Mar 3, 2024 · 48m · sourcery
Alex Kolicich, 8VC: Exodus of Venture Capital, AI Predictions · Sourcery with Molly O'Shea
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In this episode of Sourcery, host Molly O'Shea speaks with Alex Kolicich, Founding Partner at 8VC, about venture capital market contractions, 8VC's investment thesis, and the real-world trajectory of artificial intelligence. Alex provides sharp analysis on AI enterprise adoption barriers, software creation economics, open-source models, and advice for founders navigating the current macro environment.
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 18.8% of the talking time here. How this is scored →
Molly as informed peer 3.6 Guest teaching 4.1 Guest disagreement 0.8 Molly pushing back 0.3
speaking balance: gold is Molly, purple is the guest (3 minute bins)
Sharpest disagreement ▶ 27:46 Rebuttal of zero-cost software thesis
Alex directly rejects the prevailing industry premise cited by Molly that software pricing will collapse to zero, explaining the real economics of vertical SaaS.
Hardest push from Molly ▶ 13:20 Directly calling out Tiger GlobalWhen Alex hesitates to place full blame on crossover growth funds, Molly firmly pushes back: 'Tiger, if you don't want to blame them, I will.'
Biggest teaching moment ▶ 27:46 Deconstruction of vertical SaaS unit economicsAlex educates on how enterprise software ACVs and specification costs make LLM-generated custom software impractical compared to incumbents.
Molly holds their own ▶ 36:23 Synthesizing external industry perspectivesMolly showcases deep industry tracking by referencing Matt Turck's interview with the Poolside CTO regarding the strategic identity crisis startups face against OpenAI.
the scores for every segment, with the reasoning behind each
| Chapter | Topic | Molly as informed peer | Guest teaching | Guest disagreement | Molly pushing back | Why |
|---|---|---|---|---|---|---|
| The Origins, Palantir Lineage, and Strategy of 8VC | 2 | 3 | 0 | 0 | Molly opens with standard background questions about 8VC's history and stage focus. Alex provides a comprehensive overview of the firm's lineage from Formation 8 and Palantir's data philosophy without any disagreement. | |
| VC Market Dynamics, Capital Oversupply, and Manager Exodus | 4 | 4 | 1 | 2 | Alex explains how crossover funds leveraged cap tables and distorted venture incentives, leading to manager exodus. Molly actively builds on the analysis, explicitly pointing blame at Tiger Global when Alex hesitates to do so directly. | |
| AI Hype Cycle and the Enterprise 90/10 Problem | 3 | 5 | 1 | 0 | Molly quotes Alex's quarterly letter on the '90/10 problem'. Alex walks through the distinction between consumer error tolerance and enterprise liability using Shopify and historical dark fiber analogies. | |
| Big Tech Earnings Insights and Real-World AI Utility | 4 | 4 | 1 | 0 | Molly references recent Big Tech earnings to probe underlying market narratives. Alex provides nuanced color on how Big Tech is commoditizing developer tooling and subsidizing open-source models. | |
| Lowering Software Development Costs and Autonomous Coding | 5 | 6 | 2 | 1 | Molly cites another venture capitalist's thesis that software development costs will drop to zero across non-tech verticals. Alex reframes this misconception by detailing ACV economics and system definition overhead in vertical SaaS. | |
| 8VC Portfolio AI Implementations and Open-Source Opportunities | 3 | 4 | 0 | 0 | Molly invites portfolio examples, leading Alex to detail vertical implementations like Blend and Qualia alongside infrastructure bets like Ollama. The exchange is purely informative and collaborative. | |
| Establishing AI Moats, Incumbent Distribution, and OpenAI Pace | 5 | 3 | 1 | 0 | Molly demonstrates domain awareness by citing Matt Turck's podcast discussion on the 'OpenAI identity crisis'. Alex agrees and emphasizes how rapidly expanding frontier models threaten thin-wrapper startups. | |
| The Traitorous Eight History and Gemini Hallucinations | 3 | 5 | 1 | 0 | Alex narrates the history of Shockley Semiconductor and the Traitorous Eight to explain the firm's name, playfully tying it back to Gemini's hallucinated founder history. | |
| Product QA, Risk Tolerance, and Model Iteration Speed | 3 | 3 | 0 | 0 | Molly and Alex discuss Google's QA versus release speed before wrapping up with founder fundraising advice and optimistic perspectives on the Bay Area tech ecosystem. |
Statements from this episode (19)
Kolicich: Enterprise 1.0 software like Salesforce is just database wrappers
“If you look at enterprise software, we call it one. And they're very simple systems. In many ways, they're wrappers over a database. If you look at Salesforce, Salesforce doesn't help you make a decision, really. Maybe there's only for the product I do today, …”
Kolicich: 8VC allocates 50% to software, 20% biotech, 10% defense
“Half of what we do is software between vertical, horizontal, infrastructure, AI infrastructure, data infrastructure. 20% ends up being biotechnology because we think there's key innovations that are a lot enabled by computation, but a lot, you know, with gener…”
Kolicich: Crossover funds exerted a 20x leverage effect on venture cap tables
“When A tiny girl or somebody else deploys money onto a cap table. They might say own five percent of that cap table, and they'll have, their dollars will have a leverage effect on the ecosystem as a whole. Because while they buy five percent of the company, th…”
Kolicich: Venture capital will shrink over five years unless AI takes off
“I don't think it's gonna, you know, the space is gonna crash or everybody leave overnight, but I think just slowly over the next five years, unless AI really takes off, you'll see a general shrinking of venture capital, I think”
O'Shea: Tiger Global was a primary driver of the venture bubble
“Tiger, if you don't want to blame them, I will, but I do think that, you know, they were one of the largest pieces of this domino effect, like pumping excess money into a category.”
Kolicich: Expect an AI crash and market retrenchment within two years
“I believe in two years where everyone's gonna say, oh, you know, we thought it would solve everything and it's all a very limited number of use cases. It's complete hype. And, you know, we'll probably see a bit of a crash and we'll see a retrenchment in AI.”
Kolicich: Perplexity Synthesizes Information Better Than Google Does
“I think perplexity is actually a very good product that, you know, does a better job on synthesizing information than even Google does.”
Kolicich: Big Tech's Low AI Pricing Will Hurt Competing Startups
“Big tech is doing a good job of anchoring the price of all these features pretty low, like co-pilots, 20 dollars a month per developer. It's incredibly cheap relative to the value that it does add. And that really anchors, you know, value in that market pretty…”
Kolicich: Big Tech Subsidizing Open Source AI Is Hard for Startups
“They're really subsidizing the space, a lot of big tech, which I think is positive for open source and positive for users, hard for startups.”
Kolicich: GitHub Copilot Operates Like Autocomplete, Not Fundamental
“Co-pilot operates Much more like an auto-complete. So if you're writing an article on email or in Word, you automatically notice a sentence. It's pretty good. It does save you time, but it's not fundamental.”
Kolicich: LLMs won't collapse vertical software pricing to zero
“And just the process of defining that software system such that an LLM can generate it would cost you hundreds of thousands of dollars. And so even if it were free to generate a new software system, you would probably still use one of the incumbents as long as…”
Kolicich: AI will automate back-office paper pushing over software development
“I think you'll see a lot more deployment in back office jobs at industrials or any vertical Industry, you know, I mean, even if you look at healthcare, on the RCO side, there's like faxes and people faxing papers all over, like, the world still runs a lot of p…”
Kolicich: Open-source AI models lag proprietary models by one year
“Some people have said it's six months from state of the art. I think it's more like a year away from the state of the art, but these models, those models that keep coming out are getting better and better and better.”
Kolicich: Open-source AI iteration speed will surpass closed source
“Cause you'll see the case of iteration at open source is going to eclipse close source.”
Kolicich: 8VC is not interested in investing in model inference hosting startups
“Most major inference players, for example, i.e. People who help you host open source models or train new open source models are growing incredibly quickly. We're not particularly interested in investing in that. Aaron at the stack.”
Kolicich: Software incumbents hold the advantage over thin AI wrapper startups
“Incumbents have the advantage. Where in most cases, you are a thin layer on top of open AI and that's okay. And in that case, if you have distribution to users and you make that value transparent to them, you already hold their data. That's going to be a great…”
Kolicich: Google's Defining AI Feature Is Reaction Speed Over Initial Errors
“And so just the defining feature will be how quickly Google can react versus, you know, mistakes they made at the beginning.”