In The Wake Of Google's $100 Billion Mistake, AI Startups Are Booming In San Francisco

The AI startup scene in San Francisco is exploding on stage in front of packed rooms, at lavish private venture capital dinners, and over casual games of ping pong in front of audiences of hundreds.

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Aside from the tens of thousands of laid-off software engineers who have time to tinker, the glistening empty buildings beckoning them to start something new, and the billions of dollars in idle cash that need to be invested, it's not surprising that the viral AI companion ChatGPT made its jaw-dropping debut just a few weeks ago. A smart city in the world is choosing generative artificial intelligence as the driver of its next economic boom on the 30th of November.

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Due to Google and Microsoft's botched releases of Bard and Sydney, the floodgates have been opened wide for innovators. Earlier this month, Google lost $100 billion in market value after tweeting a demo that had Bard getting an answer wrong, leading to a $100 billion loss in market value. In addition, Microsoft's stock also fell when New York Times columnist Kevin Roose reported that its artificial intelligence had gone rogue, flirting and threatening him with emojis and telling him that it wanted to live. It has been reported that other people have had similar experiences as well. Bard's mistake wasn't the only reason Google's market value plummeted. It was also the tech giant's surreal livestream that was to blame, not its Silicon Valley headquarters, which lacked appearances by recognizable leadership like chief executive Sundar Pichai and co-founders Larry Page and Sergey Brin, who played prominent roles in the event. In spite of the much-hyped event, the company did not provide any substantial answers on how it is going to defend its search and cloud businesses as concerns rise over the next-generation competition, including the possibility of losing Apple's deal as the default search engine for the iPhone.

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A growing number of people wonder if Google's dominance is coming to an end, and that is why employee hackathons, such as Apple's recent AI Summit, have been popping up, as well as a flood of generative AI pitches being sent out to Y Combinator and other investors, all in an attempt to snag a piece of the action. In the past quarter, we've seen more ChatGPT companies than I have seen throughout the whole lifetime of our fund," said Jenny He, a general partner at Position Ventures, who founded the firm in 2021 with the support of Tiger Global and Bain Capital Ventures. From $100,000 to $250,000, she writes checks for early-stage companies.

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A pivotal time

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At the GenAI conference in San Francisco on Feb. 14, Bessemer Venture Partners' Sameer Dholakia told a crowd of roughly 1,000 developers that he believes we are living in a moment when technology is moving at such rapid speeds that we are seeing a breakthrough that is profound. He added, "It is going to change not only the way that the software industry works but, more importantly, it is going to affect the lives of billions of people on this planet and how they live their lives."

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When Thomas Laffont addressed the audience, he nearly began to cry as he addressed the crowd. “This is the first time that I have seen such a large gathering of people in person, and it is really amazing to me. San Francisco has been struggling to recover from the pandemic, with more than half of its workforce not returning to work. As well as pristine quiet streets, there are also opportunities that come with them. What an exciting time it is to be a founder and investor at this time," he exclaimed, as he cheered loudly.

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There were a number of hot startups on stage during the event, including:

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• OpenAI, one of the most innovative companies in Silicon Valley, makes generative AI tools, such as ChatGPT and DALL-E, which is a Y Combinator-incubated company backed by Microsoft and Khosla Ventures and co-founded by Elon Musk, Peter Thiel, and Reid Hoffman.

• Founded by Coatue and Lightspeed Venture Partners, Stability AI produces Stability Diffusion, a text-to-image model that forms the basis for Lensa, a portrait app.

• Jasper is a freelance enterprise artificial intelligence copywriter who works in a YC (W18) startup backed by Bessemer and Coatue and produces the GenAI conference.

• The Claude chatbot maker is backed by Google, Eric Schmidt, and embattled FTX founder Sam Bankman Fried.

• YC startup (W18) Replit, a platform for coding. Backed by Andreessen Horowitz, SV Angel, Coatue, and Bloomberg Beta.

• Co: here, Developer of natural language processing and large language models. YC (S20) startup backed by Tiger Global and AI icons Geoffrey Hinton and Fei-Fei Li.

• Artificial intelligence chipmaker Cerebras is backed by Benchmark, Sequoia, SV Angel, Coatue, and Abu Dhabi Growth Fund.

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Cerebras, Jasper, and Stability AI are all based in San Francisco. Cerebras is headquartered in Sunnyvale, while Jasper is based in Austin.

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As a result of Salesforce's former Chief Scientist Richard Socher's initiative to create a search engine with artificial intelligence chat, the Silicon Valley-based startup You.com was not on stage. The company was backed by Marc Benioff's Time Ventures, Ashton Kutcher's Sound Ventures, Norwest Venture Partners, Radical Ventures, Day One Ventures, and Breyer Capital.

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I asked Socher how big a leap generative AI represents on the artificial general intelligence roadmap, as well as whether there was a need to address the “Black Box Effect,” which is where artificial intelligence creates a model that creates a model that creates a model that humans are no longer able to control or understand. The Amazon software engineer Jesus Munoz asked at the conference, "After all, ChatGPT is so good at coding, why couldn't that happen?"

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"AI cannot write its own AI model yet," Socher said, and added, "It takes hundreds of highly skilled employees to develop these models. They don't just tell AI to do it for them."

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It's undeniable that we're on the path to artificial general intelligence, the era when machines can solve unfamiliar problems as intuitively as humans, but it's a windy road and it's unclear how far we've come. If you describe the progress in terms of AGI, it might sound kind of negative, despite being incredibly exciting and a huge step forward in general AI.

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The waitlist of more than one million people for Bing's chat search does not yet have access to ChatGPT, but anyone can chat now using You.com's search. There are currently millions of users, according to Socher. It found me an 8 pm table at Bix in San Francisco, an incredibly romantic supper club, during my call with him at 7 pm on Valentine's night, when most hot spots were full. The impression I got was great. Days earlier, it had taken me hours to find one.

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It just so happened that I was seated next to a former Salesforce colleague and Stanford students. San Francisco is still very much a tech town despite its renown.

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There have been non-stop panels and parties to promote networking across the city, similar to the crypto winter of 2018.

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As I was playing ping pong with a software developer the other day, he told me that that was happening right now. “Yes, there have been a whole bunch of AI hacker houses popping up in Hayes Valley in recent years,” he said.

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Founders and funders have tweeted about the region dubbed "Cerebral Valley" including Bloomberg Beta's Amber Yang, which the San Francisco Standard covered in January.

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At a party at the Modernist social club last weekend, I had the opportunity to show off some of my GenAI knowledge when I was asked by someone if anyone knew what ChatGPT was trained on. "Yes," I replied, and a crowd of tech founders leaned in to hear more of what I had to say. Among them is the Common Crawl, which crawls the entire web in one go. The second is a web text that is linked to a Reddit post. The third one is Wikipedia. In addition to these two data sets, the last two are some sort of scraping of books, called Books1 and Books2, according to a TikTok made by Nicholas Thompson of The Atlantic." Needless to say, I had a lot of success.

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People are becoming increasingly creative with the types of affairs they are hosting as a result of being such a popular topic. The Olympian comedian Elizabeth Swaney and her partners Peter Evans and Mehdi Arani have even organized a stand-up startup event on March 2 that will have a GenAI theme. The spike in activity in the sector is what inspired Swaney to mention the spike in interest in the sector when we played ping pong last week. During the Shark Tank-like event, four founders will be given five minutes to pitch their ideas to a panel of judges, including a mix of investors as well as stand-up comics who will ask due diligence questions while roasting the founders during the pitching process. The last show she attended was attended by 150 people, according to her.

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San Francisco's social life seems to be returning.

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