Capital Efficient Strategy for Generative AI Startups: RavenPack CEO Armando Gonzales (Part 2)

Sramana Mitra: The use case was investing and trading in stocks?

Armando Gonzales: Yes, it didn’t start that way. It started as a very generic AI platform that could do all sorts of things including trading. We thought it could be used for healthcare diagnostics. We were looking at it from a cybersecurity perspective as well. We also tried building a prototype of open-source intelligence system that can be used by governments or global organizations.

One of the proof of concepts that we built was a systematic trading system that would read the news and make investment decisions based on what it read. If it found the news to be slightly negative on certain stocks, it would short those. If it found it to be positive, it would buy those stocks.

All of this was meant to be done autonomously without any human intervention. That became a proof of concept and prototype. We got some investors to buy into the idea of us building such a system.

Sramana Mitra: All this is happening in Paris?

Armando Gonzales: Already in Spain. It took about five years. It was mostly bootstrapped.

Sramana Mitra: How many people?

Armando Gonzales: Me and four others.

Sramana Mitra: You guys were not taking salaries?

Armando Gonzales: It was a mix.

Sramana Mitra: Where did you get the money from to fund anything?

Armando Gonzales: You don’t fund a lot. I can’t speak for the rest. For me, I managed to do some work while I was at university. I did save up a little bit of money. That helped. It was a year or two later when we found backers that helped us with financing.

Sramana Mitra: What do you mean other backers?

Armando Gonzales: We started seeking some business angels to help us. One of them, in particular, was helping us finance the day-to-day operations for about six to 12 months until we found our first customer.

Sramana Mitra: What was the investment thesis on the basis of which this angel funded you? Was it just that you had some relationship with this person?

Armando Gonzales: A mix. Investors bet on people.

Sramana Mitra: Investors, these days, don’t just bet on people. Investors bet on the investment thesis. The market is very different today. There’s so much work that people are doing in advance of going to investors. Investors expect a lot more fully-baked deals to invest in. The kind of scenario you’re describing doesn’t happen as much any more.

Armando Gonzales: That’s a fair opinion. For the last 20 years, I’ve been working in the space and I’ve dealt with many types of investors. More recently, it’s been venture capital and private equity investors which are very different to early-stage growth investors and business angels where there are a variety of factors that influence the decisions that they make.

At that level when you’re in the business angel area, investors invest in people. They have to believe in the founders and they have to believe in the people that they’re going to give money to. They may not understand fully the business nor do they fully understand the investment thesis yet. Ultimately, investments are made on the people who will manage their money.

As it starts to grow further, it starts to become more of the professional investors needing to understand the investment thesis, specifically the TAM, competitive landscape, and even timeliness. Those can have a massive influence.

Sramana Mitra: You’re right that investors bet on people. If they can’t back the person or the team who is going to be doing what they will be doing, they will not invest. That is correct. The fact they only bet on people and not on the market is not correct.

Armando Gonzales: I didn’t say that. There are multiple factors. The first is betting on people. It applies at every stage of the investment cycle.

Sramana Mitra: At this point, investments are looking for all of the above. They’re looking for a team. They’re looking for TAM. Most of the time, they’re looking for a validated market thesis.

Armando Gonzales: Right, and I’m not saying that they’re not. That’s the whole point. It’s a multi-factor investment problem. People is one and then the second is market whether it’s a current market or a foreseeable market. The problem needs to be clearly stated.

This segment is part 2 in the series : Capital Efficient Strategy for Generative AI Startups: RavenPack CEO Armando Gonzales
1 2 3 4 5 6