Steph Mui, the founder and CEO of an investment company, recently tweeted that a startup can raise $100 million in two simple steps. The first step is to raise $250,000 in angel funding, and then pivot to AI and raise $100 million in funding. While this just seems like a bit of VC humour, it reflects a far darker truth in the investment world — VCs are pumping up AI and waiting for the bubble to pop.

This so-called disruptive technology finally entered the mainstream with ChatGPT after decades of research, and VCs saw the dollar signs. In what has been compared to a second dot-com boom, AI companies are enjoying being VC darlings, with many investors heralding the technology as the biggest disruption we’ve seen yet. 

However, this is a pattern that we’ve seen before, especially for technology markets that hold the potential to disrupt the way business is done. We first saw it with investment into crypto and blockchain, and then in the extreme hype cycle for the metaverse, and now with AI. With the amount of funding and hype surrounding AI, there is a very high likelihood that VCs will destroy AI. 

The hype train keeps rolling

Before VCs found out what AI was, tech giants were slowly innovating in this space and pouring millions into research, development, and deployment. Companies like Google, Meta, and Amazon saw the disruptive potential of AI way before the VCs ever did. However, as soon as the AI bug hit, thanks to ChatGPT beating the hype cycle, we saw the same companies succumb to the AI wave.

In FY23’s first-quarter earnings, the big 4 tech giants (Meta, Alphabet, Microsoft, and Amazon) mentioned AI 168 times. This not only signifies the newfound attention given to this disruptive technology, but also a deep need to assure shareholders that big techs are on top of the AI wave. The reason for this assurance is a show of power for all competitors and an exhibition of the effort poured into AI disruption. 

According to Crunchbase data, around $8.7 billion of funding has been poured into AI companies over the past three months alone. The field has also seen high-profile investments such as Microsoft’s $10 billion investment in OpenAI, Character AI’s $150 million Series A round, Anthropic’s $580 million Series B round, and Runway’s $100 million Series D round. 

However, there was an explosive seed funding round that stood above all others, namely Mistral AI’s €105 million investment. This seed round is second only to a few others in the history of investment, such as Yuga Labs behemoth $450 million seed funding round. There is one thing that ties these investments together — both of them were made at the height of their respective hype waves. 

Yuga Labs is the company behind Bored Ape Yacht Club NFTs, and received this funding in a round led by a16z crypto in the beginning of 2022. This was at a time when NFT trading was at an all-time high, fuelled by extreme positive sentiment and media hype. Andreessen Horowitz (aka a16z) managed to capitalise on the bubble at the right time, a formula they wish to replicate with AI. 

No, AI won’t “save the world” 

Venture capitalists and market analysts go hand in hand each relying on the other to inflate expectations for the AI market. Let’s look at Morgan Stanley, one of the biggest companies to hype crypto and blockchain. Over 2021 and 2022, it launched multiple crypto-based initiatives, like a crypto research team, heavy investment into Bitcoin through Grayscale investment, and a Bitcoin investment tool for millionaires. 

Today, Morgan Stanley has moved on to AI, publishing a report that stated that AI is a $6 trillion opportunity. McKinsey’s latest research estimates that GenAI will add up to $4.4 trillion to the global economy across 63 use cases. Goldman Sachs predicted that AI will result in 300 million jobs lost, while increasing global GDP by 7%.

On the other hand, Marc Andreessen of Andreessen Horowitz, has written a 7000-word blog on how AI is going to save the world and all the naysayers should just shut up. The key takeaway is that AI will be everywhere, from tutoring children and helping scientists to augmenting artists’ work and improving warfare. He ends it with the takeaway that all AI companies should be allowed to build AI aggressively with regulatory help, so as to ‘save the world’ from China’s dystopian concept of AI dominance. 

After spending thousands of words dismissing the concerns of AI boomers, Andreessen subtly creates a new fear — that of free and open American AI falling behind Chinese AI. He implies that this will happen if the ‘free world’ doesn’t pour all their money and resources into making AI the way it’s meant to be: free and open. However, this also has a hidden benefit for Andreessen, namely money flowing through his coffers to fund a new group of AI hype companies.

Building castles in the sky 

All the use cases described by these numerous reports and AI angels are yet to materialise. Enterprises are just about beginning to find use cases for LLMs, but find it difficult to ignore the security issues that come along with them. In its current state, AI seems to be a hammer looking for a nail, a solution looking for a problem, and while there is potential for huge disruption, investors must take it with a pinch of measured scepticism. 

AI grifters are a dime-a-dozen these days, and no matter how high-profile they are, it is important for investors to keep in mind that AI is just a technology. ChatGPT, the poster child of AI, is not Skynet in disguise, it’s just a glorified autocorrect. Only this sentiment can bring actual changes to the status quo, while unmeasured optimism and hokey predictions will create another bubble.