Journeys, Lessons and Expectations from Three Global Powerhouse Investors

AI technology is transforming industries at an unprecedented pace, creating numerous success stories in both B2C and B2B sectors. This rapid evolution is also reshaping the landscape of startups and investment markets. This article highlights insights from leading Silicon Valley investors, focusing on emerging investment trends as well as the success stories, challenges, and future prospects of AI startups.

(This article is based on the panel discussion “Journeys, Lessons and Expectations from Three Global Powerhouse Investors,” held during the “Japan Summit 2024” in October 2024.)

【Panelist Profiles】

Connie Chan

Board Partner, Andreessen Horowitz

Connie Chan is a Board Partner at Andreessen Horowitz and is based in Silicon Valley. She previously worked at Andreessen Horowitz as a General Partner overseeing the consumer venture team. Chan was the first investment professional at Andreessen Horowitz to ever be promoted to General Partner, ending the firm’s long standing rule of 9 years to only hire general partners who had been hired as operators from the outside. Chan advises early stage startups such as Whatnot, Cider, and KoBold Metals. She leans on her learnings from Asian startups and global trends to guide her investment theses when making investments in the United States. Connie has also been quoted by Fortune, the Wall Street Journal, Forbes, Fast Company, The Washington Post, Inc, The Economist, Bloomberg, MIT Tech Review, Wired, CNN and the Financial Times. She received her B.A. in Economics and M.S. in Management Science and Engineering from Stanford University.

Matt Cheng

Founder & General Partner, Cherubic Ventures

Matt Cheng is the founder and General Partner at Cherubic Ventures, a pre-seed and seed stage fund that invests in pre-product market fit startups globally. Matt led Cherubic’s unicorn investments including Flexport, Hims, Calm, Paidy, 91APP, Bellabeat, Tezign and Astranis. Prior to Cherubic Ventures, Matt co-founded two unicorn IPOs in Hong Kong and Taiwan, as well as a $500M+ M&A in the U.S. Before launching his career in startups and venture investing, Matt was no.1 junior tennis player in both singles and doubles and was a member of Taiwan’s junior Davis Cup team.

Saeed Amidi

CEO, Plug and Play Tech Center

Saeed Amidi co-founded Amidzad in 2000, a seed and early-stage investment firm focused on investing in emerging growth companies on the West Coast. In 2006, Saeed founded Plug and Play, the ultimate innovation platform which is a VC and an accelerator. For more than 15 years, he invested with more than 2000 corporations from tech industries including PayPal and DropBox (31 unicorns within our portfolio companies (as of June 2023)). Currently with 50+ offices worldwide, he works with more than 500 corporations in Finance, Manufacturing, Retail, Healthcare, Hospitality and other various kinds of industries to accelerate innovation.

Moderator: Phillip Vincent

Managing Partner, Plug and Play APAC, CEO, Plug and Play Japan

Phillip is the Managing Partner, APAC | Japan, CEO, a subsidiary of Plug and Play Tech Center located in Silicon Valley. In 2014, he started working in the Silicon Valley headquarters and headed both the IoT and Mobility vertical division before moving to Tokyo to launch Plug and Play Japan in 2017.

(Order not specified; honorifics omitted in the text.)

The Power of Network Effects: Unlocking Growth and Investment Opportunities for Startups

Phillip:

AI is significantly impacting the consumer industry and driving structural changes across various sectors, influencing both startups and investors. What are your thoughts on AI’s impact on consumer businesses?

Saeed:

As Connie highlighted in her earlier presentation, the concept of “network effects,” where value increases as more people use a service, is critical. For example, Plug and Play invested $50,000 in Honey, a browser extension and online shopping tool that helps customers find deals and earn rewards. Honey’s business model led to explosive growth, culminating in its $4 billion acquisition by PayPal within five years.

Similarly, we invested $80,000 in Dropbox, generating a return of nearly 450 times our initial investment. Identifying investments that effectively leverage network effects can yield extraordinary results, but finding these “right” investments remains a significant challenge.

In contrast, B2B investments typically involve lower risks. For example, one of our portfolio companies developed an AI solution for banks and insurance firms, resulting in 50% of users transitioning to paid clients after completing a pilot program. Although business models can be easily replicated in Japan, the market remains highly promising for North American startups, as demonstrated by partnerships like SOMPO Holdings’ collaboration with Palantir. Additionally, a growing number of talented engineers in Japan are opting for entrepreneurship over traditional careers at large conglomerates, further accelerating the growth of the country’s startup ecosystem.

Evolving Investment Strategies: From Growth to Profitability

Phillip:

Let’s delve into recent trends in venture capital markets. The investment boom from 2020 to 2021 saw record-breaking fundraising, followed by a slowdown in activity and reduced funding levels. However, in the past two quarters, funding has begun to rebound, drawing renewed interest in the market.

Investor approaches have also shifted. Growth was once the top priority, but profitability and sustainable growth are now in focus, with business models and financial health undergoing stricter scrutiny. This reflects a recalibration of risk and return expectations across the market.

To meet these evolving investor expectations, startups must adjust their strategies to prioritize profitability and efficiency. For investors, it’s about navigating these changing dynamics and reassessing how to best support companies in a tighter economic environment.

In Japan, this trend is particularly relevant, as corporate venture capital (CVC) plays a significant role, requiring flexible strategies. Connie, what themes or trends have caught your attention in this context?

Connie:

Recent developments are indeed fascinating, particularly the growing prominence of AI.
During the early days of the cloud revolution, many large companies delayed adoption, believing they could manage with on-premise solutions.
With AI, the approach is entirely different.
Companies are now racing to adopt AI strategies under CEO leadership. Plug and Play plays a crucial role in this process, as many companies lack the internal resources to effectively evaluate and identify suitable startup collaborations. Reliable third parties with robust evaluation capabilities and extensive networks of startups are becoming increasingly indispensable.

This urgency has driven companies to engage with startups on PoC (Proof of Concept) projects at unprecedented speeds, fostering rapid innovation and growth.

(Picture: Andreessen Horowitz, Connie Chan)

Phillip:

The urgency to adopt AI is spreading not just in Japan but globally. Unlike previous technological advancements, AI innovation is accelerating as a solution to specific challenges across various industries, such as improving operational efficiency in the insurance sector and enhancing customer service in the travel industry.

That said, it’s often neither technically nor financially realistic for large corporations to fully develop AI solutions in-house. This is why open innovation through partnerships with startups is becoming increasingly important. Matt, what’s your take on this trend?

Matt:

I absolutely agree with everything that’s been discussed so far, but I’d like to add some insights based on my experience working with early-stage AI startups.

First, the speed at which AI startups launch is extraordinary—four to six times faster compared to other tech sectors. However, this rapid pace comes with intense competition and a high risk of failure. To succeed, startups need both sufficient funding and resilience.

For example, in Silicon Valley, the scale of initial funding rounds for AI startups is particularly striking. During the early cloud revolution, businesses could launch with minimal costs. In contrast, AI requires vast data processing and computational resources, making the upfront investment significantly higher. One startup, for instance, developed an AI solution to automate clinic billing and achieved $5 million in ARR (Annual Recurring Revenue) in just three days. However, scaling this growth required substantial funding to secure the necessary GPUs and other processing power.
Today, raising around $3 million in a seed round has become the norm for AI startups, underscoring the need for large-scale initial investments.

What’s particularly exciting is the rise of “Vertical AI,” which focuses on solving specific industry challenges with targeted applications. This approach has immense potential in Japan, where industries face uniquely complex challenges.
To better support startups tackling these issues, I relocated to Japan this August. It has been incredibly rewarding to work closely with these companies and witness their growth as they tackle industry-specific problems using AI.

Saeed:

Exactly, Matt. I completely agree. Let me share one compelling example: Groq, a company that has developed processor technology offering 10 times the performance of NVIDIA while consuming half the power. Groq has raised $640 million in funding, achieving a valuation of $2 billion. What makes their business model particularly innovative is that, instead of traditional hardware sales, they offer scalable, on-demand computational resources similar to the early days of AWS.

Recently, Groq signed a $2 billion deal with Aramco in Riyadh, reflecting the growing demand for efficient computational resources in AI and data-intensive applications.

Another standout example is Penguin AI, a startup founded by a former CIO of a major U.S. healthcare company. With a team of just 10 highly skilled individuals, they completed a project in six months that would normally take 500 people two years to finish. They are now providing AI solutions for insurers and policyholders and are progressing with pilot projects.

Penguin AI exemplifies the success of “Vertical AI,” focusing on specific industry challenges and combining deep industry knowledge with efficient team operations to deliver impressive results.

While the AI sector is growing rapidly, only a handful of companies will survive once the initial hype subsides. Successful AI startups will likely focus on solving niche industry challenges, operating at a scale of $2–3 billion rather than hundreds of billions. These targeted solutions are where long-term value lies.

(Picture: Cherubic Ventures, Matt Cheng)

Keys to Success for Japanese Startups Expanding Globally

Phillip:

Investors are increasingly providing more than just funding—offering computational resources, for example—which enables AI startups to scale more rapidly. From your perspective, what are the key factors for startups to succeed in global markets? What should they prioritize when entering foreign markets, and how can they address challenges to enhance their competitiveness?

Connie:

Global success hinges on several key factors: unique technology, exceptional execution, and products or services that offer universal value. Airbnb is a prime example, as it fulfills universal needs, creating a business model that delivers value in any country.

Understanding target markets on a deep level is equally essential. This involves visiting the markets, immersing yourself in local cultures, and engaging directly with users to truly understand their needs. Building connections with local venture capitalists, startups, and everyday citizens often provides invaluable insights. Personally, I always make an effort to connect not only with business professionals but also with local residents when I travel to new countries. This approach has been especially valuable for consumer-focused investments.

For B2B businesses, understanding local regulations and securing reliable partners are crucial. Building a strong foundation through hands-on experience in the market is indispensable.

Leveraging AI tools is also recommended for creating polished, professional-quality presentation materials and pitches. Tools like ChatGPT can assist in producing grammatically accurate documents and globally appealing designs, ensuring your materials reflect an international perspective. Combining YouTube tutorials with AI tools can further enhance the quality of your work, making it a strong starting point for achieving global success.

Matt:

In addition to conducting thorough market research, flexibility and persistence are crucial for achieving global expansion. Personally, it took me 16 years and three failed attempts before successfully co-founding Taiwan’s first unicorn company. Success finally came on the fourth attempt.

Identifying opportunities is just the beginning. Engaging directly with local investors, users, and partners is essential to gaining a clear understanding of market-specific challenges and opportunities, which allows for the creation of tailored solutions for each market.

Saeed:

I completely agree. For startups pursuing global expansion, the U.S., particularly Silicon Valley, serves as a vital hub. For example, Waze, an Israeli startup, maintained its base in Israel but established a small team in Silicon Valley to tap into trends and global networks. Securing funding in Silicon Valley is almost essential, and in some cases, flipping headquarters to Silicon Valley can be a strategic advantage.

While this might seem bold, it significantly boosts networks and credibility. Achieving success demands a combination of knowledge, technology, passion, and relentless determination.

Phillip:

Japanese entrepreneurs are widely recognized for their dedication and hard work—qualities that are fundamental to achieving global success. However, it is equally important to step out of one’s comfort zone and explore new markets and cultures. Visiting local markets, engaging with people, and gaining diverse perspectives are crucial steps in creating truly global businesses.

At Plug and Play, we are here to support entrepreneurs in taking on these challenges. Through our extensive global network, we help them seize new opportunities and navigate the path to international success. Please don’t hesitate to reach out to us.