The AI boom is still in its infancy, and even if we leave the wave of startups behind, it could be the most lucrative cycle in venture capital history.
That’s according to Mel Williams, co-founder and partner at TrueBridge Capital Partners, an $8 billion fund of funds manager that backs companies like Founders Fund, Thrive, and Sequoia.
While VCs pick startups, Williams’ job is to pick VCs, giving him a rare, ecosystem-wide view of what’s to come.
His outlook: AI will create tremendous value over the next decade, but many startups won’t survive.
“I think we’re in a major phase of the AI wave,” Williams said in an interview on Jack Altman’s Uncapped podcast Tuesday.
“We’re going to see a lot of carnage in the next 10 years. And we’re going to see more value created in the next 10 years than we’ve ever seen in the venture industry,” he said.
“Frothy” markets – especially in the early stages
Williams said the early-stage AI landscape is heating up.
Founders with the right resume (often with experience at OpenAI or top labs) can raise large amounts of funding at high valuations, even with little evidence that their product works.
“Early in the establishment phase, when there is less evidence that the product is a market fit, we see founders with credibility – founders who can check a few boxes – raising large pools of capital at very high valuations,” he said.
He added that growth-stage deals make more sense because investors are more focused on real returns, and valuations are closer to public market levels.
AI amplifies the power law dynamics of ventures
Williams believes AI is accelerating the power law pattern that already defines venture capital. This means that just a handful of companies generate nearly all the profits.
“The size of the winners today is even bigger than in previous cycles,” he said. “It’s going to be big in this market.”
He pointed to three forces reinforcing this trend.
- AI software can scale instantly with near zero marginal cost.
- Businesses are actively deploying AI tools and have clear budgets allocated to them.
- Consumers are quick to jump on, as seen with the explosive growth of ChatGPT.
As a result, companies that achieve product-market fit may quickly become market leaders, while those that fail to do so may stumble.
Outside of AI, the venture market looks surprisingly healthy, but the impact remains profound
Williams said this enthusiasm is largely limited to the field of AI. Otherwise, he said valuations remain reasonable and capital is still driven around milestones and earnings.
In his view, the broader venture market looks attractive compared to the heated AI landscape.
But AI now accounts for 50% to 60% of all venture activity, an imbalance that sets the stage for a tough correction, he said.
Even if non-AI categories remain rational, Williams believes the sheer amount of capital flowing into AI will create a long trail of “carnage” as companies miss out on product-market fit or don’t justify sky-high valuations.
“We’re in the early stages of that. There’s evidence that it’s working,” he said, but added: “At the same time, the investment environment feels very frothy.”
