Back by popular demand, today we have Alex Kolicich, Founding Partner at 8VC. Alex is a serious industry leader to follow with his quarterly reports on the state of the VC market, standing out with his sharp insights from a both macro lens and a strategic vertical breakdown.
In Alex’s first appearance on Sourcery in Q1 2024 we discussed the Exodus of Venture Capital & AI Predictions, where he predicted a significant contraction of the VC industry after a handful of notable funds started to shut down.
As a reminder, Alex invests in IT and Bio-IT, and prior to joining 8VC, Alex was a Partner at Formation 8, and worked with Peter Thiel at Mithril Capital Management, a growth-stage venture fund. Before venture, Alex was as engineer and early-product advisor at Clarium, Palantir, and Google.
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In today’s conversation we dive deeper into Alex’s latest H1 2024 report discussing the current state of the venture capital landscape, particularly focusing on the uncertainty surrounding AI investments and the undervaluation of software companies. Highlighting the potential for incumbent ISVs to capture AI value through integration into existing workflows. While also addressing the clear “AI capabilities gap” and the current ‘oversupply’ of GPUs, suggesting a near-term peak in demand.
Additionally, Alex explores the renaissance in defense technology, driven by successful startups like Palantir, Anduril, SpaceX, Saronic, Epirus (and more!), as well as recent procurement reforms (shared below), positioning it as a viable venture category. Lastly, we touch on the macroeconomic outlook, where Alex indicates short-term inflation abatement but anticipates future pressures, influencing market dynamics.
Read more below on 8VC’s defense investments, 8VC’s Build Program, recent changes enabling the opportunity for defense startups, & some charts shared by Alex
Highlights
AI Investment Uncertainty: Despite rapid growth in AI capabilities, there is considerable uncertainty about where investors will profit. All layers of AI, such as application, infrastructure, and services, are priced for high value capture, yet defensibility and gross margins are lacking.
Software Undervaluation: Cloud software companies are undervalued by the market, as opposed to AI-focused companies like NVIDIA and ASML. Incumbent ISVs integrating AI into workflows could capture significant value.
AI Capabilities Gap: Current AI architectures are approaching performance limits, with improvements needed in synthetic data use, multi-modal data, and compute scaling. An oversupply of GPUs suggests a possible peak in demand.
Defense Tech Renaissance: Defense tech is becoming a profitable venture category, with startups like Anduril, Saronic, and Epirus leading innovation. Reforms in defense procurement and contracting are creating opportunities for new entrants.
Macroeconomic View: Inflation is decreasing, but monetary contraction is expected, posing challenges for markets. Inflationary pressures may return in 2025 due to political spending.
Timestamps
(01:01) AI Optimism & Uncertainty
(06:51) Public & Private Market Dynamics
(12:34) Sustainable Multiples & Oversupply of Capital
(14:33) Risk & Returns of Mega AI Checks
(22:35) Opportunities Within the Gap
(27:18) The Exit Environment & Acquihires
(31:14) The Defense Wave
(40:26) Resources for Defense Startups
(46:42) Startup Advice for Defense
(46:51) Technical Excellence, Government Relations & Fundraising
(49:23) Surprises & Changes in H1 2024
(49:55) Shifting Views on Application Layer & OpenAI
(52:44) Wrap
Leading Defense Funding
8VC is a prominent player in leading the future of defense funding. Notably incubating these companies through their "build program," a strategic initiative designed to incubate and co-found defense technology companies. It provides a robust support system for startups, offering vital resources such as capital, government relations expertise, and shared infrastructure.
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