TLDR:
- Talent is flocking to artificial intelligence, but venture capitalists are becoming increasingly wary of the space due to high valuations.
- Dragonfly Capital’s general partner, Tom Schmidt, highlighted concerns about the frothy and overallocated nature of the AI market.
In a recent interview at the Token2049 event in Singapore, Dragonfly Capital general partner Tom Schmidt expressed his thoughts on the current state of the artificial intelligence (AI) market. While many talented professionals are entering the AI field, Schmidt noted that venture capitalists are starting to steer clear due to concerns about high valuations and competition.
Schmidt highlighted that AI and crypto are currently vying for talent, with professionals being more drawn to AI as a new technological development. However, venture capitalists, on the other hand, are growing wary of the space. Schmidt mentioned worries about the frothy and overallocated nature of the market, especially regarding valuations of AI-focused companies.
He specifically pointed out concerns about revenue matching up to expectations and the high multiples versus growth levels in the AI sector. Schmidt compared the risk environment to previous years and emphasized that teams are facing challenges in growing revenue, leading to multiple compression.
Despite the challenges in the AI market, Schmidt also noted that this situation could potentially be advantageous for crypto startups seeking venture capital funding. He urged crypto projects to carefully consider their need for VC funding, mentioning that not every company necessarily requires it. Schmidt highlighted the option for companies to build profitable bootstrap businesses and noted that many companies following this model are thriving.
Overall, while talent continues to flock to AI, venture capitalists are becoming increasingly cautious due to the frothy and overallocated market conditions. Crypto startups may find opportunities in this landscape, but should carefully evaluate their funding needs and explore alternative paths to growth.
