Jerry Neumann: Resignation Letter
reactionwheel.net
reactionwheel.net
This is remarkable to me because I would say that right now is one of the most exciting times to invest ever. We are in one of the new platforms: VC hasn't been so interesting to me since ~2013, when cryptocurrency offered a whole new greenfield, or 2008, when the iPhone changed everything for mobile, or ~1998, when the WWW began to mature enough to allow greenfield everything. (With an honorable mention to VR - still the new platform of the future...) Just think about LLMs and programming! Programming hasn't been about to change this much, this fundamentally, since the invention of networks or timesharing, perhaps. How can you look at this and write it all off as 'shopkeeping' with no 'building a market from scratch' and 'just not that interesting'?
I think maybe the real reason is the next one: they're just older, and no longer have the gumption and energy to try to dive into the Shiny New Thing, and it's time to hang up their hat and call it a day, leaving it to the next generation.
Jerry would've been 14 around 1980, plus or minus a couple of years, which would've been in the heyday of personal computing. TRS-80s, Apple IIs, the IBM PC, its clones, etc.
Then, and for the next 40-odd years, software was king (read: capital-light). And anybody could write software.
LLMs are much less egalitarian.
Can anyone write an LLM? Yes.
Can anyone train an LLM that customers will want? A few. But most will need a few Ms, maybe even some Bs.
Hence the AppAmaGooSoft benefactors and Jerry's complaint about the status-quo.
Software-like economic dynamics will return, but it'll take a while, and until they do, it'll be much less morally satisfying to be a VC (in software) than it has over the last 40 years.
It really isn’t exciting because the technological shifts have already happened. The “Industrial Revolution” has ended.
There’s no remaining industry that isn’t served by plenty of software and hardware solutions.
The Internet is done, it exists. Smartphones are done, computers are done, cloud computing is done, and that’s about as good as it gets.
AI is just the next tech industry house of cards that followed previous farces that were meant to stir up investment. When gathering data wasn’t profitable enough, big data came along. When big data didn’t lead to enough profitable insights, AI came along. Each new technology promises the moon but they really onmy prodiundly benefit the companies making digital pickaxes.
Now you have every company under sun releasing AI products where they have so little clue what problem they’re supposed to solve that they just call it “[Company Name] AI.”
That’s because the problems are solved. There’s a CRUD app for everything. It’s the end.
This video sums it up pretty well if you ask me: https://youtu.be/pOuBCk8XMC8
The most interesting and clear AI-based product I can imagine is a true personal assistant, that can autonomously handle tasks like "book me a barber's appointment this week" (while taking into account my work days, my meetings, my other personal appointments, etc) or "I want to meet up with Joe, Susan, and Mary for a nice dinner, book us a table" (and your personal assistant would sync up with their personal assistants, or with themselves directly if they don't have one, to arrange this, and suggest some possible venues and so on). And it would help remind you of important upcoming events, help organize your shopping and so on. And of course, it would do all of this semi-interactively ("The best slot I'm seeing for your barber appointment would be on Tuesday at 3 PM, but you have that call with Andrew, can that be moved?").
All of these things seem relatively doable in principle, with existing technologies, as long as AIs improve on their reasoning skills and someone spends the time and effort to connect a single AI to several core technologies (in this case, email, calendars, web search, maybe some reservation apps, and some camera apps to help recognize various things).
Nobody else is going to be the central point for enough data to make this kind of AI useful.
Example: Atlassian can’t make a product like this because they only have access to a small piece of your personal data in the first place. They don’t have access to your work calendar, emails, chat, conference calls, etc. Many companies who use Atlassian don’t even want to use them for source control or pipelines despite those products being a part of their suite.
Same deal with companies like Slack: they don’t have access to your email or your ticketing system. Notion doesn’t have access to your emails, conference calls, etc.
So realistically, truly helpful AI is going to be gated behind giants like Google and Microsoft, while the companies fighting for LLM scraps are going to all make their ShitGPT support chat bots.
The ultimate death knell for AI is that it’s such a unique technology that the average CTO can’t even conceptualize how it works and what it can do. I think they didn’t have that problem with previous tech industry hype trains.
Yes, there's still little in the way of overhead/operating costs or cost of goods sold - once you get a product to market, if you can acquire customers it scales perfectly up to market saturation. But the capital barrier has slowly become huge, and that suppresses innovation.
(Interesting counterpoint - when a new market opens up with low capital requirements, iPhone App Store being a case in point, it saturates rapidly and then becomes a race to zero - much potential innovation gets lost in the noise, or the market deflates so quickly that indie innovators struggle to sustain themselves financially).
As our age continues to gild itself to further extremes everyday, I just don’t think there’s space to use small groups of optimistic hackers to bring bright new things to humanity through risk-prone startups. There’s too much on the line, too much accumulated power and inertia. LLM-powered cognitive systems are not going to be an iPhone moment that changes some social practices and brings some daily utility, but rather.. idk, a railroad moment, I guess. A fundamental interruption to our society and economy. A new era, for better or for worse. I really don’t think the Silicon Valley playbook will see much effective use in this new context.
I applaud him for looking for a way to keep that dream alive in changing times! Hopefully he updates the rest of his when he finds some answers ;)
Startup hackers in the 80s through to mid aughts were, on the one hand, playing _for real_, but on stakes that weren't absurdly high.
They were all-in, but while on the one hand they didn't have an enormous amount to lose, they weren't that screwed if they lost it.
What I'm seeing increasingly the last 15 years or so is hyper-privileged rich kids playing at start-ups, without the same total level of commitment - but then, I can hardly blame them, they've more to lose, and you're a lot more screwed if you lose it all in 2024. The sort of people that would have started companies 30 years ago either can't afford to take the risk at all, or stay at indie/hobby business level and make no attempt to scale.
And I'll give you 2008, although while it's partly about the hardware, it's also about the pervasive and universal internet, the end of online as a separate "place" and just becoming part of the fabric of day-to-day life.
2013 and crypto, though? Sure, it's made a few (or maybe not so few) people very rich. In terms of day-to-day functionality though, NFTs were empty hype, and the only vaguely useful activity I've seen it used for was probably illegal (circumventing blocks in the global financial system) even if not necessarily immoral.
You sidestepped their points and jumped straight to investment opportunities and iPhones and VR and LLMs. He actually said tech is not used to improve people's lives and that I have observed to be true during my 22+ years in the tech area.
What he said resonates strongly with many programmers who are working on the ground: the tech is not used for absolutely anything at all that tangibly and positively changes the world, companies just want to build strong moat and keep corporate customers with binding contracts -- and there's almost zero actual technical progress, too.
(Also, "older" in this case does not do what you think it does: it means they finally got a realistic view of the situation and are no longer looking through rose-tinted glasses. This is a good thing and shouldn't be a condemning factor, and your comment kind of makes it sound like you use it that way.)
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Let me demonstrate my point.
Here's an investment idea: smartphone app that photographs your fridge (could use LIDAR as well, why not) and catalogues everything in it, and uses magic sauce to remind you when to stock back on items X or Y. Difficult, right? Who cares! I'd buy it, hell, I'd even subscribe for such a service. Let's go. Invest in it. Stick to it until it's perfect, no matter how long it takes and no matter how much financial losses it incurs until it's done.
Will you do it?
If so, OK, let's find another way that doesn't consume 300+ watts per GPU for thousands of GPUs. Again, let's go -- let's see some actual technical progress.
But we don't have that. We're stuck. And that's what the original article says and I support its thesis.
> My day job was investing in early stage companies through Neu Venture Capital. I’ve also written a book with my friend Liz Zalman: Founder vs. Investor. And I teach entrepreneurship at Columbia University. I was a co-founder of venture-backed startup Root Markets, ran Omnicom Group’s venture capital division in the 1990s, and was once, long ago, a hardware design engineer on IBM’s S/390 series of mainframes where I designed a very small part of the central processor’s microcode execution engine, which is like the computer in the computer in the computer.
Isn't this what every VC is doing? This is why VCs invest in a bunch of startups and expect most of them to fail.
Matt Levine writes about this a lot; he talks about how the real risk for VCs isn't losing 100% on a failed startup, the risk is missing out on the one that hits it big.
I am not sure why the writer thinks this strategy is novel.
I can't imagine it working out so well without that qualifier.
This definitely felt true to me. All the potential of technology seems spent in computers. It seems like it's just a matter of making the existing commerce 5% faster. If I had to restart as a teenager I'd perhaps be looking into 3D printing. That seems like something that can actually make a difference. It's actually exciting. LLVMs are actually exciting, Docker/K8S, but beyond that don't know that anything really excites me.
Recent examples from my life include wanting mounts for flashlights, a thing to attach to bike handlebars, a shelf bracket, a battery cover for a tool, a piece of a bird feeder, etc. Where is the interface that lets me scan the existing objects I need to integrate with and then quickly assemble prefab subcomponents into a printable design and seamlessly iterate on that?
Anyway, a lot of it, the majority of the coolness in 3D printing are the designs. On its own, 3D printing is mildly useful. Learn CAD. That's something really useful there. Then there's other skills such as electronics that would make 3D printing way cooler.
It's a cool hobby, but one that won't replace something like woodworking. It's just different and have their own pro and con. Same thing for manufacturing. It won't displace entirely general subtractive manufacturing. It has its own niches and pro and con.
On LLVM and LLM, they are indeed impressive, much more so than the boring technology of 3D printing. But after the tech demo? I am ambivalent about it.
Cool. Whatever. I prefer creating things and learning technology and science that help me improve my skills at learning things. If using LLM is a skill that isn't just prompt engineering, I might be more open to it.
How can anyone say this when there’s so much amazing research happening in most universities, especially in computer science and engineering. It could be that the sample of prospective startups Nuemann gets exposure to is the same few people from the same few places? There’s such a disconnect between what’s possible, what hasn’t been done, and what’s funded.
(nb. I am casting no aspersions at the author of the letter; I know nothing about him. Just sharing frustration at what has happened to the industry over the years.)
Confirmation bias on my part: this feels like the core point.
Maybe I just grew up at the right time: the Internet was becoming ubiquitous; the iPhone hit right in my teens; social media - for better or worse - slightly earlier.
Technology was radically radically changing and improving peoples' lives and that was inspiring.
I don't see it doing that anymore. And so goes the inspiration too.
I believe our collective technological progress still has a lot of low-hanging fruits to be picked that radically improve people's lives. I just think that the feedback loop for those in the technology field is not as immediate as it was a few years ago.
It was not so long ago that a determined kid with a cursory knowledge of HTML was able to single-handedly deliver the web presence of a whole company.
Things have progressed a bit since then and the barrier is now set much higher, but the potential to serve user and customer needs on mere cents per user per month is still there.
Every time you help a person achieve their goals (buy something, access a service, deal with a complaint, fill out a bureaucratic requirement, etc) with a mere click of a button, you are making the world a better place.
For example, life changed radically for the whole world once people were able to call a cab or order food with a press of a button in their smartphone. We even have services helping to reduce waste by connecting shops with soon-to-be-expired goods with potential customers who love a good deal. That is a small gesture that serves everyone.
The potential is still there. Just don't expect to get a medal for it.
His unusual experiences and wisdom gained must surely be highly valuable somewhere.
This is how I always pictured domain name investing.
And, of course, I was lucky. Two of the fifty companies I backed are now among the 30 largest software companies in the world. And my IRR from inception has been consistently above 50% per year…for fifteen years. Of course, my sample size is too small to prove anything, but every venture firm’s sample size is too small to prove anything. I don’t know, really, if it was luck or thinking differently that made a difference. It doesn’t matter to me anymore. You can decide.
This person just seems more self-aware than most about their strategy (“unicorns!!1!”), while paradoxically being very unaware about their own position within the world (they’re very much an economist, even if they lack the training) and history (the reason computers seem to be “supporting the status quo” instead of disrupting socioeconomic systems is very much something that everyone should have seen coming).
Right now I have enough money to do what I want. I don’t have enough money that other people do what I want. To me that sounds like the perfect place to be.
On dark days I think of what Jung said in his memoirs: “Only if we know that the thing that truly matters is the infinite can we avoid fixing our interests upon futilities…” My view of the infinite is probably different than Jung’s, but I think he’s right: the only way to avoid feeling like your work is pointless is to contribute to something much larger than yourself.
In the context of pro-social technical contributions in 2024, I think this simply means that you need to buckle down, swallow your pride for a second/month/year, and identify others who are (trying to be-) living the way you think is necessary so that you can learn their motivations and methods, and of course what they need that you can help with. We have been incredibly lucky to be the puzzle-solving class at a time when that was uniquely profitable, but I think humility is necessary when considering these broader questions. I’m a fan of philosophy and cooperative syndicalism, but I’m sure there’s optimistic prosocial groups out there for everybody, if you look deeply enough.
Jeez that was long, whoops — and I’m just some kid so probably wasted breath. Thanks for sharing OP, will be thinking about this fella for a while… again, Godspeed. I’ll leave anyone bored enough to read this far with a better writer than I:
To consider some Being-there as it is in the absolute just consists in saying of it: of course we have spoken of it just now as if it were something, but in the absolute, the A=A, there is nothing of the sort; in the absolute everything is one. To pit this single insight, that in the absolute everything is the same, against discriminating and fulfilled cognition, or cognition seeking and demanding fulfilment—or to pass off its absolute as the night in which, as the saying goes, all cows are black—this is the naiveté of emptiness of cognition.
> Two of the fifty companies I backed are now among the 30 largest software companies in the world. And my IRR from inception has been consistently above 50% per year…for fifteen years.
But then he also writes:
> Right now I have enough money to do what I want. I don’t have enough money that other people do what I want.
I don't know Jerry Neumann's financial situation better than he does, but the man's been doing VC early-stage investing since the 2000s so I find it hard to believe he doesn't have enough money to get other people to do what he wants. Maybe not self-fund a competitor to OpenAI in this environment, but that seems like a failure of his imagination on all the possible companies he could fund. $50k would be enough to get the right someone to do what he wants for a couple of months.
It's entirely possible that whatever he wants done can't be done by a single someone in a couple of months. I expect that many things worth doing in the tech space are like that.
It's also possible that by "other people do what I want" he means "I'm able to buy politicians" and similar such things.
It sounds like he wants to be somewhat safe/financially secure without needing to work more, so I took that to mean “I have $2-6M USD in the bank”, which is the rough FIRE target (last I checked?). You could start a company with that of course, but it would be risking your nest egg to a serious degree, especially at a time where any serious person should be planning for—if not expecting per se-a stock market recession in the next few years.
Compare that to someone with, say, $100M. That’s enough money to build a team of $200-$400K/year engineers, open an office (or a zoom subscription!), and really take an honest swing at some product or other. $50k could hire you a contractor for a bit, but that’s just an addendum.
If you can't find something that excites you right now in the technology space, that tells me more about how boring you are than anything else.
Real Translation of VC: Wahhhh! With interest rates above zero I have to do actual work!