The halcyon days when venture capitalists were content to shell out billions for the latest AI startup, while researchers burned cash with little to gain, may be almost over. A “reckoning” will soon come for AI companies that fail to turn a profit as the new technology matures, Kai-Fu Lee, president and CEO of Sinovation Ventures, said at the Fortune Innovation forum in Hong Kong on Wednesday .
Lee said too many Large Language Model (LLM) startups focus on finding breakthrough advancements and too little on commercializing their work. “Many of the LLM companies out there are run by researchers who only care about creating a great model,” she said in a conversation with Fortune managing editor Alyson Shontell. “The science fair phase must end.”
If there’s one thing the three major U.S. tech stocks have in common, it’s that they’ve successfully monetized an emerging technology: Microsoft with the personal computer, Apple and Google with the smartphone.
A former president of Google China and a field researcher himself, Lee founded his AI startup in March 2023. The company, called 01.AI, was valued at more than $1 billion in less than eight months.
Lee said his former employer, Google, serves as a cautionary tale. Even with the densest pipeline of AI talent found in the world to date, she argued that Google lost its edge over OpenAI because it wasted time and resources pandering to the competing agendas of all its employees.
“If you have too many researchers and a culture where everyone can test their ideas, the startup will quickly run out of money,” he said.
Huawei’s focus against Google’s “making a hundred flowers bloom”.
Lee argued that for his company to one day be among the world leaders in the industry, it must be brutally efficient with every dollar it spends.
The AI expert on Wednesday pointed to Huawei as an example of how such focus could work in practice. China’s top telecommunications equipment maker took advantage of an obscure advance by Turkish computer researcher Erdal Arıkan, investing his efforts almost exclusively in commercializing his discovery of the polar code. This has allowed them to overtake major Western competitors such as Ericsson and continue to control the majority of the 5G mobile network market.
“That made a difference,” Lee said. “We’re taking the same approach to be very, very diligent about saving the GPU [costs].”
Thanks to its focus on efficient execution, he believes that 01.AI, which publishes all its research on open sites like Hugging Face, has closed the gap with American companies like OpenAI from eight years to less than twelve months in just one year .
AI rivals that instead embrace Google’s strategy of “letting a hundred flowers bloom,” as Lee called it, would instead struggle to achieve profitability.
“There is a time when investors will say: what do you have to show for yourself?” Lee said. “What is your income statement? What is your turnover? What is your growth? When do you break even?”
If an AI startup doesn’t have a compelling answer, the days of the “science fair” are over.