Generative Now | AI Builders on Creating the Future

Episode: M.G. Siegler: VC’s Crisis, Defensible Startups, and Hack-quisitions
Release Date: November 27, 2024
Host: Michael Mignano, Lightspeed Venture Partners
Guest: M.G. Siegler, tech writer, investor, former VC at GV (Google Ventures)

Brief Overview

This episode features a deep-dive conversation between host Michael Mignano and M.G. Siegler, exploring the current state and future of venture capital (VC), the AI startup ecosystem—especially in London—and the shifting landscape of M&A (mergers and acquisitions). The two also discuss Apple’s approach to AI, startup defensibility, and the broader implications these trends have on founders, investors, and the tech industry at large.

Key Discussion Points & Insights

1. London’s Startup & AI Ecosystem (03:56 - 10:25)

• MG’s Move to London: After over a decade in San Francisco, M.G. Siegler and his family relocated to London, partially to gain a new perspective and escape the Bay Area “tech bubble.”
• London vs. Bay Area: London is positioned well in AI, with strong talent pipelines from local universities and anchor institutions like DeepMind (acquired by Google). The presence of massive finance and fintech sectors also boosts tech activity.
• Growth & Diversity: London’s tech energy is compared to early-stage New York—diverse, more balanced industries, bigger population, and less insular than SF.

“It’s nice to be outside that proverbial bubble and not have everything be tech all the time.”
— M.G. Siegler (06:08)

2. Reflections on Leaving Venture Capital (10:27 - 14:23)

• Full VC Cycle: Siegler reflects on 13 years in VC, leaving GV at an inflection point just before the current AI wave exploded, and seeing the end of the ZIRP (zero interest rate policy) era.

• Timing the Exit: He feels fortunate to have exited VC before being swept into another massive cycle:

  “If you stay even two years longer, it’d be very hard to leave, right? Because you’re in the middle of it and it’s almost like starting an entirely new cycle from scratch.” (11:53)

• Ongoing Board Roles & Advice: Siegler continues to offer guidance for companies like Stripe and Matter, focusing on fundraising and strategic advice—sometimes receiving more candid calls since he’s no longer “conflicted” as a formal board member.

3. The Crisis and Opportunity in Venture Capital (19:09 - 29:53)

• VC Fund Dynamics:
  • Some established funds (e.g., CRV) are returning capital to LPs, especially late-stage “opportunity” funds that can’t find good exits.
  • Discussion on why funds have become larger: it’s not only driven by management fees, but also by the need to keep up with repeated, larger company funding rounds and maintain ownership stakes.

“A lot of what felt like it was happening ... was just the opportunity of putting more money to work and these larger fundraise cycles. You also...have a fiduciary duty to keep that level of ownership intact.” (19:58)

• AI & Exits:
  While AI attracts record levels of capital (OpenAI’s $6B-plus round), most late-stage companies from the previous cycle are “stuck” with few IPO or M&A options.
• Crisis = Danger + Opportunity: Siegler references the (possibly apocryphal) Chinese character for “crisis,” representing both danger and opportunity, to describe today’s VC climate.

4. The Chilling M&A Environment & "Hack-quisitions" (30:29 - 35:07)

• Regulatory Freeze:
  — M&A is nearly frozen for large tech deals due to regulatory scrutiny in the US and EU, particularly for deals involving AI.
• Rise of “Acqui-hires/Hack-quisitions”:
  Traditional acquihires and strategic “hack-quisitions” are happening in lieu of proper exits, limiting liquidity, founder incentives, and downstream startup creation.
• Importance of Small Exits:
  Small to medium M&A deals lubricate the ecosystem, seeding new startups when talent founders cash out—this “diaspora” is stalled, which helps tech incumbents as talent is less likely to leave for startups.

“It’s a really, really bad situation right now ... it can feel really risky to start a company, right? Or to join a startup. IPO or bust, nothing in between.” — M.G. Siegler (34:19)

5. The Debate Over Fund Sizes & The Future of Startup Investing (27:57 - 43:12)

• Benefits of Smaller Funds:
  There’s a renewed push for smaller funds for easier returns and better alignment with LPs.
• Exit Question:
  The central question is whether enough liquidity will return (via IPOs or M&A) to justify the mega-funds raised.
• AI Scaling Laws & Investment Focus:
  If AI advances slow due to compute/data constraints, VC hype will cool; but if algorithmic breakthroughs or new data sources are found, funding will persist.

“If there are no exits and there’s no path to exits, what do you do?” — Michael Mignano (44:25)

6. Defensible Startups in 2024 (44:38 - 47:14)

• What Makes AI Startups Defensible:
  Siegler echoes the importance of classic moats: proprietary data, network effects, and sticky products—not just generic “AI.”
• New AI Business Models:
  New monetization opportunities are arising, including models for compensating publishers when AI agents access their content (reference to Tollbit investment).

7. AGI, LLMs & Hardware as AI Data Collection (47:14 - 53:31)

• AGI Skepticism and Data Plateaus:
  Both participants are uncertain about the AGI timeline. They foresee limits to scaling existing LLMs and expect real-world (physical) data and algorithmic innovations to be critical next steps.
• Role of Hardware & Devices:
  Existing devices (phones, wearables, car cameras, smart home tech) will likely yield more real-world data for AI. New form factors (e.g., AI pendants, glasses) may struggle unless they offer clear value.

“I’m not convinced that a new form factor emerges unless it’s so obvious and convenient …” — Michael Mignano (51:00)

8. The Case for Consumer Startups & the Future of Content (54:03 - 59:36)

• Consumer is Not Dead:
  Despite the meme that “consumer is dead,” both investors disagree—AI, by saving work time, could free up more time (and need) for entertainment, media, and other consumer experiences.
• Generative Content:
  As generative AI floods the market with content, original, high-quality human creativity could become increasingly scarce (and more valuable).

“It will also raise the value of human creation higher because it will be valued as a more bespoke experience.”
— M.G. Siegler (59:16)

9. Apple & Its Approach to AI (59:36 - 71:15)

• Is Apple Behind?
  Technically, Apple lags in AI, but their product strategy (focused, cautious integrations) isn’t fundamentally late for the mass market.

• AI Partnership with OpenAI:
  Apple’s addition of ChatGPT to iOS is seen as a way to “catch up” quickly—possibly more for Wall Street than users at this stage. Speculation abounds on how sustainable this partnership is, given server load concerns and the possibility of future rival LLM integrations (Gemini; Claude; Mistral).

  • Interesting point: In iOS 18.2 beta, Siri can hand off queries to ChatGPT if it doesn’t “understand,” directly exposing large user volumes to OpenAI’s infrastructure (64:43 – 69:40).

• Will Apple or Amazon Acquire AI Startups?
  Both hosts agree: regulatory constraints aside, Apple seems likely to acquire a significant AI player (if only they “can” under current rules); Amazon, closely allied with Anthropic, may move similarly.

Notable Quotes & Memorable Moments

• On Leaving Venture:
  “I feel like I went through a full cycle of VC … If I had stayed even two years longer, it would have been very hard to leave.”
  — M.G. Siegler (11:44)

• On Overfunding:
  “You needed to raise that capital to be able to keep up with your competitors ... the same thing is obviously now playing out in AI.”
  — M.G. Siegler (27:36)

• On the Regulatory Chill:
  “Any acquisition that’s in AI in particular, no matter the threshold, I think is going to get looked at. And that has caused a chilling effect on the entire industry.”
  — M.G. Siegler (31:33)

• On Defensible AI Startups:
  “It actually has to be more about the same things that always made startups defensible and have a moat…either a unique data advantage, or network effects, or a first mover advantage …”
  — Michael Mignano (46:04)

• On the Value of Human Creativity in an AI World:
  “It will end up being such a benefit to that entire industry. … It will also raise the value of human creation higher because it will be valued as a more bespoke experience.”
  — M.G. Siegler (59:16)

• On Apple’s AI Launch Timing:
  “They rolled this stuff out before they were ready. I think in a perfect world they probably would have waited another year. … They just look sort of silly by doing all this marketing for features that aren’t even out yet.”
  — M.G. Siegler (63:03)

Timestamps for Key Segments

• London Tech & Early AI Ecosystem: 03:56 – 10:25
• VC Full Cycle, Exiting GV: 10:27 – 14:23
• Defining the Venture Capital Crisis: 19:09 – 29:53
• Regulation, M&A and “Hack-quisitions”: 30:29 – 35:07
• Fund Size and Startup Exits: 27:57 – 43:12
• Defensible Startups in AI: 44:38 – 47:14
• LLMs, AGI & Physical World Data: 47:14 – 53:31
• Consumer AI, Content, and Media: 54:03 – 59:36
• Apple, OpenAI, and Future Acquisitions: 59:36 – 71:15

Conclusion & Takeaways

• AI funding remains hot, but structural challenges in exits (IPO/M&A) may force a reckoning in VC fund economics and size.
• Agility, focus on defensibility, and smart leverage of new business models will define which AI startups survive and thrive.
• Regulation is a double-edged sword: while M&A freeze helps incumbents, it may stifle innovation longer-term.
• Apple’s conservative approach may be wise in the near term, but the heat is on to deliver deeper, more native AI experiences.
• Despite volatility in tech categories, consumer innovation—especially powered by AI—remains a compelling bet.