SignalFire has been using artificial intelligence to fuel its own investing strategy for years, but now the San Francisco venture capital firm is also earmarking $50 million from its existing funds to identify and incubate AI-powered enterprise software startups.
SignalFire CEO and founding partner Chris Farmer told me that the total amount it invests on startups that go through its AI Lab could change, but $50 million is the firm's initial target.
The idea is to match entrepreneurs and software engineers with corporations that are looking for specific ways to tap into AI.
"There are different constituencies trying to communicate and figure it out at the same time in an ad hoc, incremental way," Farmer said.
One of the biggest challenges for corporations is figuring out how to incorporate the foundational layers of generative AI, known as large language models, into their systems while preserving their own data privacy, Farmer told me.
Software companies that are trying to differentiate themselves with AI platforms will benefit from working directly with enterprise customers in industries like law and medicine, which need to combine both public and private data.
"We think a lot of the differentiation over time will be around the augmenting of public data sets with private data sets, and two, where you generate your own incremental private data sets" Farmer said.
SignalFire could end up incubating 10 to 15 startups through its new AI Lab, but the firm's focus will always remain "quality over quantity," Farmer said, and opportunists who are simply jumping aboard the AI hype train will be quickly weeded out, as well.
"This is an opportunity to explore incredibly fast-moving waters. It's head-spinning," Farmer said.
Other VCs seem to agree.
By late May, venture capital investors had poured at least $20 billion into AI-focused startups around the world since the beginning of the year, according to Crunchbase data. And companies located in the Bay Area alone have raised more than $14 billion combined.
"The nexus of the talent is local in San Francisco. I do think this is an opportunity to be at the ground floor of another massive wave in the Bay Area of tech opportunity," Farmer said, "and it's gonna draw corporations from all sorts of other geographic areas back. There's a lot of beating us up. The crypto community moved out and all this kinda stuff, and guess what? When it comes back to real tech again, hard tech and not a bunch of hype, it's gonna come back to where that core talent is. And that core talent is here."
In February, SignalFire announced that it had raised $900 million in new funding and would deploy the funds across its portfolio with an eye toward making investments in AI.
