**Venture Capital and AI: How Kindred Capital Approaches Investments**
**About Kindred Capital**
Kindred Capital is a UK-based venture capital firm that plays a significant role in supporting technology startups, particularly those utilizing advanced AI. John Cassidy, a Partner at Kindred Capital, shares his insights on how venture capital firms are approaching AI in today’s landscape. Cassidy himself co-founded CCG.ai, a precision oncology company, before joining Kindred Capital as an investment professional. With its founding in 2015 by Mark Evans, Russell Buckley, and Leila Zegna, Kindred Capital has raised three funds, each of approximately $100 million. The firm focuses on early-stage investments, specifically pre-seed and seed rounds. Kindred Capital prides itself on investing in platforms and businesses that can become essential infrastructure for larger companies. They prefer sectors like ‘techbio,’ software (particularly SAAS or software as a service), energy, and fintech. Geographically, their primary focus is on Europe, the UK, and Israel.
**AI Investments by Kindred Capital**
Kindred Capital has made several recent investments in the field of AI. One such investment is in Scarlet, a company that is building a continuous compliance infrastructure for medical software companies operating in highly regulated industries. Another investment is in Cradle Bio, a generative AI tool that empowers protein engineers to identify new and enhanced proteins for medicines and industrial enzymes using deep learning AI systems and models such as AlphaFold.
**Differentiating AI from Past Bubbles**
The venture capital industry is known for its cyclical nature, and at times, excessive valuations. Previously, it experienced over-exuberance in the valuations of blockchain companies and businesses offering ten-minute delivery services. However, the most infamous example was the dotcom bubble at the turn of the century. Cassidy hopes that the excitement surrounding AI today is different from those previous situations. While some exaggerate the capabilities of transformer AIs and claim they are virtually AGI systems, this is not true. However, beneath the hubris lies the transformative potential of large language models and generative AI, as they can create significant efficiencies and generate real revenue. Thus, it is believed that AI is not just another bubble but a technology with practical applications.
**Selling Picks and Shovels Instead of Digging for Gold**
During economic booms, it is often said that it is more profitable to sell picks and shovels to miners than to actually mine for gold. Nvidia is a prime example of a company following this principle by selling the tools (hardware) required for AI applications. Cradle Bio, a portfolio company of Kindred Capital, is also in the “picks and shovels” business. By enabling protein engineers to use generative AI, they help identify molecules for medicines and industrial enzymes. Cassidy emphasizes the vast untapped potential presented by the vast number of proteins that scientists have yet to study and understand fully.
**Identifying Promising Companies in the AI Landscape**
For investors, the challenge lies in identifying which companies within the new value chains will succeed and which are built on weak foundations. Previous periods of technological excitement, such as the dotcom bubble, saw the rise of giants like Amazon and Google, but it also witnessed the downfall of numerous companies. Kindred Capital focuses on the founder or founders when considering pre-seed investments. As the company evolves, everything from technology to business models will change. The only constant is the founder. Cassidy spends time developing relationships with founders who have the drive, talent, and vision necessary to navigate the challenges faced by startups.
**Applying the Model of Fluid and Crystallized Intelligence**
Cassidy suggests applying the concept of fluid and crystallized intelligence when evaluating founders. Crystallized intelligence is the knowledge gained through experience, while fluid intelligence refers to problem-solving from first principles. The best founders possess both types of intelligence. Older individuals tend to possess crystallized intelligence, having seen numerous strategies deployed, while younger founders demonstrate fluid intelligence by challenging existing norms and finding new creative ways of doing things.
**The Entrepreneurial Spirit of Silicon Valley**
Cassidy’s time spent in Silicon Valley, where entrepreneurial conversations were prevalent, influenced his perspective on building successful companies. He believes that European regions like Cambridge have much to gain from embracing the entrepreneurial spirit of Silicon Valley. While there is still a fear of failure in Europe, Silicon Valley embraces failure as a means of learning and progressing. This mindset of constantly challenging and disproving hypotheses is fundamental to scientific progress. Additionally, Europe’s regulatory framework and limited exit opportunities hinder the growth of its tech industry.
**Focusing AI on Clinical Trials**
Cassidy expresses enthusiasm for the future of AI in biotechnology, particularly in streamlining the clinical trial process. While current healthcare AI developments are centered around designing new molecules, the clinical trial process is the key obstacle in bringing drugs to market. Pharmaceutical companies spend significant time and budget on clinical trials. AI has the potential to improve efficiency, leading to faster and more cost-effective delivery of drugs to patients.
In summary, Kindred Capital approaches AI investments by focusing on promising founders, investing in companies that can become essential infrastructure, and identifying value chains with solid foundations. By embracing this approach and supporting technological advancements, venture capital firms can contribute to the success and growth of the AI industry.
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