How Early-Stage VCs Are Getting Around the Startup Valuation Trap

The AI startup world is something of a paradox right now. We keep hearing talk that we're in a bubble. And there’s no doubt that venture funding for young artificial intelligence startups is (mostly) free-flowing, which is great for founders. But the market isn’t so great for investors, particularly early-stage VC firms which are often competing with big tech firms like Google, Microsoft and Amazon that are jumping in to fund startups. (See this tremendous piece by Tim O'Reilly arguing that those big companies are part of a capital-fueled AI land grab that is causing premature market concentration.)

As a result, some VC firms have come up with creative ways to unearth promising founders before they catch the eye of the biggest VC and corporate funds—sometimes before the would-be founders even have an idea for a new firm. Take South Park Commons: founded in 2016 by Ruchi Sanghvi, Facebook’s first female engineer. The pre-seed and seed-stage VC firm started out as an in-person community that hosted workshops, speaker events and discussions for techies in between roles. Sanghvi soon realized that the community was a natural breeding ground for promising startups and raised a fund to be able to back them. SPC has now invested in a number of member-founded AI startups including Imbue and Luma.