Today's Era of AI Investing Reminds Me of 2000 Internet Investing (but not because it's a bubble)

Feels like we are in the midst of shift from unbridled enthusiasm to realizing it will take some time to fully realize the promise of AI.

I've met hundreds of companies building AI-powered companies in the past few years. I have been pretty open about my struggles to make sense of the pre-seed and seed-stage venture opportunity to invest in companies with AI at their core. In some cases, it has to do with the fact that I am a pre-seed investor and some of the most interesting AI-powered companies skip pre-seed as a stage and raise really large rounds on day one. In other cases, I have questions about moats, defensibility, and the ability to charge a premium for AI-powered products and services when AI capabilities become table stakes and not differentiators. In the last few weeks, it feels like there has been a shift in investor perception of where we are in terms of generating meaningful business value from AI. I paid a lot of attention to Microsoft's earnings announcement and their comments about the money invested in AI infrastructure and when they would see returns on that investment. I found it both sobering and refreshingly honest about how long it will take for this to play out and when they expect to see the benefits of their massive investment.

I started my venture and tech career in late 1999 as an intern at a now-defunct Internet 1.0 company called Excite. I met some amazing people there, and I wouldn't be in venture or tech if not for that job and how it opened my eyes to the power of the internet as a medium. With the benefit of hindsight, I also realize that many of the things that we were excited about, particularly around e-commerce, were directionally correct and ended up coming to pass; it just took 10 years longer than we thought at the time to come to pass.

When the commercial internet started to take hold in the late 1990s, it felt as meaningful of a shift to me as AI does today. Many people (including me) staked their careers on the belief that the internet would be a transformative force that would remake many parts of society. That belief was well placed, and those of us who have worked on the internet for 20+ years have seen changes that were hard to imagine 20 years ago.

That being said, AI in 2024 feels like where the commercial internet was in 1999 or 2000. You could feel things were changing. You could imagine a future where the internet was deeply woven into everything from commerce to community to communications. The only problem is that we were collectively wildly off in how quickly those changes would occur. In some cases, the core issue was a technology limitation. In many other cases, the issue was the inability of businesses to adopt new technology and change business processes. We needed that optimism to take some big bets and try new things, but it ultimately took way longer than most of us thought to come to pass.

There were so many good ideas in 2000 (buying books online, buying groceries online, digital payments, social networking, online publishing, etc.), but they didn't all work on the first try. It was just too early. Not enough people were ready for these new behaviors. We didn't have the plumbing we needed. New tech needed to be created. People needed time to catch up with this rapid era of change. If you were too early, you were a pioneer who got a mention in history, but you didn't end up capitalizing on the big opportunity. Some of the early optimists turned into cynics when it became clear this wasn't going to be an overnight transformation of how the world works.

When I talk to AI startups today, it feels very similar. There is so much optimism about what this technology can do and how quickly it will be ready for full-scale commercial deployments. The story is much different when I talk to people in the trenches deploying this tech. It's hard to make this stuff work in production. The technology works well, but it isn't perfect. Their customers want the advertised productivity gains but aren't always sure how to adjust their business processes to take advantage of what AI can do. It's harder in practice, and many folks have told me this is inevitable but will take a lot longer than they thought when they started. We may be coming to the end of the unbridled optimism phase and settling into the more important and harder phase of aligning what the tech can do today and what benefits companies can truly reap from it.

But when I think about what's different this time, one thing really stands out. The dollars the venture capital industry has at its disposal are on a whole different level than 2000. To use a gaming term, we are speedrunning AI and investing so much capital so quickly that we aren't getting the opportunity to learn from what is and isn't working and making adjustments along the way.

Maybe it's just me, but it feels like we are on the cusp of a new era where startups and investors will deeply appreciate the time scale required to rewire businesses to utilize the power and promise of AI.