After a tough slog through 2016, tech startups (at least the good ones) have reason to be optimistic about the year ahead, says Scott Kupor, managing partner of Andreessen Horowitz.
IPO activity has started to pick up and investors are writing checks again though theyre being pickier than in prior years, all of which points to a healthy, if prudent, 2017. Kupor should know hes been running powerhouse venture capital firm Andreessen Horowitz, based in the Silicon Valley city of Menlo Park, since its inception in 2009.
Kupor sat down with The Mercury News to discuss which investments hell jump on this year (artificial intelligence, all the way), which he might skip (on-demand delivery services) and what he would do if he werent a venture capitalist (sing country music in Nashville). The interview has been edited for length and clarity.
Q: Whats going to be the next hot thing in 2017?
A: Were spending a lot of time at the intersection of life sciences and computer science. The basic idea is how can you apply machine learning to biology to help improve the ways you diagnose cancer or the ways you figure out what are the right treatments for cancer?
Weve been spending a lot of time on a similar thing which is the intersection of computer science and financial services. And thats everything from lending platforms like lending club, but theres also lots of other things happening in interesting insurance companies, interesting payment platforms.
And the third area which is really an extension of those is the application of artificial intelligence and machine learning to lots of different verticals.
Q: What other areas could benefit from artificial intelligence and machine learning?
A: Self-driving cars is definitely one of them. So weve done a number of investments where again its kind of using machine learning to try to improve autonomy. Weve got this company Comma.ia thats doing that for cars. We have a company thats actually doing it for drones. Similar idea which is basically, how do you teach drones to be able to do autonomous flying?
Q: Is there an industry thats over-hyped right now or that youve seen too much of?
A: When you think about why technology companies are valuable over time, they tend to be valuable because either they have very high margins that scale so theyre just very profitable businesses, and/or they often have some kind of real deep intellectual property that gives them some serious long-term competitive advantage.
Some of the service category companies, for example in the food delivery space, they are constrained growth margin businesses because there is actually a significant cost of delivering the service. Theyre never going to be a 90 percent gross margin business like a software business. And so I think whats happened, and weve all done this in the industry, is weve tended to over-fund categories of those companies that kind of look like technology companies at core but when you think about the long-term margin structure and the long-term competitive structure they really dont have those kinds of characteristics that will allow them to be very, very high valued companies.
Q: How is the investment landscape in 2017 going to look compared to the past year?
A: Things came pretty much to a halt kind of at the end of 2015 and first half of 2016. It was a bad market for almost any company where there just werent a lot of deals getting done.
But starting in May and the second half of the year, its been what I would describe as a good market for good companies, meaning that deals were getting done. Theyre getting done at more rational prices, so on the whole prices are down from where they were in the peak of mid 2015. But its a market thats actually working and functioning as opposed the first half of the year which was kind of non-existent.
And so I think 2017 will look a lot like 16, which is good companies will get funded. People are back in the motion of doing deals, the IPO market is healthy.