📶 Nvidia blows past expectations

Who wins from the AI boom, Neo raises from $235m from smart money,

June 01, 2023 • Estimated Reading Time: 11 minutes

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We were both up in NY last week. Between jumping around meetings, getting work done, and planning for MDW, we didn’t have time to write this newsletter.

That means we have a good amount to catch you up on, so let’s get into it.

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Let’s get into this week’s piece.

This Week in Venture

Nvidia lives up to the hype 💰

Source

Nvidia had its earnings report last Wednesday.

The results? Good … very good.

The chips manufacturing company projected $11 billion in revenue this quarter when they originally expected $7.2 billion in sales.

Why it matters: You’re probably tired of talking about AI (we are too). Like any other hype cycle, there’s a lot of noise that you have to filter through to actually find some signal.

Here’s our interpretation of this news.

Nvidia is selling pickaxes to gold diggers. If you’re an investor, you want to find opportunities like this whenever there is a hype cycle around a technology or theme.

When internet adoption took off, savvy investors started backing more cybersecurity companies seeing the potential risks of increased internet usage. When the crypto bull market came through, smart investors were looking for infrastructure opportunities (KYC, AML, payments, etc.) to capitalize. When WFH became more popular, investors poured into productivity software.

“When everybody is picking for gold, it’s good to be inn the pick and shovel business.” - Mark Twain

What happens next: The biggest takeaway from this announcement? AI is here to stay, businesses are being forced to adopt it, and hardware will have to keep up.

As this takes place, who are the winners?

Generative AI companies (OpenAI, Jasper, Surfer, Synthesia, and Midjourney) and hardware companies (Nvidia, IBM, Intel). The problem for investors is that all of these companies, private and public, are trading at massive premiums. In other words, if you want exposure to AI, it’s going to cost you.

In the private markets, we’re seeing this firsthand every day already.

New AI companies are popping up every day. Old companies are rebranding themselves to AI companies. Pre-product companies are assigning inflated valuations to themselves because “that’s what the market is saying”.

And VCs are still buying the story because they believe the AI revolution is that big of an opportunity.

Related:

Neo raises $235m from some big names 💲

Source

Neo, a startup accelerator-turned-fund, has raised $235m across two funds.

According to their announcement post, $180m will go towards accelerator and seed deals and the other $55m will go towards later-stage deals and follow-ons.

Why it matters: Fund announcements are mostly worth ignoring unless smart money is involved. Smart money is backing Neo.

A few notable names that are backing this latest fund:

Arash Ferdowsi & Drew Houston (Dropbox founders)
Dara Khosrowshahi (Uber CEO)
Eric Schmidt
Freddy Kerrest (Okta founder & Exec Vice Chairman)
Henry Kravis (KKR founder)
Jeff Lawson (Twilio founder)
Joe Gebbia & Nate Blecharczyk (Airbnb founders)
Laura & Bob Muglia (Snowflake CEO)
Max Levchin (Affirm, Paypal founder)
Reid Hoffman
Rich Barton (Expedia, Glassdoor, Zillow founder)
Satya Nadella
Sheryl Sandberg & Tom Bernthal (Sandberg Bernthal Venture Partners)
Tony Xu (Doordash founder)

Along with institutional names like Cendana Capital, Horsley Bridge, K5 Global, and Sequoia Capital.

What happens next: All of the best investors are moving upstream to invest at the earliest stages. As this takes shape, we think a few things will happen.

Portfolio support takes center stage: Anybody can invest into pre-seed and seed companies, but it takes a lot of work to actually do it well. The investors that consistently win at the earliest stages (Mucker, YC, others) are the ones that spend the majority of their time in the trenches with the founders and actually doing the dirty work. The funds that source and forget (don’t add any value after the check) are the ones that consistently lose money.
Venture operations roles will become more available: There are only so many VC investor roles a fund can hire for. An easier way to break into VC in our opinion would be to start as a chief of staff or operations person that is responsible for improving investment outcomes after a check has been written.
Institutions start backing accelerators: Historically institutions have avoided partnering with accelerator programs unless there is a strategic angle (ie. banks partnering with fintech accelerators). That seems to be changing, and institutional LPs are seeing financial reasons to support these types of investors. Cendana and Sequoia are some of the biggest names in the LP world; where they move, others follow.

Links We Like

🧨 AI Canon: Aggregated resources to help you get up-to-speed on AI fast

📧 Email Marketing Course: Earn customers and make superfans

🏷 The Ultimate Guide to SaaS Pricing Models: Strategies and psychological hacks you can use

🌐 The Platform Engineering Approach to VC: Why new funds don’t hire old-school investors

🤖 Can AI Replace VCs? Experiments to test that thesis

📈 ConvertKit’s MRR Journey: How the email hosting platform scaled their MRR from $1,500 to $100,000 in 12 months

👀 Top Vertical SaaS Companies to Watch: Companies worth monitoring

🏢 Building a Venture Capital Fund of Funds Portfolio: Things to consider when building out your portfolio strategy

🤑 Financially Attractive Venture Capital Funds: Out-of-the-box strategies that LPs are looking for

📺 7 Reasons Media Is a No-Good, Horrible, Rotten Business That I Love Anyways: Why media is good and why media is terrible

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Tweet of the Week

Hard truths

"Most people die at 25 and aren't buried until they're 75"
Why?
4 reasons and solutions:
— George Mack (@george__mack)
3:21 PM • May 18, 2023

Life changes along with priorities.

It’s good to take a step back every now and then to make sure you aren’t going down a path you don’t want to take long-term.

Together with Brex

Wait … you guys manage your spend?

Obvious statement alert: managing invoices and team spend is a nightmare.

Chasing down receipts, uploading to a spreadsheet, sending to another team to approve, and reimbursing your employees sounds … super fun.

Brex takes this archaic process from the Stone Ages to the modern era by giving finance teams the tools they need to operate. Dashboards, automations, integrations, and financial modeling instead of manual work that makes you want to reconsider jobs.

Give your finance team the tools they need to operate in today’s world.

Member of the Week

Jonathan Azoff (Managing Partner @ SNØCAP)

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