The beginning of the exponential
David Peterson

ChatGPT is, without a doubt, the most impressive technology demo I’ve ever seen. If you haven’t had a chance to play around with it yet, stop reading right now and go check it out. If, like me, you spent the weekend chatting with your friendly, neighborhood artificial intelligence…then read on. I wanted to share a few quick reactions to what feels like the biggest technology “breakout moment” in years (and I’m curious for yours as well!):

First, affordances matter. GPT-3 has been out since June 2020. The model has been available to the public via OpenAI’s Playground since November 2021. But the launch of ChatGPT feels like the true breakout moment. Yes, the model powering ChatGPT is a technical improvement over GPT-3. But, in my opinion, the difference in the public reaction is less about technology and more a reminder of how much product design, and specifically a tight marrying of technological capability and user interface design, matters. The interface invites us to chat with the AI, and it responds. We can reply back, drilling down or providing feedback, and it responds again taking into consideration the reply. It’s immediately clear to anybody how to use ChatGPT, and the technology delivers. Affordances matter.

Second, LLMs are not a panacea. ChatGPT is great at zero-shot text generation (though it looks like the latest from OpenAI, davinci-003, is a bit better). But it has some limitations. It can’t do math. It often recites facts, quite confidently, that are just plain wrong. And, despite OpenAIs best efforts to make ChatGPT “safe,” it can be easily jailbroken to provide responses related to violence, terrorism, hate speech etc. (Here’s a compilation of different jailbreak tactics, which are exceedingly creative and dystopic all at once.)

Some of these limitations will be improved upon over time. And others can be fixed with fine-tuning (e.g. see this reply from Boris Power, an engineer at OpenAI). But we’re in a strange moment right now where everyone is throwing every problem they can think of at ChatGPT, whether or not a large language model with a chat interface is the right solution.

So, something I’ve been trying to figure out this weekend is: when are LLMs the right tool, and when are they not? LLMs are fantastic creative companions. They are ideal when creativity is important, but precision is not. However, as Yann LeCun (Chief AI Scientist at Meta) suggests, LLMs may just be the wrong approach to developing AI that has common sense, the ability to plan, and the ability to learn. What might that sort of AI look like? For two recent examples, check out CICERO (Meta’s AI that plays Diplomacy) or DeepNash (DeepMind’s AI that plays Stratego).

Third, the winners of the AI era are anything but clear. When you think of AI, you think of Google (DeepMind, ad optimzation) or Facebook (even more ad optimization). Now, of course, you’ll think of OpenAI as well. Some are arguing OpenAI may be coming for Google’s core search business (I posited the same in this newsletter a few weeks ago), but one has to think Google is on top of that.

You don’t think of Microsoft. At least I didn’t, until Sam Altman tweeted out this praise of the Azure team for innovating on Microsoft’s cloud to make it work with ChatGPT. Of course, that level of collaboration makes sense, given Microsoft’s $1B investment in OpenAI last year. What a bet. Might Azure become the cloud of choice for foundational AI work? Satya Nadella has already impressed with his leadership at Microsoft over the past 8 years, but perhaps Nadella’s — and Microsoft’s — best years are still to come.

More than anything, the launch of ChatGPT has left me slack-jawed. This isn’t artificial general intelligence, but it’s clearly the beginning of something big. World-changing. Paradigm-shifting. As Sam Altman tweeted over the weekend, we’re at the beginning of an exponential curve. It may be flat looking backwards, but it’s vertical straight ahead. Let’s start climbing.

David

EVENTS

Feb 8 / Lessons Learned From Investing Early in Over a Dozen SaaS Unicorns Including Salesforce, SuccessFactors, Box, Gusto, SalesLoft, ServiceMax, Veeva, Bill.com, Doximity, Yammer and Zoom Among Others
Jason Green, Founder & General Partner, Emergence Capital

Feb 15 / The Evolution of Collibra’s Product Positioning & How They Created a Category
Stan Christiaens, Co-Founder & Chief Data Citizen, Collibra

FROM THE BLOG

The Tech Recession of 2022
What lessons can we learn from the successes and failures of the 2010s?

It’s Never too Early to Build your Growth Model
What are the specific mechanisms by which one user turns into many, and an initial investment turns into revenue?

How to Think About Revenue Quality as an Early Stage Founder
What does “quality revenue” mean when you don’t have much revenue at all?

It’s Not All About Bottoms-up
Two recent trends indicate that we may finally be past the mistaken belief that bottoms-up is the only “fundable” business model in town.

EUROPE & ISRAEL FUNDING NEWS

Israel/Agriculture. BeeHero raised $42M to help farmers with Precision-Pollination-as-a-Service, enabling commercial beekeepers to remotely track and monitor their apiaries.
UK/ML Tooling. V7 closed $33M for its ML-powered API for image annotation and dataset management.
Israel/Communications. Common Ground closed $25M for its metaverse meeting platform.
UK/Real Estate. Giraffe360 raised $16M for its virtual tour camera for real estate agents.
Germany /Legal. Secjur raised $5.7M for its AI-powered compliance automation platform.

WORTH READING

ENTERPRISE/TECH NEWS

ChatGPT. OpenAI released a chat-style conversation text AI called ChatGPT which is an implementation of the GPT 3.5 language model. There seems to be unanimous agreement that this is a pretty big deal, and a few minutes spent with the tool (which is freely available here) are likely to convince even the toughest skeptic. Much of the speculation focused on the impact of this on search engines — as the interface does seem to offer a superior alternative to search for many use cases. But the implications for customer support, marketing, content creation, and even advanced use cases like medical information systems for patients are likely to be profound, as this tweet by Aaron Levie of Box captured. “ChatGPT is one of those rare moments in technology where you see a glimmer of how everything is going to be different going forward.” VCs were playing around with it as well.

Open.ai. Early-stage VC Semil Shah wrote that Open.ai — the company behind ChatGPT, GPT3, and Dall-E 2 — is, in his opinion, the breakout technology company of the year. I suspect he’s probably right. It’s interesting to note that Open.ai began as a non-profit foundation but seems to now have a for-profit arm. It’s also interesting to note Semil’s listing of his previous picks for tech breakout: Some (Stripe, Slack) have gone on to enduring significance. Others (Hopin) have faded. It’s a sobering reminder of the constantly shifting sands of the tech landscape. Here’s more from Semil on Open.ai: “The tech/startup sector has been dreaming about the arrival of AI for decades, with the chorus growing louder over the past few years. Like many technological advances, it feels like it’s happening very slowly, and then all of a sudden, it’s here. That’s what OpenAI and others have done to the field of artificial intelligence in 2022. Most players in the startup ecosystem have been eagerly awaiting the arrival of the next great platform, only to be left waiting or running out of funds. In contrast, OpenAI has demonstrated the ability to show what these kind of platforms can do. The use cases are infinite, while the trajectory forward and business models remain wholly uncertain.”

Salesforce’s rocky quarter. CRM stock was down 5% on disappointing guidance and the departure of Co-CEO Bret Taylor. Analyst Terry Tilman summarized the company’s posture: “With Taylor leaving we can see Benioff potentially getting more aggressive on M&A in the cloud landscape as more private and public vendors struggle in a softer macro backdrop. This is all about the battle vs. Microsoft (MSFT) for market share in the cloud and collaboration space with CRM in a strong position to further build out its product footprint over the coming years.”

Speaking of Salesforce, check out Veeva. Alexandre Bret from Eurazeo provides a great overview of Veeva’s story as it built a $1.5B ARR vertical SaaS CRM for pharmaceuticals juggernaut, with only $7M of venture capital. “Instead of adding adjacent features serving the same function targeted by the initial product (CRM for sales), Veeva started its product expansion by releasing a second product called Vault targeting a different function in healthcare organisation (R&D vs. sales). It was a riskier bet but it paid-off by massively increasing Veeva’s addressable market (from $6bn to $13bn). Today, Veeva has built two products platforms around its two initial products (CRM & Vault).”

Oracle’s drinking its own cloud-ade. Oracle CIO Jae Evan described her cloud-migration strategy to the WSJ, highlighting the readiness of Oracle’s own cloud offerings. “In the past 18 months, we’ve actually finished the migrations for the areas that I’m responsible for — hundreds of applications that we support, critical for Oracle and Oracle’s business to run — onto our own cloud platform. The migration itself didn’t take that long. The stuff to get to the point of doing the migration itself was what took some time. Getting an inventory of what you have, and then making a decision of, “Hey, some of these things are either duplicative of things that we already have, some of the things we need to retire, some of the things we need to modernize, some of the things we need to move. That took six months to go and do. We had to create those frameworks. We worked through a bunch of security policies that we standardized, and then made it more repeatable. Then you can do that across a lot of your different applications, even though they’re servicing different business units.”

Defense-tech decacorn. Anduril announced a $1.5B round of financing. No wonder half the VCs we’ve met in the past six months have suddenly started to show an interest in defense technology. “Anduril won a $1 billion contract in January from U.S. Special Operations Command to lead its counter-drone systems integration work. And it’s part of a team lead by American Rheinmetall Vehicles that’s competing to build a replacement for the U.S. Army’s Bradley infantry fighting vehicle.” In the same week, the US Air Force unveiled a new Stealth bomber and Europe moved a step closer to a next-generation fighter aircraft project. With the world likely to remain embroiled in geopolitical strife and tension for years to come, defensetech does seem like an incredibly smart bet.

Sign everything. Fred Wilson of Union Square Ventures makes an interesting technological argument in his latest blog post on the convergence of AI and web3. AI is making it very cheap to produce content — text, audio, visual. As a result, knowing for certain that a particular piece of content can be ascribed to a particular person will becoming increasingly important. Meaning web3 and AI are “two sides of the same coin.” From Fred: “As machines increasingly do the work that humans used to do, we will need tools to manage our identity and our humanity. Web3 is producing those tools and some of us are already using them to write, tweet/cast, make and collect art, and do a host of other things that machines can also do. Web3 will be the human place to do these things when machines start corrupting the traditional places we do/did these things.”

HOW TO STARTUP

That CMO hire. Openview ventures provides a guide to hiring a CMO. The distinction between “category marketer,” “enterprise pipeline generator,” and “PLG maestro” is a really helpful one. The advice to avoid specialists too early in the game is also spot on. “If you’re at an early stage and still trying to figure out the right go-to-market (GTM) motion, picking a specialist will be limiting. Even after product-market fit, there’s GTM fit. During this phase, you test and learn the best ways to acquire customers successfully. If you’re in this learning phase, you need to find a generalist who can stretch and learn along with you.”

HOW TO VENTURE

Hype cycles of Venture Capital. Kyle Harrison offers a thoughtful and sobering analysis of the venture capital hype cycle, concluding that true thought leadership is as rare as it is valuable. “For every tourist in a category, there are true thought leaders (using that phrase not ironically.) People who have dug into a field, and are legitimately well-versed in the area. Even people who have focused on transportation and went deep on micro-mobility? Guess what? Cities still suck to traverse, and we continue to need better solutions, so I’m glad those investors are backing the founders reinventing the ways we get around.”

PORTFOLIO NEWS

Paradime is coming out of stealth today with its operating system for analytics on top of dbt. Go check out and support their Product Hunt launch.

Trellis was highlighted by The Jerusalem Post, shining a spotlight on their work to help wineries in their decision-making in terms of growing, harvesting, winemaking and marketing.

Levity was featured in the German newspaper Handelsblatt about making AI more accessible to as many businesses as possible.