It has been nearly 12 months since our last letter. In many ways the world has changed, and in many ways it has stayed the same.
As we think about investing today, this letter will touch on macro factors at play, M13’s investment areas of interest, and how we support our portfolio companies.
We consistently revisit our investment thesis to evaluate whether we have the right, risk-adjusted exposure to trends. In M13’s early years (2016–2018), we invested at the seed and Series A stages of 14 consumer tech companies that went on to achieve unicorn status including Ring, Lyft, and Scopely. Today, our focus is on infrastructure and applications enabled by B2B and B2B2C business models, with more recent investments including Prepared (assistive AI for emergency response), Form Health (a personalized medical weight loss telehealth solution), and Lightning Labs (building faster, cheaper, global layer-two bitcoin). We’re interested in the future of work, health, commerce, and money—and how emerging technologies like AI and blockchains can open up these markets.
One observation we’ve made repeatedly is that we are investing in technologies that we believe could take a decade to get to scale (if not longer) and then grow explosively. Just look at the rise of mobile: IBM released the first touchscreen phone in 1994, Blackberry released its 5810 smartphone in 2002…then adoption exploded in the 2010s after the launch of the iPhone in 2007, reaching penetration rates upwards of 80%.
We believe the biggest sea changes in technology occur slowly, then abruptly. We’re witnessing this in real time with trends like the AI wave that grew slowly for a decade (we’re coming up on the 10-year anniversary of Google’s DeepMind acquisition) then burst into its recent Cambrian explosion.
The macro landscape
Global and domestic politics continue to confound amidst the presidential election, while inflation has remained relatively consistent at ~3%. As of this writing, the market expects three rate cuts in 2024, followed by four more cuts through 2025, lowering the Fed funds rate from 5.33% to 3.00%–3.25%, per Morningstar and CME Fedwatch. We also believe there is a strong negative correlation between interest rates and multiples: According to a study by Evercore, this R-squared is 0.86.*
Liquidity is king, and private investors have waited anxiously as tech IPOs have dribbled out between Klavyio and Instacart in Q3’23 and Reddit in Q1’24. But we need more to circulate money back into the system—and need companies like Stripe, Klarna, Databricks, Virta, and Chime to step forward. Multiple expansion should help.
Government antitrust regulation also has a huge impact on liquidity, as M13 Partner Karl has discussed here. Upwards of 95% of VC exits are via M&A, but we are not seeing the blockbuster deals that truly move liquidity through the ecosystem, as major acquisitions like Figma/Adobe and Plaid/Visa have been blocked.
Against this macro backdrop, we have a mild obsession with tailwinds and hype cycles, which inform capital formation and talent migration. These factors are critical in any market, and we think this is especially true for exponential technologies like AI and crypto. (I recently discussed this at length with Brad Burnham from USV.) Paying attention to these cycles is important: Many people leave the market when things are low, so it takes courage to invest in a trough.
While generative AI may be at the peak of a hype cycle, we still believe it is a fundamental shift that will transform our lives—and that the efficiencies created by AI will be the greatest and most steady tamer of inflation.
Crypto, unlike other technical innovations, is financialized, which presents investment opportunities but also plenty of volatility and noise. I suspect AI would have seen an equally volatile trendline over the last decade if it had a similar tokenization model. Crypto’s financial nature has also led to repeated peaks (of inflated expectations) and troughs (of disillusionment), but we believe that with each cycle these become less extreme.
Our belief is that AI is rapidly approaching its golden age of productivity —and that crypto may circle back yet again before we unlock its true potential. The only area we believe has true product-market fit in crypto today is payments.
All of this is to say: let’s exercise patience. These innovations can take time. Sound investing means understanding where in the hype cycles a technology falls, and understanding a trough is not always the end of the line—or a reason to invest just because prices are cheap. And at any point in the hype cycle, we believe it’s vital to find and invest in the most exceptional founders.
Past & future investments at M13
So far this year, most of our investments were in AI- or blockchain-enabled companies – and made with an eye toward thoughtful investing at reasonable valuations.
Many existing portfolio companies have successfully launched AI products in their respective verticals. Examples include Pietra’s AI-powered tool for generating design concepts and Canvas which leverages AI to write custom EMRs tailored for very specific conditions.
More generally in the last three years, nearly all of our investments have focused on enabling technologies and B2B models. But times are a changin’, and we also wonder out loud: is it time for consumer software to make a comeback?
We believe AI and spatial computing are driving momentum for new use cases. Below, we dive deeper into some of our areas of focus today.
Theme 1: Jumping on AI’s quantum leap
We believe AI models are improving at an exponential rate, and we’re looking to how these models can be applied and deployed for step change value creation. We’re most interested in the implications and applications of AI—and the meaningful value these create.
It is our opinion that foundational models’ capital intensity make them best suited for strategics. There is also the potential issue of LLM commoditization: Will there be a difference in quality between OpenAI, Gemini, Llama 3, etc.?
With that in mind, here are three areas our AI strategy focuses on:
Really hard data problems.
We’re starting to see wider deployment of workflows built on top of LLMs to solve really hard data problems—like advanced disease detection, inventory planning, insurance underwriting, and complex resource allocation.
In healthcare, we’ve backed Carenostics, which is building AI models to detect chronic disease earlier. We’ve backed RadiantGraph, which leverages AI for better personalization for patients and is already partnering with large health plans. And to support the use of data for these applications, we’ve invested in Ensemble, which enhances model performance across prediction tasks. Focusing on the hardest data problems can create new market opportunities rather than incremental performance improvements.
Leapfrogging into the future.
M13 companies Prepared and Polimorphic are leveraging AI to leapfrog archaic public and government systems into the future. Prepared’s assistive AI technology brings new data to our legacy 911 infrastructure, and its recent integration with Apple means it will protect 150 million US iPhone users with the release of iOS 18 this fall. Meanwhile Polimorphic is leveraging AI to modernize constituent services (such as search, document retrieval, and customer service) and update the notoriously arcane local government tech stack.
Prepared allows 9-1-1 callers to share real-time data with first responders, giving them access to live video, photos, text, location data, and live subscription. Source: Prepared
AI agents in knowledge work.
We have also focused on the introduction of AI agents into enterprise workflows, with recent investments in Maven (customer support), Lantern (sales), and Zenlytic (business intelligence). Maven AGI’s platform is already answering 90%+ of customer support tickets autonomously for companies like TripAdvisor, Rho, Clickup, Hubspot, and others. We believe this is only the wedge into a much wider set of cases toward the creation of “Business AGI” (artificial general intelligence), where Maven’s platform can be used across an organization to drive strategic decision making and improve customer experience.
Like Maven, Lantern and Zenlytic bring data closer to the front lines, so salespeople and product leaders can partner with agents to make better decisions more quickly. M13 Partner Anna Barber spoke with three of our founders about the deployment of AI agents at our spring Future Perfect conference.
Theme 2: Crypto is no longer just for payments
We believe crypto, a decade into its own cycle, has found product-market fit in payments: more than half of Fortune 500 companies are working on on-chain projects, and stablecoins process more than 2x Visa’s monthly transactions. Today, 4% of Turkey GDP is transacted in crypto (in the form of stablecoins) and almost 10% of all remittances in Venezuela are via stablecoins. The first stablecoin BitUSD was issued a decade ago so this rate of progress is remarkable. It is also our belief that the history of the Bitcoin halving (where the reward for miners securing the network is cut in half) and improved regulatory and rate environments should lead to a promising year end and 2025.
This year also saw one of the most successful ETF launches ever with Bitcoin ($17B of net inflows after the launch this January) and leading fintechs like Stripe announce crypto payment integrations including for Solana, where we have long been bullish.
But where is crypto going next?
M13 company Hivemapper is seeking to build a better Google Maps, uniquely enabled through crypto. Hivemapper's solution refreshes maps with a decentralized network that incentivizes contributors with its native honey token. The company has remarkably reached 25% global coverage in just two years.
Ted Livingston at M13 portfolio company Code, a Solana-based payments and messaging company, has been thinking about true consumer use cases in crypto since founding Kik (the predecessor to WeChat) in 2009. The Code experience is pure magic—check out how it works—and is empowering creators all over the world to get paid for what they create online (instantly and with no fees). If Code fulfills its mission, it could usher in a new business model that gives creators more opportunity and consumers more choice.
We are hitting the 10-year mark in crypto. Enough infrastructure already—it is time for applications, UX, and design.
Theme 3: Consumer is primed for its next big thing
We haven’t really seen anything interesting and new in consumer in over a decade, since the mobile platform shift that spawned Uber, Airbnb, and TikTok. Smartphones and apps had become ubiquitous and powerful enough to give rise to these consumer unicorns.
Today, we find ourselves looking at another innovation wave. Just like mobile did for the Uber era, recent technological breakthroughs—all 10 years in the making—are setting the stage for the next era of generation of great consumer technology companies.
What will be borne out of today’s emergent technology shifts? Here are a few areas we think are interesting.
Leveraging LLMs for consumer use cases: We believe LLMs can drive true curation and personalized experiences like we’ve never seen before. They’ll disrupt search and matchmaking—but will the real sea change be digital companions or AI cloning? Personalized interactions with AI could have a wide range of implications, from disrupting higher education to improving disease detection. Business model innovation could also be significant—and could lead to the end of the subscription model as consumers become conditioned to pay for very specific tasks (and perhaps on much cheaper crypto rails!). And as fewer clicks go to ads, what will happen to advertising? How will publishers and content providers supplement their incomes? What will become of SEO?
The remarkable rise of ChatGPT to $1.3B+ in ARR and 180M MAU since launching in November 2022 proves the power of LLMs and the myriad of use cases they enable. We believe the era of true personalization has finally arrived. The largest companies with the most significant network effects have historically sat at the application layer, and we believe this will continue.
Crypto and abundance: “NFTs” have become a dirty word, but as a technology they are still fundamentally interesting. It is important to move on from the PFP (profile picture token) association to a model focused more on abundance vs. scarcity. In our opinion, scarcity models drive trading; abundance models drive more innate behaviors in areas like gaming and social. We think Solana in particular allows for an abundance-based model, and we are looking for interesting edge cases.
Given this golden era of emerging technologies, it is our view that the next $100B+ consumer technology business will get to scale across one of these computing platforms—and we are on the hunt. Whatever the next big consumer software innovation, it probably won’t come in the form of your standard mobile app. In the words of Clay Christensen (as popularized by Chris Dixon), “The next great innovation will start out looking like a toy.”
Vision Pro and human-computer interfaces: We shouldn’t underestimate Apple’s ability to create markets, attract developers, and build new ecosystems. The Vision Pro experience is magical—but what is the killer use case? Entertainment consumption, gaming, and education are all candidates.
The road ahead
At M13, our investment focus is on identifying and riding technology waves with the best founders, always cognizant of where we are in a hype cycle.
We continue to refine and improve our investment framework with an eye on markets, business models, and competition. Most of all, we invest in founders building the next-generation of leading software companies: their motivations, history, and the ability to both execute and communicate a powerful story. We’re proud to offer them the capital and support to execute their vision.
As we circle back to the macro, we believe monetization of our portfolio will be critical. We hope the FTC and DoJ release their stranglehold on M&A—recall that upwards of 95% of VC exits are via M&A, not IPO, and M&A is critical for recycling talent and capital back into the ecosystem—but we’re also not holding our breath.
Liquidity is king, and we strive to deliver it to our investors and be creative in this pursuit. Through our board positions and Propulsion model, we look to actively manage our portfolio as it matures and seek liquidity in a way that delivers best risk-adjusted returns. This requires a clear understanding of operating performance and markets, especially over long time horizons.
Yes, there is uncertainty at the macro level, compounded by the presidential election cycle. But in our opinion, there is no debate that we are in the exponential age of technology, which always drives us forward with unfettered optimism.
Do you agree with this letter? Disagree? Have something to add?
I’d love to talk.
Latif Peracha, Partner
latif@m13.co
*Study was performed by Evercore for M13 Fund II portfolio company Rho and was not distributed publicly.
It has been nearly 12 months since our last letter. In many ways the world has changed, and in many ways it has stayed the same.
As we think about investing today, this letter will touch on macro factors at play, M13’s investment areas of interest, and how we support our portfolio companies.
We consistently revisit our investment thesis to evaluate whether we have the right, risk-adjusted exposure to trends. In M13’s early years (2016–2018), we invested at the seed and Series A stages of 14 consumer tech companies that went on to achieve unicorn status including Ring, Lyft, and Scopely. Today, our focus is on infrastructure and applications enabled by B2B and B2B2C business models, with more recent investments including Prepared (assistive AI for emergency response), Form Health (a personalized medical weight loss telehealth solution), and Lightning Labs (building faster, cheaper, global layer-two bitcoin). We’re interested in the future of work, health, commerce, and money—and how emerging technologies like AI and blockchains can open up these markets.
One observation we’ve made repeatedly is that we are investing in technologies that we believe could take a decade to get to scale (if not longer) and then grow explosively. Just look at the rise of mobile: IBM released the first touchscreen phone in 1994, Blackberry released its 5810 smartphone in 2002…then adoption exploded in the 2010s after the launch of the iPhone in 2007, reaching penetration rates upwards of 80%.
We believe the biggest sea changes in technology occur slowly, then abruptly. We’re witnessing this in real time with trends like the AI wave that grew slowly for a decade (we’re coming up on the 10-year anniversary of Google’s DeepMind acquisition) then burst into its recent Cambrian explosion.
The macro landscape
Global and domestic politics continue to confound amidst the presidential election, while inflation has remained relatively consistent at ~3%. As of this writing, the market expects three rate cuts in 2024, followed by four more cuts through 2025, lowering the Fed funds rate from 5.33% to 3.00%–3.25%, per Morningstar and CME Fedwatch. We also believe there is a strong negative correlation between interest rates and multiples: According to a study by Evercore, this R-squared is 0.86.*
Liquidity is king, and private investors have waited anxiously as tech IPOs have dribbled out between Klavyio and Instacart in Q3’23 and Reddit in Q1’24. But we need more to circulate money back into the system—and need companies like Stripe, Klarna, Databricks, Virta, and Chime to step forward. Multiple expansion should help.
Government antitrust regulation also has a huge impact on liquidity, as M13 Partner Karl has discussed here. Upwards of 95% of VC exits are via M&A, but we are not seeing the blockbuster deals that truly move liquidity through the ecosystem, as major acquisitions like Figma/Adobe and Plaid/Visa have been blocked.
Against this macro backdrop, we have a mild obsession with tailwinds and hype cycles, which inform capital formation and talent migration. These factors are critical in any market, and we think this is especially true for exponential technologies like AI and crypto. (I recently discussed this at length with Brad Burnham from USV.) Paying attention to these cycles is important: Many people leave the market when things are low, so it takes courage to invest in a trough.
While generative AI may be at the peak of a hype cycle, we still believe it is a fundamental shift that will transform our lives—and that the efficiencies created by AI will be the greatest and most steady tamer of inflation.
Crypto, unlike other technical innovations, is financialized, which presents investment opportunities but also plenty of volatility and noise. I suspect AI would have seen an equally volatile trendline over the last decade if it had a similar tokenization model. Crypto’s financial nature has also led to repeated peaks (of inflated expectations) and troughs (of disillusionment), but we believe that with each cycle these become less extreme.
Our belief is that AI is rapidly approaching its golden age of productivity —and that crypto may circle back yet again before we unlock its true potential. The only area we believe has true product-market fit in crypto today is payments.
All of this is to say: let’s exercise patience. These innovations can take time. Sound investing means understanding where in the hype cycles a technology falls, and understanding a trough is not always the end of the line—or a reason to invest just because prices are cheap. And at any point in the hype cycle, we believe it’s vital to find and invest in the most exceptional founders.
Past & future investments at M13
So far this year, most of our investments were in AI- or blockchain-enabled companies – and made with an eye toward thoughtful investing at reasonable valuations.
Many existing portfolio companies have successfully launched AI products in their respective verticals. Examples include Pietra’s AI-powered tool for generating design concepts and Canvas which leverages AI to write custom EMRs tailored for very specific conditions.
More generally in the last three years, nearly all of our investments have focused on enabling technologies and B2B models. But times are a changin’, and we also wonder out loud: is it time for consumer software to make a comeback?
We believe AI and spatial computing are driving momentum for new use cases. Below, we dive deeper into some of our areas of focus today.
Theme 1: Jumping on AI’s quantum leap
We believe AI models are improving at an exponential rate, and we’re looking to how these models can be applied and deployed for step change value creation. We’re most interested in the implications and applications of AI—and the meaningful value these create.
It is our opinion that foundational models’ capital intensity make them best suited for strategics. There is also the potential issue of LLM commoditization: Will there be a difference in quality between OpenAI, Gemini, Llama 3, etc.?
With that in mind, here are three areas our AI strategy focuses on:
Really hard data problems.
We’re starting to see wider deployment of workflows built on top of LLMs to solve really hard data problems—like advanced disease detection, inventory planning, insurance underwriting, and complex resource allocation.
In healthcare, we’ve backed Carenostics, which is building AI models to detect chronic disease earlier. We’ve backed RadiantGraph, which leverages AI for better personalization for patients and is already partnering with large health plans. And to support the use of data for these applications, we’ve invested in Ensemble, which enhances model performance across prediction tasks. Focusing on the hardest data problems can create new market opportunities rather than incremental performance improvements.
Leapfrogging into the future.
M13 companies Prepared and Polimorphic are leveraging AI to leapfrog archaic public and government systems into the future. Prepared’s assistive AI technology brings new data to our legacy 911 infrastructure, and its recent integration with Apple means it will protect 150 million US iPhone users with the release of iOS 18 this fall. Meanwhile Polimorphic is leveraging AI to modernize constituent services (such as search, document retrieval, and customer service) and update the notoriously arcane local government tech stack.
Prepared allows 9-1-1 callers to share real-time data with first responders, giving them access to live video, photos, text, location data, and live subscription. Source: Prepared
AI agents in knowledge work.
We have also focused on the introduction of AI agents into enterprise workflows, with recent investments in Maven (customer support), Lantern (sales), and Zenlytic (business intelligence). Maven AGI’s platform is already answering 90%+ of customer support tickets autonomously for companies like TripAdvisor, Rho, Clickup, Hubspot, and others. We believe this is only the wedge into a much wider set of cases toward the creation of “Business AGI” (artificial general intelligence), where Maven’s platform can be used across an organization to drive strategic decision making and improve customer experience.
Like Maven, Lantern and Zenlytic bring data closer to the front lines, so salespeople and product leaders can partner with agents to make better decisions more quickly. M13 Partner Anna Barber spoke with three of our founders about the deployment of AI agents at our spring Future Perfect conference.
Theme 2: Crypto is no longer just for payments
We believe crypto, a decade into its own cycle, has found product-market fit in payments: more than half of Fortune 500 companies are working on on-chain projects, and stablecoins process more than 2x Visa’s monthly transactions. Today, 4% of Turkey GDP is transacted in crypto (in the form of stablecoins) and almost 10% of all remittances in Venezuela are via stablecoins. The first stablecoin BitUSD was issued a decade ago so this rate of progress is remarkable. It is also our belief that the history of the Bitcoin halving (where the reward for miners securing the network is cut in half) and improved regulatory and rate environments should lead to a promising year end and 2025.
This year also saw one of the most successful ETF launches ever with Bitcoin ($17B of net inflows after the launch this January) and leading fintechs like Stripe announce crypto payment integrations including for Solana, where we have long been bullish.
But where is crypto going next?
M13 company Hivemapper is seeking to build a better Google Maps, uniquely enabled through crypto. Hivemapper's solution refreshes maps with a decentralized network that incentivizes contributors with its native honey token. The company has remarkably reached 25% global coverage in just two years.
Ted Livingston at M13 portfolio company Code, a Solana-based payments and messaging company, has been thinking about true consumer use cases in crypto since founding Kik (the predecessor to WeChat) in 2009. The Code experience is pure magic—check out how it works—and is empowering creators all over the world to get paid for what they create online (instantly and with no fees). If Code fulfills its mission, it could usher in a new business model that gives creators more opportunity and consumers more choice.
We are hitting the 10-year mark in crypto. Enough infrastructure already—it is time for applications, UX, and design.
Theme 3: Consumer is primed for its next big thing
We haven’t really seen anything interesting and new in consumer in over a decade, since the mobile platform shift that spawned Uber, Airbnb, and TikTok. Smartphones and apps had become ubiquitous and powerful enough to give rise to these consumer unicorns.
Today, we find ourselves looking at another innovation wave. Just like mobile did for the Uber era, recent technological breakthroughs—all 10 years in the making—are setting the stage for the next era of generation of great consumer technology companies.
What will be borne out of today’s emergent technology shifts? Here are a few areas we think are interesting.
Leveraging LLMs for consumer use cases: We believe LLMs can drive true curation and personalized experiences like we’ve never seen before. They’ll disrupt search and matchmaking—but will the real sea change be digital companions or AI cloning? Personalized interactions with AI could have a wide range of implications, from disrupting higher education to improving disease detection. Business model innovation could also be significant—and could lead to the end of the subscription model as consumers become conditioned to pay for very specific tasks (and perhaps on much cheaper crypto rails!). And as fewer clicks go to ads, what will happen to advertising? How will publishers and content providers supplement their incomes? What will become of SEO?
The remarkable rise of ChatGPT to $1.3B+ in ARR and 180M MAU since launching in November 2022 proves the power of LLMs and the myriad of use cases they enable. We believe the era of true personalization has finally arrived. The largest companies with the most significant network effects have historically sat at the application layer, and we believe this will continue.
Crypto and abundance: “NFTs” have become a dirty word, but as a technology they are still fundamentally interesting. It is important to move on from the PFP (profile picture token) association to a model focused more on abundance vs. scarcity. In our opinion, scarcity models drive trading; abundance models drive more innate behaviors in areas like gaming and social. We think Solana in particular allows for an abundance-based model, and we are looking for interesting edge cases.
Given this golden era of emerging technologies, it is our view that the next $100B+ consumer technology business will get to scale across one of these computing platforms—and we are on the hunt. Whatever the next big consumer software innovation, it probably won’t come in the form of your standard mobile app. In the words of Clay Christensen (as popularized by Chris Dixon), “The next great innovation will start out looking like a toy.”
Vision Pro and human-computer interfaces: We shouldn’t underestimate Apple’s ability to create markets, attract developers, and build new ecosystems. The Vision Pro experience is magical—but what is the killer use case? Entertainment consumption, gaming, and education are all candidates.
The road ahead
At M13, our investment focus is on identifying and riding technology waves with the best founders, always cognizant of where we are in a hype cycle.
We continue to refine and improve our investment framework with an eye on markets, business models, and competition. Most of all, we invest in founders building the next-generation of leading software companies: their motivations, history, and the ability to both execute and communicate a powerful story. We’re proud to offer them the capital and support to execute their vision.
As we circle back to the macro, we believe monetization of our portfolio will be critical. We hope the FTC and DoJ release their stranglehold on M&A—recall that upwards of 95% of VC exits are via M&A, not IPO, and M&A is critical for recycling talent and capital back into the ecosystem—but we’re also not holding our breath.
Liquidity is king, and we strive to deliver it to our investors and be creative in this pursuit. Through our board positions and Propulsion model, we look to actively manage our portfolio as it matures and seek liquidity in a way that delivers best risk-adjusted returns. This requires a clear understanding of operating performance and markets, especially over long time horizons.
Yes, there is uncertainty at the macro level, compounded by the presidential election cycle. But in our opinion, there is no debate that we are in the exponential age of technology, which always drives us forward with unfettered optimism.
Do you agree with this letter? Disagree? Have something to add?
I’d love to talk.
Latif Peracha, Partner
latif@m13.co
*Study was performed by Evercore for M13 Fund II portfolio company Rho and was not distributed publicly.
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The views expressed here are those of the individual M13 personnel quoted and are not the views of M13 Holdings Company, LLC (“M13”) or its affiliates. This content is for general informational purposes only and does not and is not intended to constitute legal, business, investment, tax or other advice. You should consult your own advisers as to those matters and should not act or refrain from acting on the basis of this content. This content is not directed to any investors or potential investors, is not an offer or solicitation and may not be used or relied upon in connection with any offer or solicitation with respect to any current or future M13 investment partnership. Past performance is not indicative of future results. Unless otherwise noted, this content is intended to be current only as of the date indicated. Any projections, estimates, forecasts, targets, prospects, and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others. Any investments or portfolio companies mentioned, referred to, or described are not representative of all investments in funds managed by M13, and there can be no assurance that the investments will be profitable or that other investments made in the future will have similar characteristics or results. A list of investments made by funds managed by M13 is available at m13.co/portfolio.