1Mby1M Virtual Accelerator Investor Forum: With Shomit Ghose of Onset Ventures (Part 3)

Sramana Mitra: Elon Musk has talked a lot more along the lines of what you’re talking about – the unintended consequences of AI or even AI running amok in an evil way. I dealt with more of the economic question. Machine learning is really at the absolute beginning. We’re probably talking about a 50-year cycle but machine learning being machine learning has an incredibly-fast capacity to become very powerful.

In the next 50 years, I’m positive that we’re going to see machine learning penetrating every aspect of the human endeavor. If that really starts to take over professions or shrink professions in huge numbers, then 

we are left with a very large population on welfare. That is not economically a sustainable situation.

Shomit Ghose: I think we are starting to see the beginnings of this already. You start to see robots in manufacturing. Probably in the next 10 years, there will be self-driving cars, so you wouldn’t need taxi drivers. If you’re dealing with professions like high amounts of training, maybe 80% of your job can be done by a Watson-like system where you only have to perform the procedure and to deliver the diagnosis.

Instead of working eight hours a day, you’re working only two hours a day. Perhaps the flip side of that is instead of seeing 20 patients, you can see 80 patients. I can see that there’s going to be a lot of jobs that are going to be eliminated.

Sramana Mitra: The positive opportunity there is that maybe a lot more patients will be able to access high-quality medicine. Today high-quality medical support is not as easily available. That is a possible positive outcome of this. In the longer-term, there could be elimination. We are in 2014 and about to cross over into 2015. What are you thinking in terms of the end of the decade? By the end of the decade, what are the major changes we can expect to see?

Shomit Ghose: I think we are already starting to see them. In the area of data-driven applications, we’re starting to see adoption there as well. We’re seeing a few different teams that come out of medical school using large scale data to actually solve medical problems. It’s pretty exciting. There was an article on Big Data as applied to agriculture. We’re starting to see more and more large-scale data models to things that are done either by intuition alone today or by using just a small amount of data.

Sramana Mitra: What are you thinking in terms of where we’re going in the next six years in terms of this bubbly environment that we are dealing with? These valuations are ridiculous. You talked about WhatsApp. WhatsApp is just a representative of a larger phenomenon in Silicon Valley where fundamentals don’t seem to matter anymore.

Shomit Ghose: I agree with that. I agree that there is a bubble that is building nowadays. There’re a couple of them. One is at the high end where you have companies like Uber or WhatsApp with large valuations. There’s also a bubble at the angels. There are a lot of companies that are angel-funded nowadays. The kinds of companies that we see – Series A, B, C companies – haven’t been as affected.

We’re seeing valuations creep up a little bit, but they haven’t been as affected. Maybe that’s because they tend to focus on boring things like B2B. What we saw 12 or 13 years ago when the first dotcom bubble burst was, a lot of companies that had gone public didn’t merit going public. They died a deserved death. Nowadays, the bubble that we see is in the really early stage. Last year, there were over 70,000 companies funded by angels, which is a stunningly large number.

If you think about the number of companies that get Series A funding from VCs, that’s roughly been constant. Then you have 70,000 companies being angel-funded and only a thousand getting funded by VCs.

Sramana Mitra: It’s also in the late-stage companies. If you’ve been able to prove your thesis and something interesting is happening, then at the pre-IPO stage, the valuations are going completely berserk. I just don’t see how that kind of berserk valuations will translate into public market. They just can’t. The public market isn’t going to tolerate that kind of valuation. The public market is not as frothy.

Shomit Ghose: That’s right. Once the companies go public, the valuations will dampen. No doubt some premium will still be paid on the strategic perception of the company but in the end, markets are driven by profits and earnings.

Sramana Mitra: 70,000 companies got angel financing and just about 1,000 get Series A financing. You’re playing in a very poor odds game and you have to have persistence and the stomach to bootstrap to sufficient levels of validation and success such that you’re not dependent not venture capital. VCs, of course, love to come to the rescue of victory. If you can prove that you can be successful, there will be VCs who will want to come to your rescue at that point.

Shomit Ghose: It’s really about building substantive value. 70,000 angel financing and around a 1,000 for Series A. You marry those statistics together, you better build value because, as you say, VCs love to come to the rescue of victory.

Sramana Mitra: Thank you for your time.

This segment is part 3 in the series : 1Mby1M Virtual Accelerator Investor Forum: With Shomit Ghose of Onset Ventures
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