Blab AI
VCs Debate AI Valuation Models Amid Rapid Growth and SpaceX IPO Speculation
Late June, Los Angeles became a playground for AI valuation debates when two prominent investors gathered for TechCrunch’s StrictlyVC evening in El Segundo.
Carter Reum, co‑founder of the $2.5 billion M13 venture fund, and Chang Xu, partner at Basis Set Ventures, turned the event into a two‑way street about how to price fast‑growing AI companies and what a SpaceX public offering could mean for the local tech scene.
Reum opened the conversation with what he calls a “cocktail math” approach. The method blends the potential size of a winner with how much brands are willing to pay for software, arguing that traditional metrics often miss the economics of AI deals. Xu countered that the market’s growth bar has shifted. She cited Open Art, which leapt from $1 million ARR in its first year to $10 million the next, and then to $70 million in year three, all while staying profitable with only 20 employees. According to her, the speed of growth—illustrated by ChatGPT’s jump from zero to $40 billion in revenue in six months—allows valuations to stay high without becoming reckless.
Both investors agreed on the need to separate “deep” markets, where long‑term differentiation matters, from “fast” markets, where quick decisions are essential. They also highlighted regulated sectors as defensive fortresses amid rising competition.
The discussion turned to Los Angeles. Reum and Xu suggested that a SpaceX IPO could redirect capital and talent to the region, potentially boosting defense and urban‑infrastructure projects. They noted that if AI firms such as Anthropic and Open AI go public, Los Angeles could become a hub for business models that blend technology with culture and branding, complementing San Francisco’s tech core.
The conversation was framed by recent developments in the AI industry. Open AI has filed confidentially for an initial public offering, joining Anthropic and SpaceX in a wave of high‑profile listings that could reshape investor demand for AI companies. Meanwhile, Tiger Global is preparing a new $2.2 billion fund focused on AI, and Reid Hoffman has urged investors to combine capital, engineering, and market insight to accelerate early‑stage AI and digital services.
Reum’s M13 fund has invested in 17 unicorns at seed and Series A stages, while Basis Set’s fourth fund manages nearly $1 billion. Both firms have a track record of backing AI startups that achieve rapid scale, underscoring that, despite the hype, investors are looking for clear long‑term differentiation and prudent valuations.
The dialogue also touched on the broader implications of AI growth for regulatory and cultural factors. Xu emphasized that the next wave of AI innovation will tie success to the quality of content that resonates with culture and audiences. Reum echoed that the willingness of brands to pay for AI tools will be a key metric.
In summary, the StrictlyVC evening highlighted that investors are navigating a landscape where growth can be explosive, but disciplined valuation remains essential. The potential SpaceX IPO and the prospect of public listings for AI leaders could shift capital flows toward Los Angeles, creating new opportunities for companies that combine technology with cultural relevance.
The current situation remains fluid. Investors are monitoring market growth rates, regulatory developments, and the timing of public offerings. As the AI sector continues to evolve, the ability to blend speed with an understanding of regulatory and cultural factors will be crucial for success.
Carter Reum, co‑founder of the $2.5 billion M13 venture fund, and Chang Xu, partner at Basis Set Ventures, turned the event into a two‑way street about how to price fast‑growing AI companies and what a SpaceX public offering could mean for the local tech scene.
Reum opened the conversation with what he calls a “cocktail math” approach. The method blends the potential size of a winner with how much brands are willing to pay for software, arguing that traditional metrics often miss the economics of AI deals. Xu countered that the market’s growth bar has shifted. She cited Open Art, which leapt from $1 million ARR in its first year to $10 million the next, and then to $70 million in year three, all while staying profitable with only 20 employees. According to her, the speed of growth—illustrated by ChatGPT’s jump from zero to $40 billion in revenue in six months—allows valuations to stay high without becoming reckless.
Both investors agreed on the need to separate “deep” markets, where long‑term differentiation matters, from “fast” markets, where quick decisions are essential. They also highlighted regulated sectors as defensive fortresses amid rising competition.
The discussion turned to Los Angeles. Reum and Xu suggested that a SpaceX IPO could redirect capital and talent to the region, potentially boosting defense and urban‑infrastructure projects. They noted that if AI firms such as Anthropic and Open AI go public, Los Angeles could become a hub for business models that blend technology with culture and branding, complementing San Francisco’s tech core.
The conversation was framed by recent developments in the AI industry. Open AI has filed confidentially for an initial public offering, joining Anthropic and SpaceX in a wave of high‑profile listings that could reshape investor demand for AI companies. Meanwhile, Tiger Global is preparing a new $2.2 billion fund focused on AI, and Reid Hoffman has urged investors to combine capital, engineering, and market insight to accelerate early‑stage AI and digital services.
Reum’s M13 fund has invested in 17 unicorns at seed and Series A stages, while Basis Set’s fourth fund manages nearly $1 billion. Both firms have a track record of backing AI startups that achieve rapid scale, underscoring that, despite the hype, investors are looking for clear long‑term differentiation and prudent valuations.
The dialogue also touched on the broader implications of AI growth for regulatory and cultural factors. Xu emphasized that the next wave of AI innovation will tie success to the quality of content that resonates with culture and audiences. Reum echoed that the willingness of brands to pay for AI tools will be a key metric.
In summary, the StrictlyVC evening highlighted that investors are navigating a landscape where growth can be explosive, but disciplined valuation remains essential. The potential SpaceX IPO and the prospect of public listings for AI leaders could shift capital flows toward Los Angeles, creating new opportunities for companies that combine technology with cultural relevance.
The current situation remains fluid. Investors are monitoring market growth rates, regulatory developments, and the timing of public offerings. As the AI sector continues to evolve, the ability to blend speed with an understanding of regulatory and cultural factors will be crucial for success.
