Jim Breyer, the venture capitalist who made a fortune investing early in Facebook, is optimistic about the long term picture for the technology industry.
He’s particular bullish on artificial intelligence, and says his firm isn’t investing in anything that doesn’t have a smart data analytics piece to it. He likens the new artificial intelligence era to the social networking era, which changed the entire digital landscape.
But, in the near term, he sees pain.
We spoke with Breyer briefly at the World Economic Forum in Davos, Switzerland.
He says there is “blood in the water,” and we are entering a 90-10 situation for the “unicorn class” of startups where 90% of the startups are either going to be repriced, or will die, and 10% will make it.
When asked why valuations got so out of control, Breyer said a lot of of deals in the past year had ratchets and down turn protections in order to give founders the lofty valuations they requested from VCs. Those lofty valuations were often driven by greed and short-term visions (It’s cool be to worth $10 billion!).
Those terms can be OK for entrepreneurs as long as the company continues to be a rocket ship. Facebook, for example, could have survived with down turn protections worked into its term sheets when it was a startup. But if things take a turn for the worst, the investors come out of it fine and the founders and employees take a hit in terms of both stock and morale.
Breyer was responding to a question from us about the state of Silicon Valley right now.
On Wednesday, we spoke with a Silicon Valley CEO who said he was looking forward to a downturn in the startup market. This CEO said that the Valley used to be a place of “quirky people” but now it’s filled with “arrogant” people, so he was happy to see some of these companies falter as a way to flush out some of the bad actors.
Breyer says the Valley is still filled with “quirky” people. He also said that “arrogance” has no place in the Valley, especially since the biggest tech companies like Facebook and Amazon are better than they have ever been. He says “humility” is extremely important right now.
That said, if people in the Valley are arrogant, they’re about to be humbled if Breyer is right about the death of unicorns. There are ~144 unicorns right now. If only 10% break out, that’s only 14 companies that will really make it.
Despite this dire warning, Breyer thinks over the next 10 years there will be a number of breakout companies. He sees Artificial Intelligence as a big opportunity. He says we’re going to see massive returns for investors in that space, in everything from medical to entertainment applications.