Talent flocks to AI but ‘frothy’ market turns off VCs: Dragonfly Capital

While many talented professionals are getting into artificial intelligence, Dragonfly Capital’s general partner said in its current state, the space is turning off venture capitalists. 

In an interview with Cointelegraph’s Ciaran Lyons at the Token2049 event in Singapore, Schmidt said that crypto and AI are currently competing for talent. With AI being a new technological development, the venture capital executive said that professionals are currently more attracted to the field. He explained: 

“I think if you ask a new graduate or founder where they want to build. I think a lot more goes into AI. And so, I think that is really more where the competition is.”

However, the same cannot be said for venture capitalists. Regarding capital, Schmidt said that people are getting more turned off by AI because it seems very “frothy and overallocated.” 

AI project valuations cause worries for VCs

In addition, Schmidt said that the valuations of AI-focused companies are a cause of concern for venture capitalists. He said: 

“There’s a lot of worry about some of those valuations and if the revenue can sort of match up to expectations.”

The executive added that if one looks at multiples versus growth, the space is currently at “insane levels.” Schmidt compared current levels to 2021 and said the risk environment is at 5%. 

“I think what we’ve seen is it’s very difficult for teams to grow revenue. You ultimately see this sort of multiple compression,” Schmidt explained. 

In finance and investing, the higher the multiple, the more valuable growth is to a company. For example, a multiple of three would mean a company would generate three times more shareholder value from adding 1% of growth. 

Related: Microsoft to open two AI centers in Abu Dhabi

An advantage for crypto

When asked if the current situation in AI could be an advantage for crypto startups looking for venture capital funding, the executive said yes. Schmidt explained that crypto provides another asset class where VCs can delegate funds. 

However, the executive urged crypto projects to carefully consider whether they need VC funding. Schmidt believes that not every company needs venture capital funding. He explained that, alternatively, companies can build profitable bootstrap businesses and that many companies using this model are doing well. 

“I think a lot of teams have decent ideas or decent companies. But they’re not a good fit for the venture market and venture outcomes,” he added. 

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