How to Survive a Hype Cycle
An AI founder, a crypto founder, and a venture investor explain how they keep focus in a noisy world.
By M13 Team
June 15, 2023
We have this overwhelming amount of information in the world, and a lot of what we're building is to help people cope with that. We’re using machine learning not to increase the overwhelm and serve you lots of things but to help you cut through the noise. What's important to you to help you do that focused thinking?
— Alice Albrecht, re:collect Founder & CEO
I love bear markets… Bear markets are for building. Believe it or not, I actually love the crypto downturns because that's when a lot of the work gets done in our world.
— Elizabeth Stark, Lightning Labs Co-founder & CEO
99% of stuff fails. But the detritus that remains becomes the combinatorial fodder for the next wave. All the stuff that’s left behind, where prior investors didn’t get paid for the risk they took—the next investor takes that, like paint on a palette, to construct something new.
— Josh Wolfe, Lux Capital Co-founder & Managing Partner
Navigating hype cycles
Future Perfect is M13’s thought leadership series, where we convene investors and founders to reflect on the lessons and innovations that inform how we will build the future. In May, we gathered in New York City to hear from the vanguards of technology, innovation, and investing.
Understanding hype cycles is vital to success for both investors and founders. If you're a founder or investor in an area receiving widespread news cycle attention—like crypto or AI—you have a lot of opinions and distractions to contend with. Eventually, the wave of inflated expectations gives way to disillusionment and waning interest. To survive requires time and persistence, and only then can you reach a steady state of productivity and calm.
Dr. Alice Albrecht (re:collect Founder & CEO), Elizabeth Stark (Lightning Labs Co-founder & CEO), and Josh Wolfe (Lux Capital Co-founder & Managing Partner) sat down with M13 Partner Latif Peracha to talk about finding the signal in the noise.
Noise and signal
Noise and signal
Latif opened the conversation by asking re:collect’s Alice Albrecht: what is it like to build an AI company in 2023?
“I’ve been in this space a really long time,” says Alice. “It’s much easier to explain to investors how this stuff works [today]. I don’t have to sell them on models the way I did a few years ago.” AI has reached a point in its cycle of broader understanding than it had ten years ago.
Alice’s re:collect platform leverages AI to augment users’ memory, perception, and synthesis. “We have this overwhelming amount of information in the world, and a lot of what we're building is to help people cope with that,” Alice explains. “We’re using machine learning not to increase the overwhelm and serve you lots of things, but to help you cut through the noise. What's important to you to help you do that focused thinking?”
This question of how to focus was a key theme of the conversation. “I actually don’t envy Alice in the AI community right now, because I love bear markets,” says Elizabeth, Co-founder and CEO of Lightning Labs, a crypto infrastructure company. “When you see these hype cycles, it tends to result in a lot of frenzy. You see a lot of over-investment and investor excitement that is not necessarily warranted. I'm a big fan of separating the signal from the noise. Bear markets are for building. Believe it or not, I actually love the crypto downturns because that's when a lot of the work gets done in our world.”
Crypto in particular is an industry that has seen major fluctuations in hype, price, and reputation in recent years. “The nature of cryptocurrency is: it goes up, people get excited, there’s a frenzy and it goes up even more. But it’s not sustainable, and then it goes down,” Elizabeth explains. But in those troughs, “you’re able to focus on the signal as opposed to the noise and really build the long-term technology with staying power.” The bottom of the cycle can be just as productive as the top (if not more so) because outside distractions have gone away. Only the work remains.
Keeping a long-term view and focusing on foundational technologies is key to surviving the volatility of hype cycles. Alice adds: “There are these ups and downs in both of these spaces [AI and crypto]. And both of them are absolutely here to stay. They’re really fundamental technological shifts. We’re really starting to push what's possible with computing, and I think that's huge.”
Elizabeth agrees: “It’s about building foundational long-term technology. The hype cycles will go up and down. But what we're building is here to stay for the long term, and these industries are absolutely converging.”
Risk, reward, and remains
Risk, reward, and remains
Josh Wolfe is Co-founder and Managing Partner at Lux Capital, a venture firm dedicated to supporting scientists and entrepreneurs. When evaluating companies, “I like to ask a very sophisticated question,” he says, “which is: what sucks?” These unsolved pain points are where companies have the opportunity to carve out success.
Getting in early—before a hype cycle ramps up—is also important. “We’re always asking, where does the rest of the world believe in something? If it’s on the cover of Newsweek, it’s too late. If it’s already in the Tuesday Times, it’s too late. If it’s in Nature, it’s too late. We basically have to be in an academic meeting with principal investigators and scientists before they actually publish a case.”
Having an understanding of success that isn’t beholden to market fluctuations can also help investors not become caught up in hype cycles, and Josh believes there is opportunity in all kinds of markets. He explains: in a low-cost capital environment, everything gets funded, and even though 99% of it will fail, the 1% will still have the opportunity to get through. “There’s lots of interesting things that get funded that normally wouldn’t in a high-cost capital environment,” he says. Meanwhile, when the cost of capital is high, very few things get funded. Investors are more skeptical, and the bar to get funding is higher—but it’s a chance for companies that are solving realistic, important problems to drill down on the fundamentals that really matter.
And while many projects fail, those failures are also ultimately part of the innovation process. “99% of stuff fails. But the detritus that remains becomes the combinatorial fodder for the next wave,” says Josh. “All the stuff that’s left behind, where prior investors didn’t get paid for the risk they took—the next investor takes that, like paint on a palette, to construct something new.” Every failure today becomes a lesson that can contribute to success tomorrow.
Internal motivation drowns out external chatter
Josh says, “I have a quirk—or feature, or bug—which is that I like to be right when other people are wrong. I'm very intellectually competitive. I like to understand what everybody else is thinking and doing and where might they be missing something? Where do they not see something?” This innate sense of competition is a major driver for him.
Elizabeth agrees: “As a founder, there's something deep within me that wants to prove people wrong. I kind of like being the underdog because I want people to doubt what we're doing and then see we actually succeed. Set low expectations and overperform is one of the things that I've always worked on as a founder.”
An innate desire to outperform expectations, shut out what the general public is saying, and go against the grain can be a major asset to both investors and founders contending with hype cycles. This internal motivation can inoculate builders against naysayers—or overhyped yay-sayers—so the focus can be on creating things that will outlast news cycles.
As Josh concludes, “Somebody that has something to prove is just deeply backable.”
More from Future Perfect
- The Future of Investing Is Brighter Than You May Think
- AI Is Coming for Our Work. That’s a Good Thing.
Thank you to our speakers
Alice Albrecht is the founder and CEO of re:collect. The re:collect team is building an AI-powered thought partner that helps users ideate and create without breaking flow. Designed to mimic how the mind works, re:collect uses machine learning models to connect and retrieve users’ digital information effortlessly.
Alice has over 10 years of experience leading and advising teams building AI/ML-powered products at companies including Simple Finance and Cloudera's Fast Forward Labs. She holds a PhD in Cognitive Neuroscience from Yale University.
Elizabeth Stark is CEO and Founder of Lightning Labs, where she is building a programmable financial layer for the internet with fast, scalable Bitcoin transactions. She is a fellow at Coin Center, the leading digital currency policy organization, and an advisor to numerous cryptocurrency companies.
Elizabeth previously taught at Stanford and Yale University about the internet's impact on society, the economy, and the law, and was a visiting fellow at Yale’s Information Society Project. She has worked with startups in areas ranging from decentralized technology to AI and was an entrepreneur in residence at Stanford StartX.
Stark holds a JD from Harvard Law School.
Josh Wolfe co-founded Lux Capital to support scientists and entrepreneurs pursuing counter-conventional solutions to the most vexing puzzles of our time in order to lead us into a brighter future.
Josh is a Director at Shapeways, Strateos, Lux Research, Kallyope, CTRL-labs, Variant, and Varda, and helped lead the firm’s investments in Anduril, Planet, Echodyne, Clarifai, Authorea, Resilience, and Hadrian. He is a founding investor and board member with Bill Gates in Kymeta, a Westinghouse semi-finalist, and published scientist. Josh previously worked in investment banking at Salomon Smith Barney and in capital markets at Merrill Lynch.
In 2008 Josh co-founded and funded Kurion, a bet on using advanced robotics and engineering to clean up nuclear waste. In February 2016, Veolia acquired Kurion for nearly $400M—34x Lux’s total investment.
Josh is a columnist with Forbes and Editor for the Forbes/Wolfe Emerging Tech Report. He has been invited to The White House and Capitol Hill to advise on emerging technologies and has been a lecturer at MIT, Harvard, Yale, Cornell, Columbia, and NYU. He is a term member at The Council on Foreign Relations and Chairman of Coney Island Prep charter school. Josh graduated from Cornell University with a BS in economics and finance.