20VC Why AI Is More Artificial Than Intelligent, Why Engineeringcentric Founders Are Able To Pivot Best & Why Startups Are Like Games with Alina Cohen, General Partner @ Initialized Capital

Summary Notes


In this episode of "20 Minutes VC," host Harry Stebbings interviews Alina Cohen, General Partner at Initialized Capital. Alina shares her journey from a passion for computer games to venture capital, drawing parallels between game development and startups in terms of goal-setting and user engagement. She discusses her early Facebook app successes, leveraging game mechanics for viral growth, and her strategic angel investments post-Facebook, which led to her partnership with Initialized Capital's founders, Alexis Ohanian and Gary Tan. Alina also touches on the challenges and opportunities in AI, emphasizing that current AI benefits data-rich incumbents over startups, and expresses cautious optimism about the potential of personal voice computing as a new consumer platform. The conversation also covers her advice for founders considering acquisitions and her investment in fly.io, a smart CDN with significant potential.

Summary Notes

Introduction to the Podcast and Alina Cohen

  • Harry Stebbings hosts the 20 minutes VC podcast, available on Snapchat for interaction.
  • Alina Cohen is introduced as a general partner at Initialized Capital.
  • Initialized Capital's portfolio includes companies like Coinbase, Flexport, and Opendoor.
  • Alina's background includes running tech investments for Tamarez Group and founding a startup acquired by Facebook.
  • The episode is made possible thanks to Gary Tan's introduction.

"I'm thrilled today to be joined by their partner, Alina Cohen. Alina is a general partner at Initialized, one of Silicon Valley's lead early stage seed funds."

This quote introduces Alina Cohen and emphasizes the significance of her role at Initialized Capital, setting the stage for the conversation about her career and insights into venture capital.

Alina Cohen's Career and Entry into VC

  • Alina's interest in computer games during middle school sparked her career.
  • She compares game development to startup creation.
  • Her first Facebook app utilized game mechanics like reciprocation to grow virally.
  • Alina created another app, Friend Facts, which leveraged people's interest in learning about themselves.
  • She discusses the secrecy of growth tactics and strategies within the industry.
  • Alina's path to VC included creating a company around automating front-end development, which was acquired by Facebook.

"Well, my career actually started from my love of computer games... And through that I actually realized that making games is so similar to making startups."

Alina explains how her passion for computer games and game development laid the foundation for her understanding of startups, highlighting the parallels between the two.

"And there's so many different secrets like this across different industries. How to grow users, how to do SEO, how to run a tight sales funnel."

This quote reveals Alina's insight into the various growth strategies and closely guarded secrets of successful startups and game developers, emphasizing the competitive nature of the industry.

The Nature of Industry Secrets and Startup Strategies

  • Alina discusses the guarded nature of growth secrets in the tech industry.
  • She used to create blacklists to protect her app's strategies from competitors.
  • Alina challenges the notion that there is one right way to do a startup, highlighting the diversity of successful approaches.
  • She points out that many valuable companies grow unnoticed by the press.

"And these secrets are so closely guarded that they're never shared with outsiders."

Alina emphasizes the competitive edge that comes with proprietary knowledge in the tech industry and how companies strive to protect their strategies.

"There's this whole world of incredibly valuable companies growing right under people's noses that you'll never read about in the press."

This quote underlines the idea that successful companies can grow in unconventional ways, often away from the public eye, challenging the mainstream narrative of startup success.

Alina's Company and Its Acquisition by Facebook

  • Alina's company focused on automating front-end development.
  • The software converted mockups into HTML and CSS, utilizing computer vision.
  • The challenge of achieving perfection in computer vision is acknowledged.

"Our software would take mock ups of websites... and then slice that image up and convert it into HTML and CSS."

Alina describes the innovative technology her company developed, which contributed to its acquisition by Facebook, showcasing her entrepreneurial success.

"It's easy to get 90% of the way there, but the last 10% is..."

This incomplete quote suggests the difficulty of perfecting technology, a common theme in the development of innovative solutions, and sets the stage for further discussion on the challenges faced by startups.## Alina Cohen's Career Path and Angel Investing

  • Alina Cohen discusses her transition from working at a tech company to angel investing.
  • She was introduced to Alex Karp, CEO of Palantir, who suggested she try angel investing.
  • Alina was introduced to a Finnish billionaire, Poyo Zabudoic, who had been the first investor in Palantir.
  • She set up Zabudoic's Silicon Valley office and invested in seed companies, some of which were part of Gary's portfolio.
  • Alina and Gary had much in common, including backgrounds in computer science, founding companies, and working closely with founders.
  • Gary was stepping away from Y Combinator and wanted to turn Initialize, a part-time fund, into a full-time industrial fund.
  • Alina joined Gary in developing Initialize, fundraising, and building relationships with LPs.

"And so I started up his Silicon Valley office, and we invested in a number of great seed companies together."

This quote highlights Alina's role in establishing a Silicon Valley presence for Poyo Zabudoic's investments and her active participation in the early-stage investment process.

"And after working together on a few companies over a couple of years, he told me he was stepping away from Y combinator and he was ready to take this, initialize this part-time fund that he and Alexis had been running while they were full time at YC and make it into a real industrial fund, and could I help him get it off the ground?"

The quote explains how Alina's collaboration with Gary on various companies led to her involvement in transitioning Initialize from a part-time to a full-time venture fund.

Log DNA's Pivot and Growth

  • Alina values engineering-centric founders with deep knowledge and expertise.
  • She enjoys helping founders realize the potential of their products and focus on their strengths.
  • Alina worked with Log DNA founders, who were brilliant engineers but lacked consumer application expertise.
  • The Log DNA founders were considering an acquisition due to challenges in product launch.
  • Alina advised them to focus on their unique logging solution, which led to significant customer sign-ups on the first day.
  • Log DNA became a successful product used by companies like OpenAI.

"And these guys, they were brilliant. They were building some difficult, very technically challenging software, but they were making it a consumer application."

This quote emphasizes the technical brilliance of Log DNA's founders and the initial mismatch between their skills and the market focus on consumer applications.

"And they took this advice, they took the shot and they pivoted the focus to what was their secret, building out this great scalable infrastructure."

The quote illustrates the pivotal moment when Log DNA's founders decided to follow Alina's advice, resulting in the successful pivot and growth of their company.

Advice on Contemplating Acquisitions

  • Alina believes deciding to take an acquisition is a personal decision for founders.
  • Founders must consider the transition from leading their own company to becoming part of a larger organization.
  • Acquisitions can sometimes lead to more efficiency, but founders should be aware of potential changes to their product vision.
  • Alina's experience with acquisitions, such as her own with Facebook and advising Log DNA, informs her perspective.

"Are you ready to be making this transition from being your own game master to being a player in somebody else's game?"

This quote captures the fundamental question founders should ask themselves when considering an acquisition, highlighting the shift in autonomy and control.

"In the case of log DNA, they were going to gut a lot of the product and make it into something that was not what the founders wanted it to be and things like that."

The quote provides insight into the potential consequences of an acquisition, such as significant alterations to the original product, which may not align with the founders' vision.## Founder Flexibility in Pivoting

  • Engineer-centric founders are more likely to successfully pivot.
  • Founders who can build and do the heavy lifting themselves exhibit greater flexibility.
  • The ability to go into "cockroach mode" is crucial for restructuring a company.

"Well, as I mentioned, I'm really drawn to engineer eccentric founders. I think that when you're able to build the product yourself, when you're able to do the heavy lifting, I think you're also more flexible."

This quote emphasizes the value of founders who have the technical skills to build their product and the flexibility that comes with that ability, which is beneficial in the context of pivoting a company.

Recognizing Potential in Startups

  • The capability of founders and the quality of infrastructure they build is critical in recognizing a startup's potential.
  • Skepticism about a consumer app's market perception can be contrasted with the founders' technical achievements.

"I think for me it was the difference between what I saw the founders capable of and what the market was saying about this consumer app."

Alina Cohen reflects on her realization that the potential of LogDNA was greater than the market's perception of their consumer app, highlighting the importance of founder capabilities and infrastructure in evaluating a startup's future.

Artificial Intelligence: More Artificial Than Intelligent

  • Current AI relies heavily on large data sets for learning.
  • AI's narrow focus on trained data does not equate to true intelligence.
  • Neural nets and feedback loops are useful for companies with access to large, quality data sets.
  • Machine learning benefits large companies disproportionately.

"And that's the current state of the art in AI. It's done a lot better because of the amount of data available, but nothing changes the fact that it's just relying on a really large amount of data to get anything usable out of it."

Alina Cohen critiques the current state of AI, pointing out that it requires vast amounts of data to function and lacks the capabilities we associate with true intelligence, such as reasoning and creativity.

The Role of Data in AI Effectiveness

  • More high-quality data improves AI systems.
  • There is a point of diminishing returns with data accumulation.
  • Startups face challenges in creating a competitive moat with limited data.
  • Complex AI models and micro-segmentation are akin to traditional software development.

"But if you're doing an apples to Apples comparison, having more of the top quality data is always better."

Alina Cohen agrees that while quality is important, more high-quality data will always enhance AI systems, reinforcing the advantage of incumbents with access to vast data sets.

AI and Market Dynamics

  • AI is a disruptive technology that tends to benefit larger companies.
  • The feedback loop of data acquisition and product improvement favors incumbents.
  • Acquisitions of AI startups by big tech companies are a continuing trend.
  • AI adds value in increments of billions, not millions, challenging startups.

"Most disruptive technologies, they help startups disrupt incumbents, but with AI, it's a disruptive technology that helps big companies get bigger."

Alina Cohen discusses the unique nature of AI as a technology that strengthens incumbents rather than enabling startups to disrupt the market, due to the importance of data in AI development.

Personal Voice Computing as the Next Consumer Platform

  • Personal voice computing is compared to the early days of Facebook.
  • Alina Cohen is bullish on personal voice computing due to its potential.
  • The development of a tea robot introduced Alina to the Lexa platform.

"Well, I've been building this tea robot. I'm kind of embarrassed to even be talking about it, but it's how I got introduced to the Lexa platform."

Alina Cohen shares her personal project of building a tea robot, which led to her interest in personal voice computing, indicating her belief in its potential as a consumer platform similar to the early impact of Facebook.## Voice as a New Platform

  • The ease of development on the Alexa platform impressed the speaker.
  • Voice interfaces allow users to multitask without interruption.
  • The speaker compares the potential of voice platforms to the early days of the Facebook platform.
  • There is a significant "greenfield opportunity" for growth and innovation in voice applications.

"And it got me thinking about voice as a platform, as an interface, and it's sort of a special thing." "There's so much opportunity to leverage the growth of Alexa, to grow your own app."

The quotes highlight the speaker's realization of voice as a unique and promising platform for development and the potential for developers to capitalize on its growth.

Consumer Adoption of Voice Technology

  • Voice technology is not yet mass market and is looking for broader use cases.
  • The speaker encourages building applications to drive mass market adoption.
  • There's a belief in the creativity of developers to create compelling use cases for voice technology.

"It's currently still a tech looking for embodiment." "You build cool applications for it."

These quotes emphasize that voice technology needs to find practical applications to become widely adopted and that the development of these applications could lead to mass market adoption.

Quick Fire Round: Favorite Book

  • "The Three-Body Problem" is recommended for its uniqueness and the potential of a market for Chinese Sci-Fi books translated into English.

"A three body problem. It's this great chinese Sci-Fi book translated into English."

The quote shares a book recommendation, highlighting the speaker's interest in the genre and the potential trend in the market.

Engineering Culture in Companies

  • Engineering-centric founders are crucial for a good engineering culture.
  • Focus should be on building what people want, rather than solely on technical challenges.

"I think having engineering centric founders who know their strengths and focus on building what people want over just solving technical challenges."

This quote indicates that the right leadership and focus are key components of a strong engineering culture within a company.

Facebook Acquisition Lessons

  • Early exits from startups may not always be the best decision.
  • The speaker hints at more to say on the topic but reserves it for another time.

"Early exits aren't always the right move."

The quote suggests that there are complexities and considerations around the timing of startup exits, which may not always favor early acquisition.

Chatbots: Fad or Paradigm Shift

  • The speaker is skeptical about chatbots, indicating that NLP technology may not be advanced enough yet.

"I'd have to say fad. I don't think that natural language processing NLP is there yet."

The quote expresses the speaker's opinion that chatbots, as they stand, are a temporary trend rather than a lasting change in conversational interfaces.

Investment in Fly.io

  • Fly.io is a smart CDN and load balancer that impressed the speaker.
  • The platform's potential for growth and innovation was a key factor in the investment decision.

"They've built out the hardest part already and now it's just a platform for themselves and their partners to build out cool features."

The quote explains the rationale behind investing in Fly.io, focusing on its foundational work and future potential for development.

Pendo and Treehouse Advertisements

  • Pendo offers a platform for understanding product usage and improving user experience.
  • Treehouse provides online coding education with a structured learning path.

"With Pendo, you can understand product usage and rapidly make data-driven decisions." "Learn on your own schedule and go from beginner to pro."

These quotes are promotional statements for Pendo and Treehouse, emphasizing their value propositions for product managers and learners, respectively.

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