Jeremy Au examined the key advantages for venture capital judgment, with a focus on local market expertise in Southeast Asia. VCs must confront the limits of their knowledge and not be overconfident, especially in frontier markets. Global funds have been burned by high-profile and hidden cases of unchecked fraud (e.g., Theranos, FTX, and Zilingo), illustrating how localized due-diligence analysts. He discusses how VCs are evaluating and investing in “lonelytech” AI companionship, exemplified by companies like friend.com, which offers on-demand AI friends for those seeking constant companionship. Reflecting on his experience with Professor Howard Gardner’s work on multiple intelligences and the "Good Citizen Project," Jeremy underscored the societal shift from traditional support systems to commodified relationships, now facilitated by technology. He highlighted the VC’s responsibility in distinguishing sustainable value from fleeting trends while navigating the ethical terrain between investment potential and societal impact.
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(01:04) Jeremy Au:
There's a good question, which is how do VCs have the expertise to judge?
There's a certain amount of information that you know, and you've got to be self-aware of what's the information that you don't know, and then your job is to find out what it is. You have to acknowledge that you don't know what you don't know, but the key thing is: you need to calculate your risk.
I do believe that I'm a better judge of Singaporean founders than an American. If you're based in Silicon Valley, even if you're Singaporean based in Silicon Valley, I don't think you can judge Singaporean startups, on average, as well as I am because I'm here, I'm meeting them for coffee, I'm going for walks. I've seen them grow up over the past five years, ten years. I know their history. I remember I did a reference call on the founder, and then this person was like, "Yeah, this person's good, but in secondary school, this person dumped his girlfriend really bad." And I was like okay, totally irrelevant from a due diligence perspective but that's the kind of information I have. Now I'm meeting the founder. I'm like, "Oh man, you dumped your girlfriend real bad at secondary school," but that's the kind of due diligence you have to do, right?
I don't have an edge in understanding whether this works for the Philippines' market. Now, I might have an edge compared to an American VC, but I don't have an edge compared to a Filipino VC, whether this works for the Philippines' consumer market.
(02:05) Jeremy Au:
For example, in Southeast Asia, in South Asia, the converse version of that, as we see a lot of fraud that's happening. A lot of American and international VCs perform badly because they were not able to catch that fraud because they're not aware of the market practice. So what they have done is they started hiring specialists. For example, Vertex Ventures was hiring a fraud specialist. So basically they're saying, your job, we want you to review our portfolio and every other company out there that comes in deal-wise, and we want you to check for fraud. We don't have enough expertise to detect fraud unless we have a full time person looking for it. The other side could be, we don't understand healthcare, so we're going to look for a healthcare expert or PhD to give me a point of view.
There's fraud, there's country risk, there's industry risk, there's founder risk. There's all kinds of risks and so, you will normally bring in people to come in, but I can tell you that the reason why somebody was asking about whether this is a sucker's game, there's a small blind, big blind, do people just earn management money for free? But the thing is, if you have an edge over other people in the private markets, you are not obliged to share that information with the world. If the guy is conducting fraud, he's not going to tell the whole world about it. So if you are able to walk away from the deal when everybody else wants to do the deal, then you save yourself a lot of money, and you save a lot of embarrassment, and you save your money for firepower for a company that does deserve it. One thing we have to remember that when it comes to fraud, is that by virtue of the power law, which is people are selected for the best companies, and by virtue that fraud increases performance. By definition, the best companies in the world at a start-up level that are private assets that are not properly vetted, there's an over representation of fraud than the general population because it's hard to vet, until they go public. So we saw that for Theranos. We saw that for FTX. We saw that for Zilingo.
There are other companies that are currently struggling right now. For example, you see OpenSC, which is the NFT marketplace, which used to be a billion-dollar company. Now, they have a giant haircut on the valuation. Three years ago, NFTs was the hype. Then, can you Imagine you have a call, an expert, and you're like, "Hey, are you an expert at NFTs?" And everyone's like, "No, NFTs only emerged one year ago". Nobody was an expert at NFTs.
Experts is one side of it, but a lot of people have to do first principles thinking like, "Can I see past the hype?" And it's very, very hard to do when everybody's jumping on. We all remember when crypto was like a no brainer. And then now everybody's like "Oh, I was never a fan of crypto." But even so, people still have made money in crypto today. If you put your money in the right projects and right things from a values investor perspective, you made money.
I remember this guy, he was like, "Yeah, I make money on the suckers." He's a trader. He went in and he went out. So he was trading on the waves.
VCs will bring in specialists or they have to do first principles thinking, and they have to do a lot of work because they're at the frontier of invention. There are some specialists, but the specialist can only bring you so far. Because you're at the frontier of knowledge.
(04:31) Jeremy Au:
The startups are crazy today. There's a startup that's basically saying: AI women are women. They believe that in the future, all men will primarily date AI women instead of real women. It's kind of depressing when you think about it, but people are like, "Yeah, but have you met a teenager?" Friend.com is a crazy idea. They're basically saying, "Hey, nobody wants to be lonely. We're going to make AI your best friend. So we're disrupting friends." The guy walks around with a necklace, and then he talks to his best friend. His perspective is that people don't want to be lonely but there are VCs that have invested in this startup, betting that this company can create an AI companion and that in the future, a hundred million people will wear an AI necklace around their neck and that'll be their best friend.
"Well, hello, are you going to continue using BlackBerry?"
"Boo! Are you going to use BBM for your free BlackBerry text messages? Have you heard of WhatsApp? Stop hanging out with loser people who are slow and don't turn up on time," and when you ask them and complain about problems, they're like, "Oh, let me talk about my problems instead. Boo, I want somebody who's totally supportive for me."
"Why is my spouse angry at me?"
You can complain about it to your AI friend, and your AI friend will be 100% supportive of you all the time. Friend.com
His belief is that everyone's going to wear a necklace with an AI companion. Maybe it's true because my two-year-old is already saying, "Hey, Google, play Wheels on a Bus." Maybe they'll be normal for Generation Alpha. Maybe it's too early for his time. Maybe this will happen in 20 years or 30 years. So he may be wrong, but generally he is right. So there's a bunch of risks. Is he too early? Is this ever going to happen? That's the first risk. Technology risk.
(05:57) Jeremy Au:
Then two is the form factor, a necklace, that is going to happen? We don't know. That's what he believes.
And then thirdly, is he the right founder to do it? We don't know, but he's trying his best. He's on the New York Times and other articles. He's out promoting his thing. It sounds really sad and I'm pretty sure everybody called them losers for a while. if I walk in with an AI necklace, I'm sure everyone's going to be like, "Loser!" And then my AI necklace will be like,
"Oh Jeremy, you're a winner for having me." "Thank you for keeping me alive."
"Fuck these guys, they don't understand."
"They're old, elderly, geriatric. They're using Nokia phones. But you have me, friend.com."
It could happen. Think about Star Wars. R2-D2, C-3PO, great, right? BB-8, the new, cute version. In every movie that we watch, the robot is a nice companion. If they're not murdering you, or sometimes they're your friend and they're trying to murder you, or they murder you and then actually they're kind of friendly. There's some different versions, but actually, culturally, we're quite ready for the concept of AI robotic companions.
Yes, people are sad and lonely. It's not going to be a massive revelation. If you feel hungry at 1am, and you're like, "you know what, fuck it, I want McDonald's." I hit a button, and McDonald's turns up in 30 minutes! Then, instead of me going to sleep like a normal person and not eating 500 calories, now I can get a double McSpicy. The guy comes out, "Here's your double McSpicy and your french fries," and then I get it. I eat it. I'm gratified. So now if I'm lonely at 1am, my wife is asleep, on demand companionship, on demand socialization.
(07:19) Jeremy Au:
That's why you have an escort industry that's out there. There's a companionship industry that's out there. There's a therapist, an executive coach industry out there, but all of this is a monetization and professionalization of a relationship. You don't have an uncle to give you good advice, so you get an executive coach. You call it structural or transaction or commoditization, depending on how you look at it, but you see that happening for relationships.
You see that for childcare, for example. Historically childcare was done by parents, by your siblings, in a large group, in your kampung or whatever it is. And now that relationship is commercial. You pay for nanny or for childcare worker. So those relationships have become transactions in that sense. Now they're good and so forth but you understand it's not the same. So what's to say that you being lonely, your best friend or whatever it is, why is it to say that it could not also become more professionalized as a result.
And so, the Japanese have really created this. They're like the early adopters. In Japan, they have a big culture of these parasocial personalities. Your live streamers, your mukbangs, eating a lot of food and live streams, your Twitch streamers, these are also not real relationships. They are not your real friends! They are on Twitch. You're on your phone. You're eating, and you're watching somebody on YouTube explain their fantastic eating recipe, and you're like, "Wow, this guy is so great and amazing!"
But this person has no relationship with you! This person does not know who you are. So it's a parasocial relationship. You have a social relationship with a representation of a person. I feel like I know my favorite history blogger, or my Twitch streamer, but he doesn't know me! So it's not a real social relationship.
So, AI is a more ethical version of it. You're talking to AI, but at least you're not believing that this human person believes in you. So I think that's an interesting piece where technologies that we think are ridiculous today, I suspect personally, I think that AI companions will become very, very common in the future. I think for our generation, we are organic. We like organic, natural, sugar-free, wild-reared humans to have that conversation with.
We're not going to go into the whole thing about the biological, social implications of depression and its role in a society that has its institutions being deteriorated into a capitalist morass. All the facts are coming out in here.
I had a wonderful experience as an intern for Professor Howard Gardner. He created a concept of multiple intelligences. So he said there's not just IQ, there's EQ, there's spatial intelligence, there's verbal intelligence. Great guy. And then he created something, a project called the "Good Citizen Project", about his perspective, which is that he felt that society is becoming more nuclear. There's less extended family. So you don't have uncles, you don't have cousins. You tend to be in schools where you are with people who are of the same age. And then your relationships are either flat or vertical with your teacher. You don't have a lot of diagonals. If you have a retreat of spiritual organizations, from his perspective, whether it's a temple or mosque or church, there's a retreat of all these figures, extended family, and so so forth.
His conversation was, how should the state step up to provide civic education that was historically provided by parents and extended family. So the crux of what I'm trying to say here is that, technology both solves a need but also creates that need.
If you ask me, in my head, I'm just like, you look at Star Wars, there are robots everywhere. Some are friendly. Some are enemies, or whatever it is, but they're all over the place.
In fact, I think what's most unrealistic is that, humans are doing most of the decision making in Star Wars because C-3PO is like this supercomputer, and C-3PO is like, "Wow, I'm so nice to you." Why? We just have to be aware that things that are crazy can become the norm very, very quickly.
(10:37) Jeremy Au:
Someone was asking me recently about whether it's competition. So normally VCs, if you look at this curve, basically, this is a time graph, and it shows as the startup grows from left to right, and then on the y-axis is the amount of revenue that you're making. So this is not the amount of the net burn, but it's the amount of revenue you're making. And generally, it's understood that at the start of this process, you're not making any money. You figure out the idea, you have to pay yourself, or to get the technology up, making negative money. And after that, as you kind of like get there, you start making more and more money, right? So the company I saw today was making about $1.5 million off capital, but they were not near break even. So it's still in the valley of death in a sense. But as you see as you get larger and larger, you see ChatGPT, OpenAI, now is making a billion dollars of revenue. But they're not yet an IPO public company. They're still a late stage company. And they are trying to get strategic alliances. They've got a strategic alliance with Microsoft, with Azure, because Azure was basically saying, "No way in hell I want you to use AWS, Amazon server credits."
I want to dot pine you to Microsoft system. I'm going to give you money in the form of Azure credits Microsoft Cloud credits. But also eventually they use that to embed into PCs, right? So, Microsoft embedded ChatGPT into all the PCs, in the Cortana. And then now Apple has a new strategic alliance with ChatGPT, and now they're currently evaluating.
The rumor mill is that Apple is thinking about making another billion-dollar investment into OpenAI. So this is the late stage. You see here there's the valley of death, there's seed capital, angels, friends, FFF is friends, family, fools, because you have to be very loving of this person to invest at this very risky stage, or seed capital will be a professionalized version. Then you have early stage capital, you then you have VCs, your late stage VCs, and so forth. The first rounds, maybe like pre-seed, seed, series A, series B, series C, growth stage, so so forth. So for example when Ant Financial, which was founded by Jack Ma, was trying to be a new bank competing with the Chinese banking system, before the IPO, Jack Ma shared some feedback for the Chinese banking system. And as we know, what happened after that was that the IPO was pulled due to new important Chinese banking laws.
And at that point, our Singapore sovereign wealth funds had invested in this company at this stage as well, because we all thought IPO was going to happen. And then now they're finally years after regulatory restructuring and just relearning a lot of stuff, they have now been able to IPO Ant Financial, but at a much lower price because the regulators decided that they should be in split out or there's certain regulations on different business units.
VCs will tend to collaborate across stages. So, for example, if you are an early investor in a company, there's a company called Rippling, but it's a HR software. You did an early stage investment. So Rippling is a company. His first company was called Zenefits, which you may have heard is a benefits platform, Zenefits.
The guy left. You can say it was legal, there's a PR, there's a dispute, so forth, but all that went public recently. But I remember that when I was in Silicon Valley at the time, he was under a lot of fire from the media, so he had to resign from his first company, Zenefits. And then I remember I heard that Y Combinator had funded his second company, and he was working at Y Combinator, but there was no media. Everyone was told, "do not tell the media that he's being funded a second time by Y Combinator." And now Zenefits is gone, is dead effectively, but Rippling, which is the second, the better v2 revenge version, I guess, of his company, is competing in a billion dollar company, not get an IPO.
So YC is this early stage, but these late stage capital guys are happy to come in that capital. So they normally collaborate across stages, and so they can say that every unicorn maybe might be about three to five different VCs may get a lot of returns in general, I would say. And then obviously within the rounds, there's some collaboration.
There are like syndicates or coalitions that will form that are friendlier with each other. But in general, VCs will compete very fiercely within this stage because there's only one funding round at this point of time. So, when the times are good, when interest rates are very low, everybody who was doing these late stage funds thought that a lot of private equity funds, public equity funds felt like they could do this, this stage. A lot of companies doing this stage were trying to get into this stage. A lot of companies in this VCs in this stage were trying to do this stage.
And so everybody was fighting in each other's lane because interest rates were very low. So everybody looked like a genius at that point of time. But now that interest rates are high, everybody's scared, everybody's becoming more specialized. People are saying, actually, as an American, I don't understand Southeast Asia. So, as somebody who's based in New York, it's easier for me to analyze this company when this company is a Series C company that has audited financials, a good board of directors, there's no more fraud left because everything's been due diligence by everything, and they are now expanding across multiple countries. I'm more comfortable investing in a Series C company from New York, for example. I'm happy to let the seed deals that those VCs have to, who have to catch the fraud. I'm happy to let the Southeast Asians do that deal because they are more in touch with that type of company.
So, that's how we're ending things about competition.
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