Sierra Ventures’ Tim Guleri on Generative AI: “I’ve Never Been So Excited and Scared in My 20 Years of VC”

Tim Guleri, a Silicon Valley company venture capitalist Sierra Venturehe has witnessed numerous technological breakthroughs throughout his career, but recently told VentureBeat that he believes the current emergence of generative AI is the most significant and intimidating of them all.

With three decades of experience founding and investing in business technology, Guleri built companies during the Internet boom of the 1990s and then invested in startups during the subsequent Web 2.0, mobile and big data revolutions of the 2000s and 2010s .

Guleri’s investments include Sourcefire and MakeMyTrip, which eventually went public. In 2000 he founded Octane Software, an e-commerce company sold for $3 billion to Epiphany while he was CEO.

Guleri’s track record establishes him as a VC heavyweight in the area of ​​enterprise software investing.

Discussing the current investment landscape, Guleri told VentureBeat in an exclusive interview, “I’ve never been so excited and scared in my 20 years of venture capital because of gen AI.”

His excitement stems from the potential of generative AI to dramatically improve value creation in the industry, while his fear stems from concerns about privacy and the ethical issues surrounding the technology.

“I’m thrilled that everything we’ve done to create value in the industry can be done 100 times better with generation AI,” he continued. “I’m scared because of the stuff that we’re talking about in terms of hallucinations and privacy and all the stuff that I think needs to be fixed altogether… and I’m a little paranoid, I guess, when it comes to the company because I think that we need to lead the way as an early-stage venture firm in the way we operate, to seize the best opportunities early enough.”

His marketing partner at Sierra, Anne Gherin, said Guleri has spent nights and weekends learning, testing and investing in generative AI over the past few months. Every Monday partners meeting, she brings a new report, presentation or diagram on the topic, she said.

As ChatGPT’s recent breakthroughs have garnered widespread attention, Silicon Valley has increasingly embraced AI, with many heralding generative AI as an unprecedented paradigm shift. Marc Andreessen, co-inventor of the first web browser and leader of major venture capital firm Andreessen Horowitz (a16z), recently published a blog post stating that artificial intelligence may be the most important and beneficial invention in human historyequal to or greater than electricity and microchips.

However, big companies like Andreessen’s can make big changes based on trends. Until last year, it dominated investments in cryptocurrencies and other financial services.

Meanwhile, Guleri’s focus on early-stage investments in corporate technology hasn’t wavered, in both foamy and bear markets.

While his approach can yield substantial returns if he invests in the right companies, it also carries significant risk due to the challenge of identifying promising startups.

This is what underscores his obsession with generative AI.

Gen AI is changing the playbook for building the enterprise

Guleri says Generative AI will disrupt the traditional playbook of construction companies in the enterprise software market over the past 30 years, which is centered around automation. Successful companies like Oracle, PeopleSoft, Workday, Salesforce.com, and ServiceNow were all created by taking relatively manual processes and automating them.

Whether it was customer support, sales, IT or HR, the approach started with a relationship database, as well as a business process. Guleri explained, “It’s UX slapped on a database table,” and a bunch of salespeople who know how to sell.

That process alone, he said, created the enterprise software market, that is $200 billion in revenue. He pointed to Salesforce.com as an example, where now it stands alone 204 billion dollars.

Guleri believes that generative AI will separate that software ecosystem and reassemble it, and it will do so in unpredictable ways, he said.

Like some industry analysts, he uses the word “intelligence” to describe how generative AI will elevate technology, referring to the ability of large language models (LLMs) to mimic aspects of human intelligence.

“The coming decades will be about intelligence,” he said, not about automation.

The next enterprise software project is emerging and it includes more open sources

Guleri emphasized the need for his firm to keep an open mind as it formulates a vision for the future of enterprise architecture.

Guleri shared his contrarian view that business applications will continue to be built on relational databases, rather than vector databases, that have been touted for their ability to handle unstructured data that drives LLM models. He believes relational databases will integrate vector and embedding capabilities, eliminating the need for separate vector databases.

Another clear pattern is that there will be no LLM to rule them all. “There’s this idea of ​​chaining LLMs,” he told her.

Additionally, Guleri predicted that open source will dominate large language models (LLMs) due to growing regulatory scrutiny over companies like Amazon, Google, and OpenAI. Those innovators will need to be more “premeditated” in what they bring to market, and corporate customers will be wary of what they bring to production. “Open source will go on,” he said she.

He also highlighted the importance of identifying genuine generative AI startups in a sea of ​​suitors. Many entrepreneurs “AI clean-washed” their presentation decks from six months ago, she said.

With around 13 Generative AI investments under its belt, Sierra Ventures began backing such startups before the recent surge in interest. The company’s first investment in the industry came in 2018 with Krisp, a noise-canceling app startup, followed by a $4.25 million seed round in Quillbot, a content management company, in 2020. Quillbot was later acquired by Course Hero for an undisclosed sum. Other investments include Deephow and Modulate.

Guleri acknowledged that the disruptive power of generative AI has only recently become apparent, stating, “It’s only become obvious to me in the last six months — about how fundamentally disruptive it will be.”