Note: My partner Grace Isford wrote an excellent piece on the current state of New York City’s AI ecosystem. Since it’s relevant, I am republishing it here as this week’s column.
Now is the time for AI companies to strike
Lux was founded in New York City in 2000, and our first AI investment started here in 2013. Two decades later, most of our AI portfolio companies are headquartered here, including Hugging Face, Runway, Osmo.ai and Modal. Others like Together, Clarifai and Databricks (MosaicML) have a major presence here.
Today, I’m excited to introduce two resources for the burgeoning NYC AI ecosystem:
The NYC AI Map — a curated map of top AI companies and watering holes for AI talent in NYC.
The NYC x AI Company Directory — a list of 150+ AI companies with headquarters or satellite offices here in NYC. (If you see a company missing, fill out this form!) To be included on the list, companies must have a major NYC presence with AI at its core. Note that we didn’t include any companies that are still operating in stealth.
Part of a VC’s job, at least as I see it, is to be a human capitalist by identifying breakout founders, connecting prospective hires and customers, and matchmaking partnerships. I’ve never seen a better talent market for recruiting, driven by so many highly talented, tenured employees lifting their heads up to think about what’s next, as well as the rapid rise of up-and-coming talent eager to jump into AI.
I dove deeper to map the existing NYC AI ecosystem and key talent trends across Lux’s AI portfolio. An amazing talent dividend is ripe for startups able to capture the AI opportunity, and New York City has a uniquely compelling opportunity to seize that dividend in the decade ahead.
The State of AI
Many are skeptical about AI’s future, given the gyrations of the tech markets the past few years. We have seen several hype cycles, each bringing talent to areas like fintech and crypto, then enterprise SaaS, and now AI and defense. Why the shifts? Hype is driven by technology unlocking new applications (fresh advances like ChatGPT galvanizing engineers to seek the frontiers of innovation), investor enthusiasm with VCs lavishing billions of dollars on these sectors, and social pressure to join friends and colleagues populating a new tech sector.
Yet, each of these hype cycles eventually reached their end. Most recently, bubbly enterprise SaaS valuations have dramatically declined, eroding employee and investor morale. Companies privately valued at several billion dollars in the gold rush of 2021-2022 are no longer living up to their expectations given a lack of clear signals on private exits. The sudden retrenchment of enterprise SaaS in an AI-first and hard-tech world are making future startup fundraises ever more difficult. Unsurprisingly, talent is heading for better prospects.
While AI could follow the same pattern of boom and bust, this time does feel very different due to the arrival of record-breaking parameter models trained on huge datasets from OpenAI’s ChatGPT launch in November 2022 to Meta’s Llama 3 release just last week. The potential market (and talent market) for such technologies is gargantuan — and real. Founders and investors have noticed, and for better or worse we’ve now seen “ZIRP” AI funding environments where hundreds of millions of dollars are funneled to top teams even before they have a product launched.
NYC’s AI Opportunity
Tech hype cycles and talent transfers from place to place are nothing new; in fact, they are key aspects of any startup ecosystem's dynamism: watering holes of talent, hotbeds of innovation and transfers of knowledge disseminated via more platforms than ever before.
NYC has a robust and growing community of AI, engineering and dev tool talent, drawn to the city for its lifestyle appeal and its strong go-to-market capabilities (it’s home to the greatest number of Fortune 500 company headquarters in America — 44 to be exact). Moreover, the city benefits from the presence of esteemed universities and research labs like NYU’s CILVR Lab led by Yann LeCun (Chief Scientist of Meta), Princeton’s NLP group, Cornell Tech, Columbia’s ML x Systems Biology Biology lab led by Mohammed Al-Quraishi, and Dana Pe’er’s Memorial Sloan Kettering Computational & Systems Biology group with a focus on cancer research.
In addition, Meta’s FAIR (Fundamental AI Research) office, Google’s research teams and Palantir’s strong presence in the city have contributed to growth of local engineering and research talent. New York’s governor recently announced $400 million in funding for the Empire AI Consortium, a state-of-the-art compute center for AI research in collaboration with seven New York universities and Nvidia.
As a result, NYC’s tech landscape has seen a major influx of candidates and companies, becoming the prioritized choice from folks deciding where they want to live versus where they have to live. It’s supported by the numbers: NYC attracted 1 of every 7 tech workers between 2019 and 2023, and it gained more tech workers than any other city last year with a net gain of 3.6% in 2023 (San Francisco saw a net loss of 3.6%). Silicon Valley Bank estimates that NYC also has 35 AI unicorns, with OpenAI, Anthropic and DeepMind each having large presences.
While SF still has the lionshare of AI venture capital investment (~40%), NYC is a clear 2nd with 20% based on Pitchbook data. NYC-based unicorns even grew from 3 to 100 over the last 10 years according to a report by Cowboy Ventures.
Lux AI Portfolio Talent Dividend
Among Lux’s own AI portfolio companies, 57 employees moved to NYC across a total of 179 who moved geographies between January 2020 and mid-April 2024. We’ve seen candidates prioritize NYC because of its urban walkability, its diverse and cultural institutions at the focal point of many industries (financial services, media, fashion, healthcare, etc.) and its frenetic social life (easier place to meet new people, date and live life to its fullest).
Outside of geography, we’ve observed consistent trends across our AI portfolio, where alumni talent of one company comes together to found something new. For example, Together’s founding team previously worked at Topsy, which was later acquired by Apple, while MosaicML’s founding team stems from Nervana, previously acquired by Intel.
Similarly, the movement of talent between companies like OVHCloud to Hugging Face and Adobe/Frame.io to Runway are driven by overlapping skill sets. Since 2020, 23 individuals have departed Meta to Lux companies including MosaicML, Runway and LangChain, while Google (including Brain and DeepMind) has lost 30 to a mix of MosaicML, Hugging Face and Sakana AI over the same time period.
You can even see the talent migration from top AI labs at tech incumbents into startups, including spin-offs like Osmo AI via Google (Osmo AI) and FAIR.
Outside of the Lux portfolio, there have been notable viral talent trends: since 2020, 76 Stripe alumni have joined OpenAI, while 62 others have joined Anthropic. Eight folks from Retool have left to join OpenAI, meanwhile, Anthropic recruited 15 folks who previously worked at OpenAI in the same time frame.
The NYC AI Talent Dividend
I constantly get questions from engineers, researchers and entrepreneurs looking to get involved with AI startups here in NYC without knowing where to start. Questions range from what events to go to (and who hosts them), who are good nodes to connect with and which AI startups are actually based in NYC or have satellite offices with technical parity to headquarters.
NYC is poised to take advantage of the AI talent dividend, yet new resources are needed to disseminate knowledge about the talent and opportunity here, hence the NYC x AI Company Directory — a collection of AI Companies based in NYC across stages — and the NYC AI Map to find and collaborate with peer companies.
For companies in AI and hard tech that have been gaining strong interest among talent looking to move, now is the time to strike. Engage the community through in-person events at popular meetups like those at Work-Bench and startup accelerators like South Park Commons; create pathways for excellent technical talent to transition from their former roles into new ones; and finally, consider how flexible office models can capture loose talent. Leverage resources like the NYC AI Map and the NYC x AI Company Directory to take advantage of all the NYC ecosystem has to offer.
Know that hiring is not fully determinative of future success. A flood of new talent does not equal product-market fit or efficient revenue growth. But in my experience, recruiting and retaining great talent is a leading indicator of creating an enduring and successful company.
On the flip side, if you are running a company on the negative side of the Great Talent Dividend (for instance, in enterprise SaaS), it’s time to increase transparency and manage expectations while reminding all current and potential talent of the possible rewards ahead. Focus on re-incentivizing your employees, re-financing valuations and providing a clear path to upside value in as short a time as possible. Avoid smacking an “AI” label on the business — both employees and VCs can see through such inauthenticity — and think more deeply about how to reimagine your workflow with AI in mind.
The Great Talent Dividend is rapidly changing the geographies and companies that are demanded by employees. Adapt, and gain the future. Or ignore the change at your peril.
If you’re thinking about embarking on a talent migration especially to NYC or want to collaborate on future NYC events - I’m here to help. I’m happy to have referred dozens of employees across our portfolio companies — reach out at grace@lux.vc.
Special thanks to Nikhil Namburi for his research assistance.
We’re really fund’ing busy this week
The launch of riskgaming last weekend was not the only thing keeping Lux up burning the midnight oil at both ends (that’s called a mixed metaphor). The whole partnership has been busy, with a slew of major news stories this week that are worth highlighting.
Our former Lux colleague and submarine officer turned founder Cameron McCord and his team raised $27 million dollars from us, alongside General Catalyst and Founders Fund. As Lizette Chapman wrote in Bloomberg, “During his two years at [lux], he talked to founders at more than 100 hardware startups and discovered the same challenge he encountered while at Anduril and Saildrone — a lack of great software to do the work was a major problem across the growing industry.”
Next, we’re excited to lead the $11.65 million Series A for Summer Health, a startup designed to radically simplify access to pediatric care to mothers. As founder and CEO Ellen DaSilva wrote, “Every parent wants the best for their children. And every parent deserves immediate 1:1 answers to their questions without consulting Dr. Google.” For a discount from Lux, use LUXCARES during checkout or click this link.
Meanwhile, seasoned entrepreneur Brad Porter is back with Collaborative Robotics, a startup that’s building robots that can safely and productively work alongside humans. As Brian Heater quoted in TechCrunch, “‘Getting our first robots in the field earlier this year, coupled with today’s investment, are major milestones as we bring cobots with human-level capability into the industries of today,’ Porter says. ‘We see a virtuous cycle where more robots in the field lead to improved AI and a more cost-effective supply chain.’” We joined the company’s Series B round alongside lead General Catalyst.
Finally, and holy smokes it’s a big one (that smoke is that midnight oil burning again), we’re excited to join the $1 billion founding round of Xaira Therapeutics led by former Stanford president and Genentech’s former chief science officer Marc Tessier-Lavigne. From the extensive profile in Endpoints News, "Drug R&D is an endeavor rife with failure - commonly cited figures estimate that only about 10% of drugs that make it to human testing are ever approved, and a far greater share fail before ever being tested in a person. Xaira and several other new biotechs believe they can change that with new generative AI methods that can design complex molecules from scratch, find new targets, and cut months or even years from the process.”
Outside of fundings, the most important news is that Anduril was selected by the U.S. Air Force as one of two final vendors to perform the Collaborative Combat Aircraft program, the flagship autonomy initiative whose goal is to maintain America’s dominant edge in the skies. As BreakingDefense noted, “The Air Force’s decision winnows down a pool of five competitors to two. As a result, three other vendors — Boeing, Lockheed Martin and Northrop Grumman — have been eliminated from the running.”
It’s a huge program. “Unveiled by the service as a major multibillion dollar program in the fiscal year 2024 budget, the CCA effort aims to initially field as many as 1,000 drones. According to the service’s press release today, officials plan to make a ‘competitive production decision’ by FY26 for the first round of CCA work and ‘field a fully operational capability before the end of the decade.’”
We love funding great founders and we love winning large and competitive contracts, but Lux loves nothing more than great exits for our companies, and this week, we had two visually-rich companies with strong exits and futures ahead of them. Matterport, which builds those incredible 3D replicas of buildings and locations, announced it is being acquired by CoStar Group for $2.1 billion in enterprise value. Second, the adrenaline-pumping Drone Racing League was purchased by Infinite Reality for $250 million. Congrats to the teams of both companies and best wishes in the decades ahead.
Podcast: The nightmare specter of designer bioweapons and the people trying to stop them
Ever since the invention of CRISPR technology about a decade ago, biologists have gained increasing power to discover new DNA sequences, cut and mash them up, and then print them in ever larger volumes through biomanufacturers. That freedom and openness is the opening to a long-awaited Century of Bio, with scientists bullish on the potential to discover cures to long-resistant diseases.
On the tails side of the coin though, there are fears that the open nature of these tools afford a rebel scientist the means of inventing and distributing well-known or completely novel pathogens that could threaten the lives of millions. It’s not the premise for a bad Hollywood B-movie, but a top security threat that experts at the White House and in the intelligence and defense communities are rapidly trying to solve.
Today, I have Kevin Flyangolts of Aclid joining us. Aclid is using artificial intelligence to identify what new sequences of DNA might do, scaling up screening efforts that might allow biomanufacturers the ability to verify their customers’ intentions in a more thoughtful and comprehensive way.
Lux Recommends
- Viola Zhou has an absolute must-read report on the TSMC chip fab under construction in Arizona in Rest of World, and the extreme culture clash between the high-precision, high-intensity work of chip manufacturing against the Southwest’s sunny disposition.
- Our scientist-in-residence Sam Arbesman recommends Kevin Kelly’s “101 Additional Advices.” “There is a profound difference between thinking less of yourself (not useful), and thinking of yourself less (better).”
- I really enjoyed Marco Giancotti’s “The Beautiful Dissociation of the Japanese Language.” “Because of the unique dissociation between the written word and the way it is pronounced, Japanese is not only harder to learn, but it's also more malleable and richer in a way that cannot be imitated. It's an extra dimension of language and a happy historical accident.”
- Sam loved the new book by Annie Jacobsen titled, “Nuclear War: A Scenario.” “There is only one scenario other than an asteroid strike that could end the world as we know it in a matter of hours: nuclear war. And one of the triggers for that war would be a nuclear missile inbound toward the United States.”
- Finally, a great piece by Jake Bittle on the challenges of climate adaptation and risk in the context of homeownership in “FEMA is making an example of this Florida boomtown. Locals call it ‘revenge politics.’”
That’s it, folks. Have questions, comments, or ideas? This newsletter is sent from my email, so you can just click reply.
