Leading China VC Kai-Fu Lee warns an investor reckoning is coming for unprofitable AI companies

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The halcyon days when capitalists were satisfied with billions in the latest AI startups, when researchers burned money without showing it, may be over. “The reckoning” is coming soon for AI companies that fail to generate profits as the new technology matures, Kai-Fu Lee, chairman and chief executive of Sinovation Ventures, said at the Fortune Innovation event in Hong Kong on Wednesday.

Lee said many LLM startups focus more on getting ahead and less on marketing their work. “Many LLM companies out there are run by researchers who only care about making a good model,” he said in an interview with. Chance executive editor Alyson Shontell. “The fair part of science must end.”

If there’s one thing the three leading US tech stocks all have in common, it’s that they’ve successfully invested in emerging technology—Microsoft and your computer, Apple and Google and your smartphone.

The former president of Google China and he a researcher field, Lee launched his AI startup in March 2023. The company, called 01.AI, was valued at more than $1 billion in less than eight months.

Lee said former Google recruiters warn him. Despite having the largest network of AI talent found in the world to date, he said that Google lost its opportunity to OpenAI because it wasted time and resources that made its employees competitive.

“If you have a lot of researchers and a culture where everyone can test their ideas, you’re going to run out of money as a startup,” he said.

Huawei’s goal against Google ‘let a hundred flowers bloom’

Lee argued that for his company to one day be counted among the world’s leaders, it must be ruthlessly efficient with every dollar it spends.

On Wednesday, an AI expert pointed to Huawei as an example of how this focus could work. A Chinese telecom equipment manufacturer worked on a mysterious project with Turkish IT researcher Erdal Arıkan, testing its marketing efforts. The success of the polar code. This allowed them to overtake western competitors such as Ericsson and continue to dominate the 5G market.

“That made a big difference,” Lee said. “We are taking the same approach to be more diligent in saving the GPU [costs].”

Because of his focus on efficiency, he believes in 01.AI-the same they publish all of his research on open source sites like Hugging Face—has reduced the gap between American companies like OpenAI from eight years to less than twelve months in just one year.

Opponents of AI who instead accept Google’s strategy of “100 flowers to bloom”, as Lee said, are comparatively difficult to find a profit.

“There’s a valuation point where investors say: What do you have to show for yourself?” said Lee. “What’s your P&L? What’s your revenue? What’s your growth rate? When do you break even?”

If the introduction of AI does not have an effective solution, then its days of “fair science” are over.

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