PitchBook News - Are big bets on generative AI worth it?

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The Weekend Pitch

October 30, 2022

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An abstract illustration made with Stable Diffusion.
(Michaus/Shutterstock)

In 2011, IBM's Watson supercomputer beat two champions in a game of "Jeopardy!"

The company then spent the next decade, and billions of dollars, trying to use Watson's artificial intelligence capabilities to solve a broad set of healthcare challenges, from helping doctors diagnose diseases based on symptoms to recommending clinical trials.

That effort failed. In January, IBM announced it was selling Watson for parts to PE firm Francisco Partners.

AI technologies have come a long way since that game show triumph. Some AI, such as those recommending ads on Google or detecting cancer on medical scans, have become part of everyday life. While improvements for these types of AI have been mostly incremental, over the last year machines suddenly became good at generating images and writing text.

Although this so-called generative AI often creates nonsensical pictures and produces text bearing the signs of a machine, many investors are convinced the new technology will usher in a productivity revolution across various industries and forge massive companies along the way.

"[Generative AI] has the potential to transform lots of different workflows and every piece of application software in [the] enterprise," said Gaurav Gupta, a partner at Lightspeed. "We can take this technology and customize it for a particular use case—could be advertising, could be gaming, could be entertainment, could be pretty much everything."

Earlier this month, Gupta led Lightspeed's $101 million seed round alongside Coatue and O'Shaughnessy Ventures into Stability AI, the developer of open-source text-to-image generator Stable Diffusion, at a reported valuation of $1 billion.

Significant investments like that reflect lofty aspirations. But those aspirations may collide with AI's long history of underdelivering on expectations.

To some, the current hype over generative AI is no different.

Welcome back to the Weekend Pitch. I'm Marina Temkin and you can reach me at Marina.Temkin@PitchBook.com or on Twitter @MTemkin.

Beyond climate tech

Hogan

For all of the much-needed investment going into technology aimed at decarbonizing the economy, sometimes investors and entrepreneurs could use a little nontech perspective about the climate and the enormous task confronting humanity.

For that, consider the viewpoint of Clover Hogan, a youth activist who shared a keynote address alongside Egyptian author and former Google executive Mo Gawdat at the Verge climate conference Thursday in San Jose. Together, they delivered a forceful message to investors, entrepreneurs and the general public: Tech solutions can only go so far to tackle the climate crisis; none of that will matter without a societal mindset and behavioral change, from reining in the wasteful byproducts of consumerism to putting pressure on corporations.

Hogan, who founded the climate action group Force of Nature at age 19, warned against thinking that the tech industry can engineer its way out of environmental catastrophe.

"The first thing to address by way of culture change," Hogan said, "is to address that the climate emergency is an emergency; ergo, it demands an emergency type of response" including aggressively holding companies accountable for their contributions to pollution and deforestation.

Dawat challenged the audience to consider their power to force change as consumers and investors.

"Can we vote with our decisions by saying we’re not going to participate in an economy that’s going to destroy our future, and the future of our children?"
—Alexander Davis

Trivia: Know your SPAC

(erhui1979/Getty Images)

As of Q3 2022, what percentage of SPACs raised since 2020 remain without a closed deal?

A) 14%
B) 30%
C) 62%
D) 85%

Find the answer at the bottom of The Weekend Pitch!

There is no Planet B

(Anna Efetova/Getty Images)

If you've ever brought your own cup to Starbucks or loaded up used boxes to move apartments, you've contributed to the circular economy. However, to achieve scalability and prevent heaps of trash in landfills, companies need to invest in robust infrastructure that produces durable container materials and allows consumers to return items for reuse.

Is there a massive startup opportunity to help major consumer brands such as Unilever, Kraft Heinz and Danone build out this capital-intensive process?

If the momentum—or rather, need—for environmentally friendly alternatives continues, reusable container providers such as Loop, Innerbottle, TBM and Boomerang could be the next big thing.

Our recent analyst note has more on the topic and takes a deep dive into the future of sustainable packaging, including bioplastics, seaweed and algae, plastic additives, mycelium, molded fiber and reusable materials.
—Priyamvada Mathur

What's everybody reading?

Did you get busy with pumpkin patches and Halloween parties? It's understandable to have missed out on developments in the private markets. Here's some of the most-read articles published by PitchBook's news team in October:

Large-scale investors flock to venture debt's 'phenomenal returns'

The problem with PE's pyramid scheme comparisons

Big tech set to shop for discounted startups

Private equity fundraising challenges set up a tough 2023

Q3 US venture capital trends in five charts

As crypto deals slow, a16z's Chris Dixon shifts to accelerator reboot, regulations

Venture capital's record dry powder has its limits

Stay tuned

Keep an eye out for these insights and research reports coming out this week.

Q3 2022 European Venture Report

Q3 2022 Information Security Update

October 2022 Global Markets Snapshot

2022 All-In Report

Q3 2022 Mobility Tech Update

Mobility Tech Valuation Guide

Trivia: Know your SPAC

Answer: C) 62%

Despite the large potential target market for sponsors created by the swelling population of private companies, nearly 800 of the 1,288 SPACs raised since 2020 remain without a closed deal, according to PitchBook's latest SPAC Market Update.

Over the next couple of quarters, PitchBook analysts expect only a handful of SPAC business combinations will reach the finish line.

This edition of The Weekend Pitch was written by Marina Temkin, Priyamvada Mathur and Alexander Davis. It was edited by Chris Noble and Clarinda Simpson.

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PitchBook News - Are big bets on generative AI worth it?

Beyond climate tech

Trivia: Know your SPAC

There is no Planet B

What's everybody reading?

Stay tuned

Trivia: Know your SPAC

Older messages

The SPAC experiment ends

Mapping global M&A trends

SPAC market's uncertain fate

VC keeps space-tech funding aloft

M&A finds few lifelines in Q3

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