Oct 11, 2024 · 53m · sourcery
Alex Kolicich, 8VC | AI & Defense Tech Renaissance · Sourcery with Molly O'Shea
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gold bands on the timeline = statements, start to end. Hover to read, click to jump. CC turns on captions
In this episode of Sourcery, host Molly O'Shea interviews Alex Kolicich, Founding Partner at 8VC, to examine value capture across the AI stack, macroeconomic venture capital shifts, and the surge in defense technology investments.
How this conversation actually went
Every chapter scored 0–10 on four independent dynamics. Hover any point for the reasoning behind the score. Molly holds 13.3% of the talking time here. How this is scored →
Molly as informed peer 3.9 Guest teaching 5.6 Guest disagreement 1.1 Molly pushing back 1.6
speaking balance: gold is Molly, purple is the guest (3 minute bins)
Sharpest disagreement ▶ 16:14 Rejecting the thesis of venture capital return trends
Alex decisively rejects Molly's premise that CRV returning fund capital might signal a broader industry trend, asserting that fee-earning fund managers almost never willingly return capital.
Hardest push from Molly ▶ 15:53 Molly pushes on fund discipline and capital returnsMolly challenges Alex's upbeat assessment of growth funds by bringing up CRV's capital return announcement and asking whether growth stage VC options are structurally constrained.
Biggest teaching moment ▶ 41:45 Masterclass on defense procurement mechanics and OTAsAlex provides an in-depth breakdown of government procurement economics, contrasting how traditional cost-plus contracting creates perverse high-cost incentives versus modern fixed-price and OTA models.
Molly holds their own ▶ 27:17 Molly breaks down pseudo-acquisition dynamics and antitrust scrutinyMolly articulates an informed analysis of current AI exit dynamics, pinpointing how mega-rounds, licensing arrangements, and regulatory pressure from the FTC shape non-traditional acqui-hires.
the scores for every segment, with the reasoning behind each
| Chapter | Topic | Molly as informed peer | Guest teaching | Guest disagreement | Molly pushing back | Why |
|---|---|---|---|---|---|---|
| AI Market Expansion vs. Investor Uncertainty | 4 | 5 | 1 | 1 | Molly opens the interview by grounding the conversation in Alex's quarterly report, asking him to unpack the paradox of AI optimism against venture capital market uncertainty. Alex delivers an extensive breakdown of technological phase shifts, value capture layers, and hedge fund overfitting without disagreement. | |
| Public Software Multiples and AI Foundation Model Economics | 4 | 6 | 1 | 2 | Molly brings up public SaaS compression alongside massive private AI mega-rounds like OpenAI and xAI, questioning whether current early-stage multiples make sense. Alex provides a deep historical comparison between foundational model providers and commoditized memory manufacturers. | |
| Sponsor Segment: Archer Aviation Electric Air Taxis | 5 | 5 | 2 | 4 | Following the mid-roll ad read, Molly presses on liquidity issues and pushes Alex on whether CRV returning capital from its growth fund signals a broader venture trend. Alex flatly counters that fee-earning asset managers will never make returning capital a widespread practice. | |
| The AI Capabilities Gap and Man-Machine Symbiosis | 3 | 6 | 1 | 1 | Molly prompts Alex on his AI capabilities gap concept and where practical opportunities lie. Alex outlines production reliability challenges such as text-to-SQL failures and diminishing scaling returns, arguing for man-machine symbiosis rather than pure autonomous agents. | |
| Gartner Hype Cycle and the AI Trough of Disillusionment | 3 | 6 | 1 | 1 | Molly asks where the industry currently sits on the Gartner hype cycle regarding the trough of disillusionment. Alex explains the historical trajectory of inflated expectations from the dot-com era to modern capex versus revenue disparities. | |
| Tech Exit Dynamics: Acqui-hires, Regulatory Scrutiny, and Secondaries | 5 | 5 | 1 | 2 | Molly offers a sharp summary of exit dynamics, asking if recent mega acqui-hires are driven by build-versus-buy limitations or FTC regulatory avoidance under Lina Khan. Alex validates her regulatory framing while noting the strategic uncertainty slowing downstream SaaS acquisitions. | |
| The Defense Tech Renaissance and Procurement Reforms | 4 | 7 | 1 | 1 | Molly explores 8VC's early contrarian defense investments like Anduril and their internal incubation playbook. Alex delivers an extensive masterclass contrasting traditional cost-plus FAR defense contracting with modern Other Transaction Authority (OTA) and firm-fixed-price mechanisms. | |
| Playbook and Strategic Realities for Defense Tech Founders | 3 | 6 | 1 | 1 | Molly asks how aspiring defense tech founders should capitalize on procurement shifts. Alex lays out realistic strategic boundaries, warning that defense TAM is bounded and founders must prioritize specialized government relations and early non-revenue fundraising skills. | |
| H1 2024 Reflections: Application Layer Shifts & OpenAI Executive Departures | 4 | 4 | 1 | 1 | Molly closes by asking Alex what surprised him most in the first half of 2024. Alex reflects on Cognition's Devin changing his stance on new application layer workflows, as well as the unprecedented pre-IPO exodus of key leadership from OpenAI. |
Statements from this episode (28)
8VC is buying traditional services firms to automate them into software businesses
“We're very excited about AI enabled services. And so can you pair the traditional private equity rollup model with sort of a software development team? Buy traditional services businesses, use an engineering team to automate a lot of the work, and turn what us…”
AI startups with $5M revenue are raising at $700M valuations
“Now we're seeing companies, you know, five million revenue in AI revenue, and they're raising at five, six, seven hundred million valuation. That's price to perfection, right? We're talking about a hundred X multiple sometimes in these cases.”
Kolicich predicts wave of VC firings over failure to adapt to AI
“And so I think you'll see over the next 10 years, a lot of retirements, a lot of firings, perhaps because people won't make that transition,”
Public software multiples have normalized to roughly 6.5x forward revenue
“I publish our internal software benchmark and you see forward revenue on a software company six and a half times. That's about where it was for the last I don't know before five years ago, the last decade. So, you know, five years back, it's the 10 year averag…”
Competitors will catch up to OpenAI's o1 reasoning model within six months
“O1 just came out. We haven't fully benchmarked on our side yet. It's definitely an improvement. And so open AI is ahead of everybody else. It's an improvement in reasoning which is good. We can talk about that later on, but I expect people will catch up within…”
Incumbent software systems will capture AI value through existing data gravity
“So I think if that happens and that's what the world looks like, then a LLM looks kind of like a query processor in a database. You give it context, it does its work, you get the answer out. But the point of leverage is the place with, at which the context Liv…”
Nvidia is not trading at dot-com bubble valuations on an earnings basis
“There's a lot of AI hype, but if you look at companies like Nvidia, they're actually not that expensive on an earnings basis. Like it's not, we're not in bubble territory, you know, Cisco, 2000 timeframe.”
AI startups should aggressively raise capital every three to four months
“If you are in AI or AI adjacent, you should be raising every three to four months, in my opinion, and you should be doing it aggressively.”
Early-stage 100x AI multiples are unsustainable artifacts of mega-fund capital oversupply
“There are rounds happening that are 102 hundred X revenue in the early stage markets, and even there you have to assume, you know, you're gonna have 10 X Multiple compression in the later stage rounds. So I don't think those are sustainable for any period of t…”
Mega-check foundation model investors have largely avoided write-offs via returned capital
“If you're an AI investor doing very big checks and foundation model up, foundation model layer up, you haven't really had many write offs. You've in your losers, or I wouldn't say losers in the companies that haven't broken out, you've made your money back.”
Venture capitalists voluntarily returning fee-bearing capital will never become a trend
“Money managers returning fee-bearing assets will never be a trend, in my opinion.”
The volume of venture-scale startup opportunities has declined 60% since 2021
“My estimate was, I think the amount of venture scale opportunities has gone down 60, 70%.”
Fewer venture capital firms will raise opportunity or growth funds going forward
“I do think fewer people will raise opportunity funds or growth funds. I think that is likely.”
LLM scaling exhibits decreasing returns, requiring 10x compute for sublinear improvements
“If you look at it today, though, we are, the exponential in LLM performance is so far working against us that you need Order of magnitude increases in compute, 10 X increase in compute to have relatively sublinear increases in performance. So you're at decreas…”
The future of software is human-in-the-loop symbiosis, not fully autonomous AGI
“And so that would mean the future of software looks more like man-machine symbiosis. Then it does AGI, you know, the computer does everything for you.”
Genuine AGI safety concerns are 10 to 20 years away
“I think this is likely what we're doing with AI and AI safety and stuff like that, that we could foresee in 1020 years AGI, where there's actual safety issues, but we are so far from that today. That's, I think, actually getting close to the peak of inflated e…”
Aggregate AI hardware capex vastly exceeds actual AI deployment revenue
“Aggregate capex on AI hardware. It's like vastly out exceeding revenue generated by AI companies in the actual deployment of AI.”
AI will hit a trough of disillusionment as revenue lags infrastructure buildout
“And that kind of starts to tell you that we make it close to the trough of disillusionment at some point where all this, you know, the infrastructure that was built and the idea is build it and they will come. You know, the people actually don't come. The reve…”
AI acqui-hires are specifically designed to bypass Lina Khan's antitrust scrutiny
“On the M&A side, I do think it has a lot to do with regulation and Lena Kahn, you know, threatening to block most mergers and acquisitions, and that's why you see these acqui-hire inflection character AI adept type acquisitions where it seems like they're doin…”
Cloud giants must host foundation models even if they become low-margin commodities
“Microsoft doesn't care if the margins and foundation models are 80% or 30%. They can't lose that layer, right? Even if it's a commodity, it needs to be a commodity on Azure. Same thing with Amazon. Needs to be a commodity on AWS.”
Institutional buyers will emerge for $500M single-position venture fund secondaries
“I think there's a big opportunity for someone to come in and say, Hey, I'll take this position. I know it's good. I'll, you know, buy half a billion dollars worth of it at some slight discount. That's a gap that doesn't exist in the market today, but I think s…”
Traditional defense primes excel at explosives but fail at software and AI
“Defense primes are good at aeronautics. They're good at explosives. You know, I tend to, I always say, like, they're good at boom. Don't compete on boom. What they're bad at generally is software, is AI, is autonomy.”
8VC partners initially feared office protests and reputational ruin for funding Anduril
“We literally had conversations internal at AVC with our partners where we were worried about our offices getting protested. And we gave a like small chance that, you know, actually maybe our reputation is completely ruined because at that time, everyone was ag…”
Defense startups can secure up to $30M early prototyping contracts from DIU
“You can get 10, 20, thirty million dollar contracts from the DIU very early stages to create prototypes to compete for some program”
Successful defense tech startups are rarely founded by industry outsiders
“Most of these companies I mentioned that we invested in are started by people who were actually at one of these successful companies, Endural, Palantir, or SpaceX before, or who were in military service themselves, and they know sort of the landscape. It's ver…”
The capped defense budget will yield only tens of new primes
“I think we probably think it's a little overhyped in general, where we think it's real for sure, but it's not going to be an opportunity the size of software or AI or something like that. The defense budget is naturally limited as a percentage of the economy. …”
Software will shift from manual workflows to platforms supervising AI agents
“This sort of like supervisor worker type paradigm where it's not workflow software, it's supervisor software where you supervise the agents.”
The volume of pre-IPO leadership departures at OpenAI is historically unprecedented
“I don't think we've ever seen pre-IPO so many leaders leave the best, like, crown jewel company in Silicon Valley. It's common, like, you IPO, everyone gets rich and they leave. Okay, that's normal. But before IPO, right in its, like, heyday, you don't see the…”