At a recent conference, Pat Grady, a partner at the renowned venture capital firm Sequoia Capital, shared their insights on the artificial intelligence (AI) industry.
Grady stated that Sequoia Capital believes the majority of AI companies worth over a billion dollars in the future will emerge from the development of application software, rather than the construction of foundational models. Although Sequoia also invests in foundational models, their investments are more heavily focused on the application layer.
Grady mentioned that Sequoia Capital has invested approximately $150 million in companies building foundational models, including Sam Altman's OpenAI, Ilya Sutskever's secure superintelligence company, and Elon Musk's xAI, among others. He acknowledged that despite managing over $55 billion in assets, their investments in foundational models are relatively minimal.
"We invest an order of magnitude more in the application layer than in the foundational layer, even though the revenue from the application layer is comparatively less," Grady said.
He believes that it is the application layer that will spawn a multitude of billion-dollar companies. He noted that exceptional AI application startups meticulously design their products on top of the models. He cited an example, mentioning Day.ai, a company under Sequoia, which developed an outstanding AI-based customer relationship management software.
Additionally, Grady pointed out that the market's enthusiasm for AI and investors' excitement can sometimes lead to overoptimism. "Everyone thinks this is too cool, these people are too smart, so they are bound to succeed," he said. However, Sequoia Capital aims to avoid this cognitive trap. He also expressed optimism about OpenAI's upcoming strawberry model, describing its performance as "quite good."
Sequoia Capital hopes to uncover more commercial potential and market opportunities in the future through investments in AI application software.
Key Points:
🌟 Sequoia Capital believes that future AI companies worth over a billion dollars will primarily come from application software, not foundational models.
💰 Sequoia's investment in foundational models amounts to about $150 million, but their investments in the application layer are greater, highlighting their focus on the application market.
📈 Excellent AI application startups need to carefully design their products on top of the models to meet market demands.