StrictlyVC San Francisco: Mamoon Hamid & Ilya Fushman of Kleiner Perkins on AI's Impact on Investing

Key Takeaways

so guys this is sort of nice because um as it turns out we were sitting here in the same place although I guess by that screen four years ago although it now seems like 400 years ago um so thank you for coming again to one of these uh you know I was looking back at our interviews just thinking oh what could I you know like what were we talking about then and one of the things that I was concerned about and you were not concerned about either one of you was soft Bank it was sort of like all people could think about at the time it was writing these massive checks um obviously it's you know kind of you know not falling off a cliff that's overstating it but it it's retrenched dramatically um I'm just wondering looking back what do you think the impact of SoftBank was on the Venture industry because it really does still feel to me like they started what you know only stopped uh in you know the spring of last year what do you think well I mean I think we're coming off um 3 four years of just incredible amounts of capital going going into Venture more more than more than ever come in before um and that's not just soft bank that's a lot of folks who've had growth funds crossover funds um and that flooding of capital has done a few things one is it's created a lot of big companies uh but some of those companies um have been overfunded uh and some of those companies have had a lot of time to exist and now have to kind of rationalize what what happens to them so you know our approach when we were here four years ago was um to really sort of go back to the basics of a venture um and focus on early stage primarily like we kind of took a very contrarian view relative to other firms at the time where we said hey we're just going to have a venture fund we're gonna have a very small team today we're we're excited we have uh 10 folks on the investment team seven Partners a bunch of them have been promoted from within which is something that we care deeply about uh We've also brought in folks from the outside and we think that Venture is a craft it's a bit of an art it's an apprenticeship based business I mean um somebody mentioned Pier lond you know I used to Apprentice with Pier leand um my first time inventure um and so we sort of thought of this as as a much more Boutique business than um some of these larger more scaled players and in many ways I think we're happy we we made that choice uh because we've been able to back amazing Founders and build a team and um we've obviously built more funds so we have a venture fund and a growth fund but we take a very different view on that vehicle than just scaled growth Capital well well it is interesting because your firm is quite a bit bigger than when we sat down a few years ago I mean so you were walking into a situation with Kleiner where it had really become very sprawling and you kind of paired it back and now you're rebuilding um I'm wondering what is the right size because now I saw you have investors and Specialists and advisers from the old guard Bing Gordon and and John door Etc yeah I I think we might actually be smaller than than we last met here over there oh is that right yeah I think our head total head count at the firm is in the low 50s yeah so uh the investment team is as ear mentioned 10 folks and we have Specialists uh that do Talent uh marketing and comms we have a few of our colleagues here today uh we have a few folks who specialized in go to market uh but but yeah I think going back to Ila's point it was all about uh going back to the core which is early stage venture capital and what do you need you need to have investors who are sort of we call them full stack who are technologists operators who've uh built products sold products know how to empathize with the ups and downs of building early stage businesses and uh that's the core team that we have today and I think it was even slightly bigger at the time we last spoke over there I did not realize that I smaller well one thing I just and this is maybe a silly question but whether investing in AI changes anything like if there's more you can do with less or if if you actually need more people chasing after these AI researchers who keep leaving uh you know Google and meta Etc yeah I I think uh AI is uh it's in it's incredible to have this tidal wave of Technology Innovation uh in in my lifetime I I moved to this to the valley in 1997 when we were in the middle of the internet boom and uh to be able to live another boom like this uh twice in your lifetime feels like a dream so I think there's there's no better time to be alive than today and to invest in startups because to your point uh there's going to be a step function change in how we all get to live and experience life as well as how we work because the step function change will come in the form of productivity that we will all gain through Ai and I think we're already seeing that in the kinds of businesses that we're backing uh in uh whether it's like in in legal or in healthcare or in for software developers how AI is really supercharging uh what I would what we would say is the highest paid type of employees that are out there uh they get to do more with you know uh less time and get to write more software get to focus on their patient experience get to do legal work that would have required lots of uh like clerks and pargal Etc so I think uh we're seeing all of that sort of really come to fruition right now and we've got a long ahead of the productivity gains we'll see through AI you know I wonder um if this is an obvious question but again you know I I've been kidding tonight about all these people coming out of these big companies but I am wondering how it works and if you are going into you know I I know like in recent years it was very people were reaching into companies and I will stake you if you get out of there um is that happening and have you done that research team I mean I think that's definitely happening but you know the the pull of AI the just the amazing that the wow factor I think has actually pulled folks out of these companies themselves I mean um some of the ideas whether it's you know building a great product that supercharges Engineers or building you know finally being able to transform Healthcare uh because a lot of these tools are becoming more useful and and data is becoming more accessible these opportunities are becoming much more obvious and much more accessible and so actually you do see lots of kind of the first wave you saw a lot of folks try to come out and start these companies uh and the big thing for us was really trying to understand you know are they really the folks who who who know how to do this right um and so you know obviously we rely on our Founders for that we we look for kind of that that pedigree that the the folks who know how these things work um and I think now there is a little bit of a of a sort of a scarcity of AI talent and you're seeing incredible salaries you're seeing incredible opportunities for folks both in big companies but also in startups um and I think if you think back to the last 10 years in Venture there there are these waves where technical Talent just becomes like the scarcest resource right uh and I think we're we're seeing that right now um but usually that know markets are efficient so people become more proficient at it the tools the platform companies they're putting out are becoming much better um and that's all in our view uh an incredible Catalyst for Venture investing over the next decade or more because these things are truly transformational I I talked to Iden sen felicis about this a little bit and I said how do you get talent in this market and he said you know a lot of it has to do with the mission of the company which is great but it's pretty hard when meta and open Ai and Google are offering you multi-million dollar packages so how are your portfolio companies countering it I mean like you said there's tools that are helping everybody scale but I mean I mean we you know talked about some companies we have companies that um like Harvey are transforming the legal profession we have companies like Ambience that are transforming Healthcare we have companies that are transforming you know doing like viz that are doing automated stroke detection and medical Diagnostics these the mission part of that definitely resonates with the people who are joining those companies right that's a huge component because you get to work on AI but you also get to work on something that truly impacts the world that's the first thing the second thing is a lot of these companies um you know you have the platform companies that are building a lot of phenomenal infrastructure but when you get into real world use cases and we have a company called infinitus that's automating healthare voice conversations in healthcare and once you go down into that that sort of Niche which turns out to be really big over time you realize that you need to tweak the models you need to potentially build your own models you need to build your own potentially infrastructure uh and that becomes a really interesting technical challenge which is also incredibly attractive um and you can sort of see both the personal growth the technical upside but also eventually the outcome upside of being in one of these companies versus a platform company but there's probably no better time to be an AI engineer than than today um right and then it's it's exciting for us and and we talked and you mentioned that you actually incubated or helped incubate one company that's sort of a hot ticket in your portfolio glean and that was with Arvin Jane who is a repeat founder so maybe can you tell me a little bit about how that came to pass and if that's something that we'll see you do again yeah so uh you know one of the ways we invest or all of us have a a major and a minor and actually both of us happen to have a major in sort of productivity collaboration software and one of the areas that we've been exploring for for many years is uh Enterprise search an area that has uh many we call it a graveyard of startups uh it's just not worked and uh but the no of an Enterprise search company uh when uh this is back in 2019 when uh the cloud was not pervasive most of our knowledge inside of a company was inside of cloud-based applications uh what if you could search across this Corpus of knowledge that was embedded in all these Cloud applications which was the premise of of glean when it was started back in 2019 so uh you know we met Arvin and um we sort of sort immediately knew that we wanted to back him to go after this idea Arvin before starting a company called rubrick he was uh at Google where he was a distinguished engineer uh just a really brilliant computer scientist and so uh yeah we we happen to have uh some space at at 2750 sandill Road and uh Arvin uh hired his first few Engineers there and it got up to about 15 people before uh the pandemic actually hit and they had to all go home and build from there uh but that sort of is I would say we had a prepared mind we met the right founder to go build this company and uh you know now it's doing incredibly well and then there's also been the Tailwinds of of llms and Ai and uh they're beyond search also now an Enterprise AI assistant that does all kinds of complex things workflows Beyond just searching uh the company's knowledge or the company's brain yeah um I was just going to say so um glean now is worth almost or valued it's I think it's valued at $2 billion do rubric I think is Val it like a little over three and it's a much older company um which begs the question which I asked felicis as well but about valuations I'm just worried about you know us seeing like you know we saw hoppen and bird and a lot of things got you know um hot really quickly and then you know only had one One Direction to move in are you worried at all about these valuations and these companies having to kind of you know increase these thresholds I mean it is a fairly un company yeah at the end of the day valuations are um imperfect uh science and art whatever you want to call it but at the end of the day you're valued based on your revenues and your profits and we all know now from seeing the the last batch of companies like from five years ago that were not public be public and be valued based on multiples of Revenue and profits and that's that's the eventuality of life and so uh but some of these companies we're talking about they are uh exciting in terms of like the revenue growth is is is like you haven't seen before and uh they're doing things are really heart and they're defensible they built Moes and they're becoming or have become the category leader in what seems like an obvious winning area where the Market's large and you can create a you know a billion dollar Revenue business and I think an ex a company like glean Falls in that category I think for somebody who's a little bit outside that world as I am it's hard to sort of understand the modes I guess the pieces seem like they're moving around so fast so I think how how strong is that mo may be how do you think about that I mean I think it depends you know strongly on the company in generally you know Moes and Moes and total markets are probably the most difficult thing to figure out when you're an investor that's the thing you typically get wrong the most um and one thing we've learned over our history is that we always undervalue our biggest winners the the biggest the companies that do the best always grow faster they create or EXP and their Market much more than anybody could have anticipated so we look for some intangibles we do look for some of some things that that matter obviously one of them is just incredible engagement from customers like when the product becomes a verb when it's part of your daily use case that is really hard to tear out even if there is a you know maybe a copy that's not as good that's fast followed or being put in from the top um you the brand and the quality of experience matters quite a bit you know we just we're in a company called Loom which did a phenomenal job of implementing AI uh which was just acquired by atlassian for around a billion just under a billion dollars and you know Loom became a verb right people were looming and that was part of their mode the more obvious modes in many ways are the you know kind of the piece of the market that you're in and so if you look at a lot of the companies that were backing especially in the AI wave they're taking a big problem space that a company can and should own right right Enterprise assistant is a big space the people who figure that out first and especially in AI are going to be the people who move the fastest because if you look at AI unless you've built an incredible product that's just flying itself off the shelves you don't actually get distribution for free the way you did with mobile right you built a mobile app you got distribution AI requires distribution and requires data to improve the product experience and so the first movers that Define a category of the product in our view can actually run much faster than anyone else or you start in a category that is fair kind of a big Niche right um and Harvey which is a company we back that's doing an AI powerered lawyer is building you know AI for lawyers there might be other folks who try to get into that space But it's pretty defensible right once you've built the product for lawyers lawyers have Word of Mouth lawyers work with other lawyers lawyers work with all sorts of clients uh and you can create that defensibility so it's something that we think about but it's it's always really hard to analyze but when you see it you kind of know it right like with Harvey I would think not defensible but you're saying the quality of the data has made it more so well I think it's incredibly defensible because once you've built the standard for how lawyers engage with each other yeah right the way they communicate on documents and the way they exchange documents the way they work with companies on those same documents the way those companies work with other lawyers or vendors or Auditors you're creating this connected network of people who have been standardized on your product the the reason for them to do that has to come from the quality of the experience that you've created for them right the quality of the AI the way that you enhance their workflow how much time you save to them so it starts with this kind of nugget of is this a really great product that I'm living in every day as a lawyer but then you know the growth and that Network and the connectivity that creates the mode is actually I think pretty pretty straightforward can I ask you how many like AI pitches are you guys seeing on a weekly or monthly basis maybe just from a percentage standpoint I would say more than 80% is that right yeah are companies that are using utilizing Ai and it's just to be fair like you know if you were in 1996 building a company and you didn't mention the internet right you'd be out of your mind right and so in the same vein I think uh not mentioning AI or actually utilizing it would be a missed opportunity right right and I do see your names popping up pretty frequently I'm wondering how many like how many deals are you doing uh in this realm if we can call it that um yeah actually if you looked at q1 to Q3 for us last year it would have been the slowest year we've had in in in like 13 14 15 years a long time and then Q4 things picked up and so I would just say you know we're always uh you know looking at the best opport unities and uh we never feel the pressure to invest but December was a good month yeah well one of the sort of Buzzy companies that I seen you were attached to is called together can you tell me a little bit about that and why that's interesting yeah yeah I mean we're we're investors in together uh it's building a platform uh and set of services for people who want to run their own models um so it's a bit of in some ways an orthogonal bet to sort of the oligopoly that I think you you were chatting with in the last interview of folks who will provide infrastructure um but it's a company with Incredible customers like really strong growth phenomenal team um it's sort of a company where the numbers speak for themselves okay uh and um we do think that there's again colored by our experience with some of the companies we've backed who are building vertical experiences again you know Healthcare legal um software engineering um science these kinds of verticals there will be fine-tuning and um sort of own modeling that may be required for some of these use cases at least in some mid to kind of near term okay uh and so that opportunity is actually quite exciting because of that and I understand that you have invested in a wearable started by somebody who would make VC salivate tell us more I'm not sure I can tell you more today how about next time today would be better I I don't think they would like that no no okay can I ask you um in the future are we going to like what's what's the most sort of compelling pitch that founder has presented to you I mean so we've AI we've got uh you know the rabbit R1 I'm just wondering are we going to you know we carry one thing around now our yeah phone like how many devices or wearables are we going to be sort of you know involved with I think we all asked ourselves the question what is the Computing platform beyond the mobile phone uh and if you look up on our bodies what's the last thing we've adopted uh some of some people have put on aura rings some have put on fitbits and I'm wearing a whoop so uh but these are I would say pretty basic wearables uh they're not very all that smart uh uh but I think what's capturing the imagination of for all of us is what is the next uh computing wearable that we're all going to adopt that doesn't look like the cell phone and uh there's the rabbit as you saw that you saw the Humane pin uh soon you'll see the Vision Pro so there's exciting stuff happening but as you know consumer Hardware is very difficult to get consumers to adopt a new uh new form factor and a new way of doing things that is different from what they were used to doing uh takes some incredible design and a lowcost product and beautiful interfaces and uh I think we're excited to see all these things um you know we get to see them and decide whether we're investing in them or not well I'm excited to hear first when you share more information about this startup um guys I I have to let you go but I did want to also ask you quickly about figma um I had meant to talk to you sooner about this and I've you know time got away from me but you know I was so sad candidly uh for the company you know uh I guess you L the series B in 2018 2022 Adobe announces it's going to buy this company for $20 billion amazing and then of course everything happened after that and then in December of this past year it said it's too complicated it's not happening and then um you know it was reported yesterday that the company has readjusted its valuation from 20 to10 billion dollar and it's giving employees more Equity to sort of you know motivate them to stay I'm just wondering how big a setback is that for figma where does the company go from here yeah you know figma is one of those once in a decade kind of companies but both from the team the product they've built the the love from its Community the revenue profile the profitability uh it is the Venture dream the venture capitalist dream uh so uh not so sad that it it's charted its own independent course and uh being an independent company so and it was quite Bittersweet to to agree to sell the company for everyone around the table at the time in September of 2022 so uh I think we're very energized about the future uh because the company continues to just perform incredibly well that's great well guys thank you so much for joining us such a treat let's do thank you everybody who came and really appreciate it um we have some drinks and some dessert so hang out have you know another cocktail and uh we'll see you next time