most AI investments today will lead to losses. He likens AI investing to a hype cycle, cautioning that only disciplined investors will reap the benefits.
Menlo’s report says enterprises spent $2.5 billion on generative AI in 2023. Really?
A report by Menlo Ventures has been circulating on social media, stating that enterprises spent approximately $2.5 billion on generative AI in 2023.
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["Go", "API", "TPU", "OpenAI", "AI", "Aim", "ViT", "generative AI", "foundation models", "R"]
["AI", "generative AI", "foundation models", "OpenAI", "Aim", "TPU", "R", "Go", "API", "ViT"]
Siddharth is a media graduate who loves to explore tech through journalism and putting forward ideas worth pondering about in the era of artificial intelligence.