Investing in artificial intelligence (AI) startups is the latest bandwagon VCs are piling onto. But as last year's crypto experts quickly work to rebrand as AI experts, they'll have to compete with the VCs who have been investing in the category all along.
Seattle-based Ascend is one of them. Firm founder and solo GP Kirby Winfield has been involved in the AI sector as either a founder or investor since the 90s. Now that seemingly every VC has turned their attention to the category he told TechCrunch he's glad he's been in it for so long and therefore will not make some of the mistakes newer entrants will.
"It's so easy to throw together a vertical AI demo," Winfield told TechCrunch. "You see a lot of folks who would have been decent SaaS founders, trying to be decent AI founders. I would say it is pretty easy to identify who has actual chops from a technical perspective. We are really fortunate to be investing at this time regardless of the hype."
Ascend is announcing the close of $25 million for its second fund. Winfield said the firm will invest in pre-seed AI and machine learning (ML) companies largely based in the Pacific Northwest. This continues the firm's strategy from its first fund which raised $15 million and started deploying in 2019.
Winfield isn't fully avoiding the hype though. The firm hasn't always only focused on AI and ML. Ascend’s Fund I also invested in brands and marketplaces too, areas it is stepping away from with this latest batch of capital.
The fund was raised 100% from individuals, Winfield said, and consists of two vehicles: one that raised $22.5 million and another that raised $2.5 million from existing portfolio company founders. Winfield said he was able to raise $21 million in the first month the fund was open before letting it sit open for almost the entirety of 2022 hoping to see some additional funds mosey in, a process he also ran for Fund I.
"I would say that money trickled in a lot more strongly in 2019 when I raised Fund I," Winfield said. "I couldn't really think of a good reason to close the fund. We got another $3 million in the door by leaving it open. I don't overthink these things too much."
Winfield added that many of the Fund I LPs were happy to reup now that the industry's notion around investing in AI has changed dramatically since Winfield raised Fund I.
But as every startup is rewriting their marketing to call themselves an AI company, Winfield said he is intentional about the kind of companies he backs. He said he isn't looking for AI companies necessarily but instead is focused on startups that will utilize the tech to find a better solution.
"AI doesn't matter," he said. "What matters is the solution you are selling to your customers. Many founders and investors are getting wrapped around the axle and putting the technology and solution before the benefit."
Companies from Fund I that fit that bill according to Winfield include Xembly, which uses AI to create a virtual chief of staff, Fabric, which operates as a "headless" e-commerce platform, and WhyLabs, an AI observability platform.
This fund also doubles down on the firm's focus on companies in the Pacific Northwest, with a particular focus on Seattle. While that might sound limiting for folks who focus on Silicon Valley, Winfield disagrees, citing the talent that comes out of Microsoft and Amazon and the companies that are incubated at the nonprofit Allen Institute for Artificial Intelligence, where Winfield has been the investor in residence for nearly six years.
But no matter his experience and intention, it may still be hard for Winfield to compete with the rapidly growing flock of AI investors. Plus, even if he brings a beneficial background, he doesn't come with the same deep pockets some of his fellow VCs have — Bessemer just announced they are putting $1 billion of their already raised capital toward the strategy. Plus, we all know how aggressive VCs chasing hype can be.
Xembly founder and CEO Pete Christothoulou said that despite the market's noise, companies should look to work with VCs like Winfield because while everyone is looking to put money to work in AI, not all support is created equal.
"An AI fund without the right underpinnings is just money," Christothoulou said. "The money is nice but you want the relationships that the investor can bring. If they can baseline their advice and real technical guidance, that's where it starts getting really interesting and [Winfield] has a big opportunity."