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How Big Tech’s AI FOMO is distorting the VC Ecosystem
- Tech behemoths Microsoft, Amazon, Alphabet, and Nvidia are investing billions into capital-intensive AI startups.
- Venture capital firms are struggling to compete with the financial clout and incentives offered by these tech giants.
- Traditional VCs are now shifting their focus to investing in AI startups building applications rather than infrastructure as they are more capital efficient.
- Even at the application layer, many AI startups are still far from demonstrating the profitability metrics required to go public, leaving VCs with harder exits.
- Microsoft, Google, Amazon, and Nvidia are leading the charge for AI startups raising huge sums of money at sky-high valuations.
- These massive investments have dampened the traditional pressure to go public, creating a dilemma for VC firms that need exits.
- Through private funding, these AI startups are unlikely to go public anytime soon without a shift in the market sentiment.
- Despite the hype around AI, we're still in the early innings of this tech revolution. In 2024, only 1% of the money spent on software will go towards generative AI products.
- In the short term, exponential growth of AI may not be widespread across industries. The expected big returns will come from companies building applications on top of AI infrastructures.
- VCs face an uphill battle in an environment where the traditional exit routes — IPOs or acquisitions — are mostly closed off due to the AI era.
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