A few weeks ago, we had an amazing event in Cleveland but something important was missing. A sold out crowd with hundreds of entrepreneurs and investors from across the region gathered to talk tech, but where were all the artificial intelligence companies? These Heartland-based entrepreneurs and investors were either not aware or not moving quickly into the hottest space since mobile.
AI companies have been all the rage since the meteoric rise of ChatGPT, which attracted more than 100M users within its first two months of launch. I’ve been pitched by dozens of companies with products ranging from AI for design, content creation, analytics, biz ops, pretty much you name it. So why were there zero companies in Cleveland leaning into this trend?
I believe there are two fundamental reasons:
- Most obvious is lagging connection to the innovation network
- Less obvious is the lack of appreciation for the value of “Over” hype
San Francisco, unsurprisingly, is at the center of the AI revolution. OpenAI, the maker of ChatGPT, HQ is in SF’s Mission District. And while California now only accounts for 36.8% of all new startups, it has nearly 50% of all AI companies. Every week there are AI events in SF, including the recent “Woodstock of AI“.
Austin is, by many measures, 1 degree of separation away from SF. Like thousands of other tech workers, including Elon Musk, I moved to Austin from San Francisco. We’re all still deeply ingrained in that ecosystem, and the early success of Austin-based AI unicorn Jasper.ai that raised $125M in fall of 2022, demonstrates the value of connections and early “hype”.Ohio, however, doesn’t have this same degree of connection. There aren’t thousands of SF “expats” sitting in Cleveland coffee shops right now, sharing the good word of the AI gospel. There are really only about a thousand people who have moved from San Francisco into Ohio between 2016 and 2020. Even though anywhere at any time can access information instantly, that disconnection makes information transfer much slower. Expanding the Trust Network is a key mission of OAW – to make sure that more people in more places are connected to the innovation economy.
However, there is a second reason for more companies in places like Cleveland not pitching AI companies. Founders outside Silicon Valley do not appreciate the genuine value of “Over” Hype.
The classic Gartner Hype Cycle highlights a few core stages of technology hype
- Innovation Trigger: Something is possible that wasn’t before
- Peak of Inflated Expectations: A piece of tech is destined to save the world
- Trough of Disillusionment: Why did we think this tech was great? It doesn’t do much
- Slope of Enlightenment: Oh wow, we can solve some real problems with this tech
- Plateau of Productivity: We are starting to eek out all value of this tech
Gen AI is right at the top of their 2022 AI hype cycle. This means 3 things.
- A lot of money is going to be invested in these companies. There are nothing but dreams for AI, and those with the brightest vision will get the biggest checks.
- There will be some time before real long term “value” will be created with this tech. Real, sustainable revenue is going to be years away.
- Those who raise money off of this hype, will be able to figure out the complexities of this market and be in the best position to create a world altering company of tomorrow.
Companies who get in at the right time, while hype is being created get first mover advantage. They get all the money, publicity, and talent early on. While San Francisco has the edge over other cities in this regard, Austin and Jasper.ai show that other regions can also ride the hype curve to success.
Companies that get in later in the cycle have the advantage of creating real value and revenue from day 1. This is typically the place where companies across the Heartland tend to succeed. These companies focus on real attainable value and typically have more customers and traction than their Bay Area counterparts. But, this also means that they miss out on the attention and early investor risk-taking that helps companies jump out to a lead in a fast-moving market.
The key to success for the region is to combine the SF-Hype with Heartland-Value.
Inside this issue
- Navigating the 2023 VC Landscape
- The Unintuitive Hype Curve
- Ana Kraft – Xena Workwear
- AI content platform Jasper raises $125M at a $1.5B valuation
There are a ton of smart people in Silicon Valley, but not all smart people are in the Valley. Entrepreneurs with great ideas outside Silicon Valley, New York and Boston are typically undercapitalized. Beyond limited access to capital, they’re also under-networked, so they don’t have access to the knowledge and talent recruiting pools. Once I validated that thesis… Read More
Why does one startup get picked over another for funding?
From the entrepreneurs point of view, the answer to that question is often asked in frustration, as they are turned down by yet-another investor, or passed over by yet-another accelerator program.I feel for those entrepreneurs, as I spend most of my life on their side of the table… Read More
Ana is the founder of Xena Workwear, a manufacturer of workwear safety boots that are both fashionable and comfortable. Ana never expected to be in the industry, but her background in manufacturing sparked the idea one day. She initially started her business in Detroit and moved to Milwaukee where most of her team lived. Listen in as she discusses her approach to growing her team of investors, expanding her product line as well as her tips to overcoming fear and approach to building relationships. Xena Workwear is based in Milwaukee.
As the enthusiasm around AI image and text generators grows, Jasper, a startup developing what it describes as an “AI content” platform, has raised $125 million at a $1.5 billion valuation. The tranche is the company’s first, remarkably, and comes as Jasper is in the process of acquiring AI startup Outwrite, a grammar and style checker with more than a million users worldwide. Read More