1Mby1M Virtual Accelerator AI Investor Forum: With Jishnu Bhattacharjee, Managing Partner at Nexus Venture Partners (Part 6)

Sramana Mitra: Just know, I have a slightly different question on capitalization of these companies. So you talk about these two kids from MIT who are commercializing their PhD thesis, I guess. You have this CalTech professor who’s commercializing his work in the domain of drug discovery using AI. Talk to me a little bit about how you structure these deals. You’re getting in at almost an R&D level.

Jishnu Bhattacharjee: That is correct. At Nexus, we are early stage investors. We are running a $700 million fund, but we won’t do more than 25-27 companies. Even in those, we want to be the first or second check writer. So we grow with the companies and eventually partner with them, but we come in very early. But you’ve raised a very important point that is actually happening across AI driven by the narrative in the industry.

Today, the narrative is that you need a huge amount of resources even to get started. Previously, if you needed a seed funding of a million or two million, now that number has become eight to ten million. Honestly, there is some truth to it, depending on what you are really doing. If you need to focus on your own infrastructure based on the application you’re doing and if newer models are coming up, then there is some truth to it. However, the innovation in both the open source world and closed-source platforms like OpenAI, Google, and AWS is making it easier to turn your ideas into reality. You can let your imagination fly.

So I think, the world is pouring in a lot of money. There is a phrase, “Let’s suck out the oxygen”, so that it becomes a competitive moat. Honestly, in the long run, we have seen in enterprises that capital is never a true moat. I don’t think it is going to be any different in the AI world. Ultimately, fundamentals will matter. Everybody has limited resources. The scale is changing. What used to be two million is now ten million. Soon, people will be saying, ‘Ten million isn’t enough.’ The question is, what are you going to do with it?

While there is a lot of investment happening, I wouldn’t be surprised if many of these investments don’t meet expectations. We’re seeing zero-revenue companies being valued at billions of dollars, driven by this belief that huge amounts of capital are required. I don’t think that’s necessarily the case. Sure, in some instances, a company might need more capital at certain stages, but fundamentally, there’s some irrationality in the market. You can still build and scale efficiently and thoughtfully without excessive funding.

Sramana Mitra: Yes. I think the layers of abstractions are really important. The Platform as a Service (PaaS) model has emerged. It’s been around for a long time, and we’re now seeing it emerge in the AI era as well. You can build on top of these platforms very efficiently. The real intellectual property is not in the infrastructure – it’s in the domain knowledge, such as the discovery processes in biology or life sciences. In the case of your MIT PhDs, it’s in domain specific cybersecurity knowledge.

So, the money should not be going into building those multiple stacks of infrastructure. It should be used in existing layers of infrastructure. Then you can build companies in a fairly capital efficient way. As you know, I hate this over capitalization of companies and developing bad habits. Then when revenue doesn’t match up with the capitalization, companies basically collapse.

Jishnu Bhattacharjee: You mentioned something very interesting about how platforms are evolving and the kinds of innovations people can build using them. The nature of platforms is also changing. I’m working with a fascinating company called Postman, and today we often say—and it’s becoming almost canonically true—that every AI in the world is consumed via an API.

If you think about it, all the foundational innovation is being codified into APIs and made accessible in different ways. The sky’s the limit. With domain knowledge, creativity, and innovation, you can achieve amazing things. The definition of platforms is also broadening and becoming more decentralized. You’re no longer locked into one place; you can mix and match various tools as you build. So, there’s actually a lot you can accomplish without needing massive amounts of capital. There’s a narrative out there that in the AI era, you need significant capital, and while that’s true in some cases, it’s not universally the case.

Sramana Mitra: Yes, I don’t buy that. Okay. So that’s a really interesting discussion. So we’ll continue to continue the conversation as all this develops. Thank you.

This segment is part 6 in the series : 1Mby1M Virtual Accelerator AI Investor Forum: With Jishnu Bhattacharjee, Managing Partner at Nexus Venture Partners
1 2 3 4 5 6