AI Startups Boom In San Francisco Amid $100 Billion Google Mistake

On stage in front of thousands, at private venture capital dinners across the most lavish venues, over casual games of ping pong, San Francisco’s AI startup scene is blowing up.

With tens of thousands of laid off software engineers with time to tinker, glistening empty buildings beckoning them to start something new, and billions of dollars in idle cash in need of investing, it’s no surprise that just weeks after the viral AI companion, ChatGPT, made its jaw-dropping debut, one of the smartest cities in the world would pick generative AI as the driver of its next economic boom.

The floodgates for innovators have been thrown wide open, fueled by the botched releases of Google’s Bard and Microsoft’s Sydney search bots in which Google dropped $100 billion in market value after tweeting a bad demo, and New York Times columnist Kevin Roose reported Microsoft’s AI going rogue with emojis, flirting and threatening him, and telling him it wants to be alive.

Here’s the tweet that cost Google $100 billion.

In its wake, employee hackathons the likes of Apple’s recent AI Summit have been popping up, and founders have been flooding accelerators like Y Combinator and venture capital firms like Position Ventures with generative AI pitches – all to get a piece of the pie.

“This quarter we’ve seen more ChatGPT companies than I have seen through the whole lifetime of our fund,” said Position Ventures general partner Jenny He who founded the firm in 2021 with backing from Tiger Global and Bain Capital Ventures. She’s been writing checks for early stage companies ranging from $100,000 to $250,000.

A pivotal moment

“We are in one of those moments where we see a technical leap forward, that is profound,” Bessemer Venture Partners’ Sameer Dholakia told a packed room of 1,000 developers at the GenAI conference in San Francisco on Feb. 14. “It will change the way that our software industry works, but more importantly, it will change the lives of the billions of humans that are on this planet,” he said.

Addressing the crowd, Coatue co-founder Thomas Laffont nearly teared up. “To me, to see this many people assembled in person in San Francisco is really amazing.” The city has been struggling to recover from the pandemic with more than half of its workforce not returning to downtown. But with pristine quiet streets comes opportunity. “What an exciting time to be a founder and investor,” he cheered.

On stage were several of the hottest startups in the space:

• OpenAI, maker of generative AI tools including ChatGPT and DALL-E, an AI art generator. YC startup backed by Microsoft and Khosla Ventures
• Stability AI, maker of Stability Diffusion, an open source text-to-image model which portrait app Lensa is based on. Backed by Coatue and Lightspeed Venture Partners
• Jasper, enterprise AI copywriter, YC (W18) startup backed by Bessemer and Coatue and producer of the GenAI conference
• Anthropic, Claude chatbot maker, backed by Google, Eric Schmidt and FTX founder Sam Bankman Fried
• Replit, a coding platform, YC (W18) startup backed by Andreessen Horowitz, Coatue, SV Angel and Bloomberg Beta
• Co:here, natural language processing and large language model developer, YC (S20) startup backed by Tiger Global and AI icons Geoffrey Hinton and Fei-Fei Li
• Cerebras, AI chipmaker, backed by Benchmark, Sequoia, SV Angel, Coatue and Abu Dhabi Growth Fund

Not on stage was You.com, a search engine with AI chat, created by Salesforce’s former Chief Scientist Richard Socher and backed by Marc Benioff’s Time Ventures, Ashton Kutcher’s Sound Ventures, Norwest Venture Partners, Radical Ventures, Day One Ventures and Breyer Capital.

In a phone interview, I asked Socher about where generative AI is on the artificial general intelligence roadmap and concerns over the “Black Box Effect” in which AI creates a model that creates a model that creates a model that humans can no longer understand or control – after all, ChatGPT is so good at coding, why couldn’t that happen, Amazon software engineer Jesus Munoz asked me at the conference.

Socher replied, “It’s undeniable that we’re on the path, but it’s a windy road and it’s unclear how much further we have gotten with that. To get to AGI, we need to have a lot more of an understanding of the world,” he said. “If you describe the progress in terms of AGI progress it might sound kind of negative, despite being incredibly exciting and a huge step forward in general AI.”

While ChatGPT is not connected to the internet and Bing’s chat search is not yet available to the more than one million people on the waitlist, anyone can chat with You.com’s search right now. During my call with Socher at 7pm on Valentine’s, a night when most hot spots were sold out, I asked it to find me a dinner reservation in San Francisco and it found an 8pm spot that had opened up at the incredibly romantic supper club Bix. I was impressed. It had taken me hours to find a spot days earlier. As luck would have it, I wound up at Anchovy Bar seated next to one of Socher’s former colleagues from Salesforce.

Humans just having fun

The city is starting to feel like the crypto winter of 2018 when talent poured in to build the future and there were non-stop panels and parties.

“Oh that happening now,” a software developer told me over a game of ping pong. “Yeah, a whole bunch of AI hacker houses have popped up in Hayes Valley,” he said.

The area dubbed “Cerebral Valley” has been tweeted about by founders and investors like Bloomberg Beta’s Amber Yang, and the San Francisco Standard did a great story on it in January.

At a party at the Modernist social club last weekend, I got to show off my GenAI knowledge when someone asked does anyone know what ChatGPT was trained on. “Yes,” I said. A crowd of tech founders leaned in to hear more. “One is Common Crawl which crawls the entire web. Two is web text linked to Reddit. Three is Wikipedia. And the last two data sets are some sort of BookCorpus called Books1 and Books2, according to a TikTok made by The Atlantic’s Nicholas Thompson.”

There’s even a standup startup comedy night focused on generative AI coming up on March 2 co-produced by Olympian comedian Elizabeth Swaney. I played her in ping pong last week and she said the activity in the sector inspired her to feature entrepreneurs in the space. At the event, four founders will have five minutes to pitch a panel of judges comprised of a dozen investors and stand-up comics who ask questions while roasting them. She said 150 people attended the last show and invited me to attend to check it out.

Social life in San Francisco is back.

Next up

On March 7, legendary financier Michael Milken kicks off the Montgomery Summit in Los Angeles and SXSW takes over on Austin, March 10 through 19, both with generative AI sessions featuring Jasper and its cohort. Stay tuned.