Tech bubble Not About to Pop. How are VCs investing in AI? The Middle East point of view.
An analysis of a rockstar "investor" panel including some Dubai Sharks.
Hey founders, funds, & friends 👋,
A warm welcome to the 30th edition of the “Mehtta Ventures Dubai” investment digest newsletter, your weekly news digest about startup stories across the Middle East & India, digital / business trends shaping our lives and curated venture investment opportunities.
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Today’s program:
Tech bubble Not About to Pop. How are VCs investing in AI & Web3?
The Strategic Importance of Infrastructure in AI
The Dichotomy of Infrastructure AI vs. Application AI
Is AI a Bubble? Managing Risks in a High-Valuation Market
What VCs Are Looking for in AI Founders: Expertise Over Generalism
Global AI Investing: The Middle East as a Strategic Player
Ethics and AI: Navigating the Risks of Digital Colonialism
The Future: Infrastructure, Adoption, and Scaling
Conclusion: Key Takeaways for Investors
My Views
And….Action!
Tech bubble Not About to Pop. How are VCs investing in AI & Web3?
Unpacking the Future of AI & Web3 Investments: Key Insights from Dubai's AI and Web3 Festival
The convergence of AI and Web3 technologies is opening unprecedented opportunities for innovation and investment. On our second newsletter we share AI investment considerations from industry veterans and visionary investors who shared deep insights into the future of these sectors, focusing on venture capital strategies, infrastructure challenges, and the rapidly evolving landscape of AI.
This session titled "Tech Bubble Not About to Pop: How Are VCs Investing in AI & Web3?" brought together top speakers like Fadi Ghandour, H.E. Faisal Belhoul, and Amira Sajwani, to discuss the trends and strategies shaping AI investments today.
The highlights below capture their key insights into how VCs are evaluating AI and the role of the Middle East in driving this transformation.
1. The Strategic Importance of Infrastructure in AI
A recurring theme during the discussion was the role of infrastructure as the backbone for AI growth. For AI startups to thrive, a robust infrastructure is critical, not just in terms of compute power but also regulatory frameworks and government backing. Fadi Ghandour set the tone by emphasizing:
"AI is the new internet. This is an era that is unavoidable and should be investable. But for AI to thrive, you need data centers, compute power, and government collaboration."
He pointed out that for countries to truly embrace AI, their governments must support public-private partnerships to build the necessary digital infrastructure. Dubai's leadership, which has already established itself as a forward-thinking AI hub, is actively working to position the city as a launchpad for AI startups by creating an enabling environment.
H.E. Faisal Belhoul echoed this, explaining the pivotal role Dubai is playing in AI infrastructure development:
"We are fortunate to be in a city where our leadership has embraced change, establishing a regulatory framework that not only attracts investment but also the best talent from across the globe."
This blend of public sector support and private sector innovation is creating the optimal conditions for both infrastructure and application-based AI companies to flourish.
2. The Dichotomy of Infrastructure AI vs. Application AI
One of the key topics of discussion was the distinction between infrastructure AI and application AI. Investors are placing their bets on both the foundational technologies that power AI and the specific applications that can transform industries.
Amira Sajwani brought in valuable insights from her role at DAMAC Properties and PRYPCO, explaining how her strategy focuses on both ends of this spectrum. She highlighted:
"We are investing heavily in large learning models and deep tech AI because they serve as the foundation for applications that are disrupting industries like finance, healthcare, and education."
Amira’s viewpoint stressed that AI is not just a trend; it’s foundational. Infrastructure companies are crucial, as they build the frameworks on which the next wave of AI-driven applications will stand. Startups building applications on top of these models are creating significant disruption in verticals such as legal tech, healthcare, and education, each showing potential for AI copilots to fundamentally reshape industries.
Amira further elaborated on how her companies integrate AI into their own operations:
"For us, it’s not just about investing in AI; it's about using AI to improve our existing businesses. We test these startups ourselves to see if their AI solutions are making real operational improvements."
This "testing on the ground" strategy provides invaluable feedback on the efficacy of AI applications before making larger investments.
3. Is AI a Bubble? Managing Risks in a High-Valuation Market
The panel also touched on the growing question among investors: Is AI overhyped, and are we in a bubble? While some investors may have concerns about overvaluation in certain areas, the consensus was that AI itself is not a bubble, though specific applications may see inflated valuations.
Fadi Ghandour addressed this directly, saying:
"Is AI a bubble? No. It’s the basic infrastructure for human life going forward. However, there may be bubbles in individual startups with overvaluations."
Amira Sajwani expanded on this, warning of the risks investors face when backing superficial AI startups that don’t have robust underlying technology:
"You need to be cautious with applications that are built on large models. Investors are often excited by the AI label, but not all applications will remain relevant in two to three years."
Her perspective underscores the importance of discerning between deep tech that drives long-term value and superficial AI products that may not have lasting impact.
At the same time, H.E. Faisal Belhoul cautioned investors about the potential pitfalls of euphoria-driven investing:
"There will be investors who get hurt because they follow the hype without understanding the underlying fundamentals. But the opportunity is massive if approached carefully and strategically."
4. What VCs Are Looking for in AI Founders: Expertise Over Generalism
Investing in AI startups requires VCs to look for a different caliber of founders compared to traditional tech startups. The panel agreed that AI startups require highly technical founders with deep expertise in the field. Fadi Ghandour remarked:
"We are no longer looking for generalists. If you are building a deep tech AI company, you better be a PhD or have a team with the technical expertise to navigate the complexities of AI."
Amira added that for corporate environments, convincing teams to adopt AI can be one of the biggest challenges, especially when employees fear being replaced:
"In a corporate setup, the biggest hurdle is adoption. Many employees are convinced AI is here to make them redundant. That’s why we have a dedicated department focused on training employees on how to use AI to make their jobs more efficient."
This focus on education and adoption is key for AI’s success in corporate environments, and it also signals that investors need to back founders who can navigate both the technical and organizational challenges that come with implementing AI.
5. Global AI Investing: The Middle East as a Strategic Player
The session also highlighted the growing role of the Middle East as a strategic hub for AI investments, not just within the region but globally. H.E. Faisal Belhoul shared how Dubai has positioned itself as a leader in AI investment:
"With our regulatory framework and ability to attract the best talent globally, we are creating a snowball effect where capital follows talent, and talent follows capital."
This statement reflects the interconnectedness of talent, capital, and infrastructure, all essential components of a thriving AI ecosystem. Global partnerships were also a critical part of the discussion, with Fadi Ghandour emphasizing:
"We’ve partnered with leaders like Speedinvest to tap into global networks and identify the winners in this competitive space."
This trend of cross-border collaboration is essential for Middle Eastern investors who are looking to leverage their local expertise while tapping into the innovation coming from markets like the US and Europe.
6. Ethics and AI: Navigating the Risks of Digital Colonialism
As AI’s presence grows in every facet of life, ethical considerations are becoming increasingly important. Fadi Ghandour raised concerns about "digital colonialism," where the creators of AI technology impose their own values and narratives on other cultures:
"We must protect our own stories and culture. I don’t want those who created AI to be the ones setting the ethical standards for the rest of us."
Amira added that the ethical use of data is also a major concern, particularly with the rise of AI-driven image and video manipulation:
"AI is making it easier than ever to manipulate images and videos, which is dangerous, especially when it comes to data protection and privacy. This is an era where we need to be extra careful."
The panel agreed that while AI offers incredible opportunities, regulatory frameworks need to evolve to ensure that these technologies are used responsibly, particularly in sectors like healthcare and finance where data privacy is critical.
7. The Future: Infrastructure, Adoption, and Scaling
Looking ahead, the panel concluded with a discussion about the future of AI investments. The panelists emphasized that the pace of AI’s evolution is accelerating, and investors must stay agile to stay ahead. Amira Sajwani mentioned her approach to scaling AI applications:
"We are looking at infrastructure investments, such as data centers, to support AI growth. The person who bets on the right infrastructure will win in the long run."
She pointed out that as AI applications grow, so does the demand for data processing power, and the Middle East is primed to become a key player in housing both people and data.
Conclusion: Key Takeaways for Investors
The panel at the Dubai AI and Web3 Festival highlighted that while AI and Web3 offer immense potential, smart investments require a clear understanding of the landscape. From backing technical founders to carefully evaluating deep tech startups, the key to success in AI lies in understanding both the infrastructure and application sides of the business. Dubai’s leadership and regulatory environment make it a unique hub for AI investments, allowing investors to capitalize on both local and global trends.
For Mehtta Ventures Dubai, these insights offer a roadmap for future-proof AI investments, emphasizing a strategic approach that balances infrastructure, talent, and global collaboration. As we continue to navigate this dynamic landscape, the opportunities for those who invest wisely will be vast.
My Views
Balancing AI Innovation with Practical Considerations for Smaller Investors
While I am largely in agreement with the overarching theme presented by the panelists, particularly regarding the immense potential of AI investments, it’s important to recognize that these insights come from large VCs with substantial financial resources. For smaller investors or family offices interested in entering the AI space, the dynamics are slightly different, and the path to success requires careful strategy beyond simply identifying the best technical team.
First and foremost, while Fadi Ghandour rightly emphasized the need for specialist AI engineers and PhDs at the core of any deep tech AI company, I would argue that business development, sales, and partnerships are equally crucial. If an AI startup is the king, then distribution is KING KONG. Without a clear go-to-market strategy and strong distribution channels, even the most innovative AI product can struggle to reach scale.
A prime example is Frammer AI, a company we are currently assisting. Frammer converts long-form videos into highlights and key moments, making video content short form, more digestible and engaging. While the technology is impressive, what truly sets it up for success is the partnership we helped establish with Brightcove, a NASDAQ-listed OVP with over 2,000 customers, including major publishers. By leveraging Brightcove's extensive client base, Frammer AI can distribute its product faster and smarter, achieving hyper-scale much more efficiently. As an investor, if you have a view on how a startup can scale quickly through partnerships and distribution, your investment decision becomes easier. The technology is crucial, but its ability to scale and penetrate the market is what truly drives success.
Digital Colonialism: A Challenge Easier Said Than Solved
Another critical point raised during the discussion was the risk of digital colonialism, where external players dominate local markets and set the rules of the game. While I fully agree with this concern, the reality is that avoiding digital colonialism is far more complex than simply recognizing the issue. As we’ve seen with Microsoft’s $1.5 billion investment in G42 in the UAE, foreign technology players will continue to have a significant presence in regional markets.
To combat this, it’s essential to invest not only in local talent and infrastructure but also in local capital. Building more data centers, developing AI talent, and fostering local innovation ecosystems are critical steps in maintaining sovereignty over local AI developments. However, these are long-term processes that require sustained investment. The development of Falcon LLM, a large language model developed by Abu Dhabi’s Technology Innovation Institute, is a fantastic example of progress in this direction. Falcon LLM has redefined the capabilities of AI language processing, proving that local innovations can match, if not surpass, global standards in AI.
Similarly, countries like India are also making strides with their own locally-developed large language models (LLMs), such as Krutrim and Hanuman, which showcase the country’s commitment to building homegrown AI capabilities. These initiatives are crucial as they not only reduce reliance on external players but also help protect local data and foster digital independence.
In conclusion, while digital colonialism remains a real threat, the path to countering it involves deep, strategic investment in local talent, infrastructure, and capital deployment. As these initiatives mature, they will empower local markets to develop their own AI ecosystems, reducing reliance on global giants and fostering true innovation from within.
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