#10: AI investing, building, and policy, with Nathan Benaich
Welcome back to The Form Playbook, our newsletter supporting founders building the future of regulated markets.
This month:
šļøInterview with Nathan Benaich, GP at Air Street Capital, on the opportunity for AI companies, investing, and policy
š° News & Views: How AI regulation is shaping the opportunity for AI startups and VCs
ā° Form Updates: Leo on R&D tax credits and regulators, plus portfolio news highlights
Nathan Benaich, VC, on the opportunity for AI companies, investing and policy
Nathan Benaich is Founder and GP of Air Street Capital, a VC firm investing in AI-first startups. As co-author of the State of AI report, which routinely covers both technical and political developments in AI, and as founder of Spinout.fyi, which campaigns to improve university spinout creation, Nathan has a unique insight into the intersection of AI investing, company-building and regulation. As always, weāve picked out the key takeaways for founders here, but donāt miss the full interview for insights on founder archetypes, defensible opportunities in AI amid regulatory change and open source development, and the need for more European Dynamism.
Nathanās Advice for Founders:
The most promising founders need to demonstrate a rare combination of razor-sharp customer insight and technical brilliance. Show you understand both your customerās pain points and how technology fits into their way of working ā even in 2023, not every problem will have a GenAI-shaped solution.
As AI progress accelerates, the most exciting opportunities are likely to lie in āfull stackā ML companies ā not just licensing out a model, but building a fully-integrated product that solves a problem end-to-end.
The politics and policy of European tech will shape startupsā opportunities: as tech geopolitics intensifies, we will need new defence-focused companies, as researchers lead the way in strategic technologies, we must reform spinout policy, and as AI regulation comes forward, we must avoid a panicked rush to throttle real-world progress.
Tune in tomorrow, Tues 13th to TBIās AI and the Future of Britain to hear more from Nathan, and check out our full interview here: Nathan Benaich, GP at Air Street Capital, on the opportunity for AI companies, investing, and policy
News & Views: What AI regulation means for VC
As calls grow for tighter rules on AI, weāve been thinking through the impact for startups and VC. Weāre early, and there will be many more questions to come, but weāre particularly watching 3 issues which will shape the start-up opportunity in AI:
New regulatory regimes will shape unit economics and speed of execution: The EU AI Act is nearly in force, and the UK is wobbling on its initial, sectorally-focused plans which said little about general purpose models. Meanwhile Japan let the text and data-mining cat out the bag, stating that it wonāt reinforce copyrights on data used in AI training, just before Adobe ā confident in its licensing agreements for model training ā said it will indemnify customers who use its genAI tooling against any IP claims. As all this crystallises into regulation, thereās a risk many responsible, narrowly-focused startups get blown off track by regimes designed for bigger companies with large compliance budgets. Regulators, too, rapidly need more funding & expertise to limit the impact of these burdens. For decades, strong regulatory regimes in fintech, health and other sensitive sectors havenāt put off founders going after vast opportunities, but crucially these are mature, well-trodden regulatory paths. As new rules take shape, letās be mindful of burdens but not at the expense of speed, safety and clarity.
Open source and regulation will set the parameters for defensible business models: Whether companies open source their models is a function of a) their commercial incentives and b) how they trade off AI safety risks against open progress. Meta does not (currently) sell access to its models, and can therefore support an open, collaborative approach to innovation while eating away at othersā moats, as Google has allegedly acknowledged. But in the process Meta has also come under fire from US senators. Expect the feedback loop between open source, responsible deployment and regulatory scrutiny to continue ā shaping how and where defensible businesses can be built.
Competition regulators are watching AI infrastructure: The UKās CMA launched an initial review of foundation models, examining the marketās likely competitive dynamics ā again shaped by open source ā and the impact on consumers. Despite the initial outcry, itās legitimate for the competition regulator to develop an early understanding of this transformational industry. But it also follows Ofcom proposing to refer the UK cloud computing market to the CMA for further investigation, after finding practices and market features that were limiting competition. If the AI infrastructure market begins to resemble the cloud market, expect future exits to be scrutinised.
All of this is humming along as the US and UK face elections next year, with legislative windows closing. The UK in particular is jostling to be the home for international AI governance ā expect to hear more at the governmentās AI Safety conference this Autumn.
Form Updates
Leo was in the New Statesman discussing Rishi Sunakās hopes for a āUnicorn Kingdomā and spoke at TechUK on the UKās scale-up problem, highlighting how cuts to R&D tax credits, under-resourced regulators and waning confidence in UK listings are holding back progress
You can also catch Leo on Tues 20th June at the RealTech Conference, hosted by Sam Cash.
Andrew co-hosted another TxP event, the community for folk in tech and policy, on AI tech & geopolitics ft. AI policymakers and investors
Ophelos hosted Break the Cycle, exploring the role for AI to help raise standards in debt resolution, while Sylvera hosted the annual Carbon Markets Summit, featuring global leaders in carbon markets and policy
As always, if you know anyone building the future of regulated markets ā or youāre an investor thinking about how policy affects your portfolio, get in touch.