In the latest episode of the Driving Alpha podcast, Brian Smiga sits down with Raju Rishi, General Partner at RRE Ventures. Raju brings decades of experience in entrepreneurship and venture capital, sharing his deep knowledge of the tech landscape and investment strategies. At RRE Ventures, he specializes in sectors such as enterprise software, artificial intelligence, and robotics, and has built a strong track record in scaling successful startups.
Rajui discusses the evolving venture capital landscape, highlighting how RRE Ventures approaches sector analysis to identify potential high-growth investments. He explains the process behind selecting venture bets, which involves rigorous research and strategic timing decisions. The conversation covers how RRE leverages long-standing relationships and proprietary deal flow to stay ahead in the competitive VC space. The episode also dives into the common patterns seen in major technological shifts, from the advent of personal computers to the rise of mobile technology. Raju outlines the factors that drive such transformations and the opportunities they create for investors. Additionally, he shares RRE’s approach to working with trusted entrepreneurs, often incubating companies and guiding founders toward market success
Transcript
Brian Smiga
Hi, this is Brian Smiga with the Alpha Partners’ Driving Alpha podcast. On our podcast, we look at how great venture investors achieve outperformance. And with me today is my good friend, Raju Rishi of RRE. Welcome, Raju.
Raju Rishi
Thank you for having me, Brian.
Brian Smiga
Great to see you. We were practically neighbors in Monmouth County, New Jersey.
Raju Rishi
That’s right.
Brian Smiga
Yes, I think you started at RRE right around the time Steve Brotman and I were starting up Alpha Partners. So, it’s been about a decade and that’s really great. Prior, you were at Sigma Prime with my buddy, Greg Gretsch, as a venture partner, and before that you had an illustrious career as an operator and basically a material scientist, researcher, program manager at various places like Bell Labs. We want to hear about that early career
Raju Rishi
Yeah, that’s right.
Brian Smiga
You went straight through MIT for an MS in Material Science. Tell us about those first steps in your career.
Raju Rishi
Okay, weirdly discontinuous, I got my bachelor’s and master’s in material science and engineering. Kind of loved solid state physics. I don’t know why from like high school days. And, you know, picked a bunch of interesting topics: my bachelor’s thesis was on electron migration of thin films, which was, you know, if you run circuit, a lot of electricity through circuits, they actually break.
The aluminum moves so you have to dope them with copper and a bunch of other stuff. And I did my master thesis in something called magneto optics, which was at the time very cool. It was read-write CDs. Prior, you had these CDs that were write once where you would burn a one into a CD and if it didn’t burn it was a zero, and you read it optically, and it was write once.
Magneto optics allowed you to write and read many times. You could change it because the polarization of light changes whether the magnetism is one direction or another. I loved my thesis. So, after coming out of college, I looked to get a job and there were two places in the world I could work. One was Almeida, where IBM was doing research, and the other was Fujitsu, doing some interesting stuff in Japan. And I love Japan. I’ve lived there before, when I was in high school as a student exchange, but my wife and I went to high school together, went to college together, you know, intent was to get married, and we both grew up in New Jersey. So, I said, I don’t want to go to California, or Japan. So, I kind of quit the field, and I got a job at Bell Labs.
There I did some interesting things for five years, and a lot of patents, did IP CRM, IP video, a bunch of wireless tech. But the labs, as it was known, was good at the tech side of things, but not really good at the product side of things. So, I wound up patenting a bunch of stuff and a lot of the stuff I worked on didn’t see the light of day so I got frustrated. I was considering leaving, and they wanted me to stay so they offered me a role in management. And I said, maybe I’ll do this for a year. I did it for a year. And after a year, I got this really amazing opportunity to run international for Lucent, at the time we had just been spun off of AT&T. I could take
cutting edge technologies, and not kill the cash cow in the US, but could kill other people’s cash cow overseas. So, compete against Siemens, Alcatel and Nortel by taking our cutting edge products and trying to, you know, provide better solutions with better cost structures than their existing circuit switching stuff. And I did that for a few years, and I really, really loved it. And then I moved into the startup side of things and then eventually into the venture side. So that’s my early journey.
Brian Smiga
That’s great. And at first, that brought you back to New Jersey, of course, where Bell Labs, both in New Providence and Holmdel are located. Fantastic. I’ve been checking in with Thierry Klein, the CEO of Nokia Bell Labs, and they are about to launch the first portable cellular network to cover the South Pole of the moon on an Intuitive Machines lander the end of the year.
Raju Rishi
Yep.
Brian Smiga
So, they’re getting back into product mode. We’ll see. We’ll see what comes out of those labs.
Raju Rishi
Yeah, I’m excited. Listen, there were so many good patents in that company that other people exploited.
Brian Smiga
Okay, so now on to the main event, which is making money. Leveraging your startup experience first as a venture partner at Sigma Prime, but now for decade at RRE. I know you have a thesis on how you’re looking at the market today. And I know that’s evolved over the last decade. I’ve heard it, but let’s have our audience hear it, where Raju started 10 years ago in terms of looking for Alpha.
Raju Rishi
So, I’m going to pause there for a second. After Bell Labs, I did a 10 year stretch in startups, which ultimately led me into the venture career because some of my investors kind of pulled me into Sigma prime. I had three startups under my belt and then I got into my venture career. There’s a couple of things that have formulated my thinking. The first key to driving alpha in venture, I think, is to skate where the puck is going. You know, all the whole Wayne Gretzky thing. I think when you look at the venture side of the business, there have been a few ways to look at where the puck is going and where it isn’t. One of the things we did at RE is we planted a flag in New York before there was really anything in New York City. That was 30 years ago. And all of the venture capital was in Silicon Valley and in Boston because everybody needed to be headquartered where the tech talent was.
Brian Smiga
Was New York City partly because of the Robinsons’ AmEx heritage?
Raju Rishi
A little bit, but it’s also a thinking that you’ve got 18 million people in the New York City region. You’ve got heads of the financial hub, the media hub, the healthcare hub, the fashion hub, major customers were there. And so why would you start a company where you had tech talent as opposed to where you had the customers?
So, our thinking was, that’s going to evolve. And, it did. the big inflection point was Amazon web services, right? When AWS came out, you didn’t need to have a rack, you could have all your stuff sitting in the cloud, which means, we started having engineers that were overseas. started doing outsourced engineering. So, you know, if you could start your company anywhere because you have AWS, and you have outsourced tech talent.
You could start it where your customers are. So it was inevitable that New York would become a massive booming industry. And the second reason is New York started creating some very friendly laws, which were a low taxation structure for entrepreneurs. When I was in Boston, I would sit there and say, boom, I’m going down to New York City. Frankly, I started three companies in the New York market. Two of them, wound up migrating up to Boston because we still needed that rack and that tech talent. But once we started seeing a lot of AWS capability and flexibility in terms of workforce, New York was really awesome. We did a lot of thesis investing and we said, what sectors can we get into before everybody’s sort of ahead of the curve?
We as a firm, do analysis on sectors, every fund. We pick one or two sectors. We have a partner do primary research, we go to universities and we decide two things. One, is it a good venture bet or not? And if it’s not, just destroy it, keep the work, but destroy it. And the second is it is a good investor venture bet, but the timing is not good. In which case we kind of shelve it for a little while.
So, we did this early with crypto, you know, almost 17 years ago, we looked at crypto and it was like DigiCoin, and weird, esoteric types of models. And we said it wasn’t a good model. But then later, we picked up that research and we said, you know, it’s a good time for crypto. We started investing in crypto 15 years ago and our bets have been profound. We were one of the earliest investors in Ripple. We were one of the earliest investors in digital currency group, DCG.
So, we’ve had outcomes as a result of these profound exits before the world got into crypto. so that’s the second thing in picking a sector. There’s been three inflection points in our lifetime, Brian, PC, internet, mobile. These are tectonic shifts that created trillions of dollars of value. And they all had three things in common.
One is they all had platforms upon which you could develop. So, you know, the PC was Microsoft, Unix, Apple OS. For internet, it was the various browsers. And for mobile, it’s Palm pilot, Blackberry, iOS, Android. And the second thing they had in common is a lot of open-source developers allowing you to create applications rather quickly. And the third thing they had in common is radical enterprise interest. And there is a fourth technology inflection point coming, which I’ll talk about later.
Brian Smiga
I think we know what that is, but let’s have a little suspense. Yep.
Raju Rishi
But yeah, let’s have a little suspense. But one of the first things I did before that fourth one was on the horizon, I said, which industries haven’t taken advantage of those three inflection points? And there were a handful. One of them was definitely healthcare. And why? Because healthcare is highly segmented. It’s proprietary. It’s highly regulated.
So, healthcare couldn’t take advantage of a lot of those capabilities. But eight years ago, I said, if healthcare is going to jump into the game and become profound, the first thing we need to do is unlock the data. So, I looked at a bunch of companies, I wound up picking the one I really wanted to invest in. And it was based in Madison, Wisconsin. It was a bunch of engineers that had left Epic, and it’s called Redox. I wound up getting into that deal and it’s been marked up with other investors.
If you want to get healthcare into the modern era, you’ve got to create data interoperability. Another one that we looked at was satellites. We said satellites, million dollar boxes, sort of old school stuff, hadn’t taken advantage of Moore’s Law. So instead of $10 million for a satellite, it’s now $100,000 for a CubeSat. As a result, we have a couple of companies that we’ve taken public.
So there’s sector thinking in terms of what hasn’t taken advantage of the massive inflection points. The other was location. New York was going to be profound, and we were one of the earliest investors in Data Dog because we are in New York, and we took advantage of New York becoming an ecosystem. So, we can get into that fourth inflection point a little bit later in this podcast, but we all know there’s a fourth.
Brian Smiga
Right. I think skating to where the puck is headed, ahead of it, you’ve structured RRE to have this sort of deep sector thesis investing per each fund. Can you get into the difference in how RRE structures its funds, keeps them a certain size in order that you can have this agility in the market to achieve alpha?
Raju Rishi
Yeah, you look historically at, you know, funds, they’ve started out small and they’ve grown to, you know, much larger sizes as these firms have performed. There’s some advantages. I’m not going to knock that thesis, but, if you look at the metrics associated with fund performance, that $250 million bucket tends to be the one that can get the highest amount of multiples because you’re betting on seed, but mostly series A companies. And if you make the right picks, you’re going to get a 10 X or 50 X or a 100 X in there. You know, if you raise a billion or a $2 billion fund, you either have to bifurcate the firm into different buckets. This amount of money is dedicated to dedicated to seed and we’re going to measure it differently. It’s got to operate differently.
Or you have to start investing in later stage companies because you need to put $50 million, $100 million to work for each particular company. So, you’re getting into the B’s, the C’s and D rounds and you know, those aren’t going to get as accretive. They’re going to be more measured. You’re not going to see as much of an inflection point at a series C or a series D. Whereas in the A, you’re going to lose a few because, you know, the thesis under which you invested has changed. Or the regulatory environment has changed, or it’s gone from tailwinds to headwinds. But the biggest issue is that you want to take those bets. And it’s been proven time and time again. If you get those series A’s right and those seeds, right, you can blow up a fund really well.
Brian Smiga
Let’s look at the current fund. What Roman numeral? And are you constructing it with a certain percentage seed versus A, and how aligned with a handful of sectors is it? Can you describe the current fund in that way?
Raju Rishi
Absolutely. We’re on fund eight and each of our funds is between 250 and 300 million. This one’s right in middle of that. We basically invest between three or four years. We love the time diversification as a way to avoid sort of hiccups that happen. You know, people that are investing all their money in two years, you will see a really bad vintage in there. So, we look at a three to four year horizon.
We do, about 10 % or 15 % of our investing in seed. And we have two categories of seeds. Brian, one is sort of a very lightweight seed, which is: we like this entrepreneur, we like the sector, but we haven’t seen enough to really make a significant bet. And we’ll put about 500 K into that company, stay attached to it, not necessarily take a board seat or an active involvement, but with the hopes of, you know, it performing and we can underwrite the series A. The second kind of seed, which we’ve been doing more of, and I’ll tell you why in a second, is we have an ecosystem of entrepreneurs. We’ve been around 30 years. There’s not a lot of venture capital firms that have been around for 30 years. By being around 30 years, we get repeat entrepreneurs, entrepreneurs that we’ve bet on that have come back to us and said, “Hey, you know, we want to work with you.
We loved working with you in the past.” Some of those entrepreneurs say, “hey, I don’t even have an idea.” In those cases, we’ll actually incubate the company. And some say, “I have an idea”, but I want you to be the first check. And, the second rule of getting alpha is having an unfair advantage. And the unfair advantage in this particular case is proprietary deal flow. It’s these founders that are coming to us and saying, “Hey, I loved working with you. I had a great outcome. I want to work with you again. I’m not shopping this deal around.”
Brian Smiga
Can you share one company that’s been incubated at RRE with a recycled founder?
Raju Rishi
Absolutely. One of the more recent ones is a company called Catio, C-A-T-I-O. And this is a guy I worked with for many years named Boris Bogatin. And he and I did a startup together. I on his board at the time. It wound up having an okay exit.
Brian Smiga
Let’s go.
Raju Rishi
And then he became a serial entrepreneur. He started a company that was doing, over the top video for the Asian markets, called Sidon. And then he was leaving Sidon, and he called me up, and said, “Hey, I’m going to do my next gig. I don’t really know what it is.” And, I said, yeah, come on in, let’s talk once every couple of weeks. He’s based in Philly. So, he’d come up and I would toss out a few ideas, he would toss out a few ideas, and he said, I really like this one, and he would go off and do like a week or two worth of homework and come back. And one of our ideas is still on the shelf. It’s a good idea, he just didn’t love it, he didn’t want to take it, but I have this, you know, probably a list of 10 ideas that I think can be really, really powerful, but you don’t yet have the time to do it. So if the right entrepreneur comes along that wants to do it…
We kind of locked in on one idea that said penetration testing is a requirement. And you get to a series B or series C company or anything that’s public or anything that’s sort of up there, it’s a requirement by the board of directors that you have to do penetration testing because you can shut down a company if the data taken and sent out to the wind.
The one thing that people don’t do is architecture vetting. And they’ll have a junior engineer that starts the company, or they’ll have a good but not great CTO. And you’ll make a bunch of choices around your architecture. And then you have to live with it. But the cost of doing a bad architectural choice or technical debt can be millions, if not billions of dollars downstream. The second thing that’s happening is that the CTOs are really busy. So small architectural decisions are being made by engineers now. They’re like, should we use this database or not? Boom, they just pick one that they’re comfortable with. So, what Cat.io does is it’s an AI layer, virtual CTO. That’s kind of a blend of that word, CTO and AI. What Cat.io does, it looks at your software architecture and tells you a bunch of stuff. Like one, you got an open source module that is unsupported.
So, if you base it on this open source module, you’re probably going to have to replace it or it might get hacked downstream. The second thing that tells you is if I wanted to optimize this architect around performance, this is what I would change. If I wanted to optimize around reliability, this is what I would change. I wanted to optimize it around, you know, sort of cost. This is what I would change. And when you’re adding things, you know, this is how we would do it.
So, your job number one is to recruit a great technical co-founder. And he went out and got the ex-VP of engineering from Splunk, and he’s now the co-founder, one of the co-founders of the company and it is kind of cranking. And so basically what the company does is it evaluates your software architecture and tells you this is what I would change. And if you’re allowing your junior engineers or software engineers to make some subtle architectural changes, this is just a little shadowing that says that, you know, this is the five things you should think about, and this is kind of the route you want to go. So that’s one that we incubated in-house.
Brian Smiga
You’re just fantastic. And in the interest of getting to that fourth inflection point, but before we do, we’ve heard the playbook of RRE and its unfair advantages and its point of view. Fantastic. What about you, Raju? What is your unfair advantage? I can sense it and I kind of know it, but I want you to put it into words, please.
We’re just giving advice on how to get out performance.
Raju Rishi
Yeah. So, I think one of the things that makes an investor a really good investor, is that you have operating background and experience and I’ve got, you know, 10 years at Bell Labs in Lucent. I’ve got three startups under my belt and now I’m 10 years in venture, which kind of gives away my age, but that’s okay. The reality is when you talk to an entrepreneur, one of the things I say to them, in competing for the deal is like, just call anybody I’ve ever worked for, worked with, or somebody who’s I’ve invested in or somebody that has worked for me. just call anybody that’s one degree separated from me and get the reaction. If you get a bad reaction, like they didn’t enjoy working with me. They didn’t get a lot of value, that I was, whatever, bullheaded. Don’t take my money. You know, move in another direction. I’m kind of an open book.
One of the unfair advantages I have is that people that I’ve worked with in the past definitely come back to me. And I’ll give you an example. Vishal Gupta is a legend. My third startup that I started, he was a guy that really wanted the job. He’d just come out of RPI, and it was a hot startup in New York. And we said, no. And he said, I will work for free. And I said, no, you’re to work for us, but you got to do anything we say. And he was phenomenal. But after like a year and a half of doing this, he wanted to kind of move up the ranks and he got this job from Goldman Sachs and he said, what do you think? I said, take it, you know, take the job at Goldman Sachs. You can always come back here. And he took it. He was there for seven years, and he was building exchanges for Goldman. And then he went to a hedge fund, and he built an exchange for them. And then he went to Circle, Jeremy Allaire’s company, and he wound up running and launching USDC for them. And then he came back to me and said, “Hey, I’m, leaving Circle. I want to start a company, it’s in this shared ownership of home space.”
And I thought the idea was not really ready for prime time. So I told him, don’t do it. And in comes this offer to become the head of the exchange for Coinbase. And I said, yeah, that’s a good job. He said, what do think about this? I said, I think it’s a great job, but let me help you negotiate the offer. So I helped him negotiate it. So, he did that for three years. became the head of Coinbase’s exchange for three years. And then he left about a year ago and said, I want to do this new company that is going to create a new type of exchange for crypto. I’m going to be very regulatory safe. There’s going to be no custody. Because the thing the SEC doesn’t like is when you have an exchange that also has custody of the coins. The SEC wants it to be like the New York Stock Exchange, or like NASDAQ, where the custody is held with the brokers, and they’re just this exchange. And so that’s what he’s built. He just introduced it to the world like a week and a half ago. It’s called True Exchange. So the company has received more than eight term sheets. I told him, go get what you want. I want half the round. So he got a bunch of terms and he says, “I told everybody you get in for half”. So, I’m on his board. That’s an example of an unfair advantage. Lots of people want to get into that deal. They’re not going to get in.
Brian Smiga
Well, it stems from relationships. You’re being a mensch, sometimes a rabbi, sometimes an advisor, sometimes a brainstormer with really extraordinary people.
Raju Rishi
Yeah. So that’s a thing that I sort of rely on. There’s a lot of people I worked with, who worked for me, who I worked for, that are going to start companies. More or less, I’m going to get first dibs. I don’t want to brag about it, but that’s the unfair advantage of relationships. Another one is sectors. If you do things right at a sector that’s at its inflection point or maybe a few years away from its inflection point. and you invest in what’s called a hub company. You get a bunch of unfair advantages. I’ll give you an example that most people recognize easily and that’s AppAnnie. So if you were an investor in AppAnnie, it could tell you which mobile applications on the cusp of breaking out. And if you’re on the board, you might be able to see that data. They’re getting the volume of downloads and the usage.
Another hub example, this company that’s the API for healthcare has a lot of data. What it does is it basically allows medical applications and devices to read-write into electronic health records, which turns out to be an incredibly difficult problem that they’ve solved because you would think an API for healthcare is easy, but, you know, how many systems are there for EHRs?
You’ve got Epic, Cerner, Allscript, Athena, and a bunch of others. All of those EHRs are 100% customized. And the saying in healthcare is if you’ve seen one healthcare company, you’ve seen one healthcare company, you know, one healthcare system. They’re all customized. But once they create that connection into that healthcare system, whether it’s NYU Langone, or, you know, Memorial Sloan Kettering, then all the other medical application device companies that they’re working with have access. So, there’s a little bit of a Brownian motion, a sort of a viral effect, a force multiplier that exists when you do that. And so, but they also see early on which medical applications and devices are being requested by the healthcare systems. So you an early edge and you get to see like which applications are cranking.
Brian Smiga
Yeah. So, invest in the company that becomes the hub for the sector. And then you’ve got the all-seeing capability that’s going to guide you in other investments in that sector.
Raju Rishi
Digital Currency Group is a great example in the crypto space. So Digital Currency Group is not just Geneis, its ETF. It also has a bunch of investing that goes on underneath. So, if you’re involved in that company, you can find out which startups they’re investing in and have momentum.
Brian Smiga
In healthcare, it’s Redox, right? All right, so now the drum roll. We’ve been waiting for it. The fourth inflection point and how to play it as RRE and Raju.
Raju Rishi
Okay. I’m giving away a lot of farm secrets here. So how to get the cows to stay in one spot. But anyway, the fourth is AI, right? And everybody knows it and everybody’s investing super heavily in it. So, the three characteristics that I described earlier, platform, open source and enterprise interests, right? The platforms are Anthropic, Open AI, Mistral, Liquid, all the base platforms that exist out there. The second, is there enterprise interest? I mean, of course there’s enterprise interest, right? AI is going to help change a lot of industries. The third is do we have a lot of open source? Absolutely. We have a ton of open source in there that allows you to build applications faster. The big difference between AI and the prior three is the prior three were disruptive technologies. It was a David and Goliath situation where industries were going through tectonic shifts and the small guy could become the big guy. And Amazon’s a great example, right? It started out like just, you know, books, but then obviously any kind of product, and it ripped through retail, and it just changed the world of retail.
You know, David became Goliath. And the music industry is a great other example of how disruptive those three technologies were. So when, you know, digital came out, when PC came out, you had digital music. So, we had to have digital rights management because you had Kazaa and Napster and all sorts of file sharing applications where people were just stealing music left and right. You had to get DRM. When internet came out, discovery of music went to MySpace and YouTube instead of Billboard magazine and record stores or radio. And then when the mobile world came out, distribution of music went through the mobile phone. Nobody went to record stores anymore. I bought it through iTunes. I bought it through Google Play. All my music was purchased through that. Then when cloud came out, nobody bought music anymore. It was just monthly fees. Spotify and iTunes and a few people use Amazon. yeah, it was like a monthly subscription. You have all the music you ever wanted for 10, 15 bucks a month.
Now AI is going to have a disruptive model, you know, synthetic music is going to come out. But when you look at AI, the oil and electricity associated with AI is the data and the small companies don’t have the data. The big companies have the data. So the trick to AI is there’s going to be a few different kinds of success patterns in AI. On is that the big companies have the data.
Who has the most data around insurance, right? It’s MassMutual, it’s MetLife, it’s New York Life. It’s all those big insurance companies. know the carriers are going to provide rates, everything where the breakage is going exist. Small company comes in and says, yeah, I’m going to become a better insurance company. No, it’s not going to happen, right? The big companies have all of that data. So, but if you’re a small company that says, I’m going to leverage your data, create value for you, then you can beat your competitors.
So Applied AI, that’s what I call it, is the sector that’s going to be valuable. A company that we invested in called Open Envoy. It’s a great, simple company. They take all your vendor contracts, big companies, have thousand vendor contracts, and then you get all these invoices. And they basically mesh them. They say, okay, you’ve invested in all, you know, this software, what we’re gonna do is we’re gonna see if that invoice is correct. If it is correct, and you have a net 30, we’re going to wait till day 29, hour 23, minute 59, we’ll pay it. If it’s incorrect, we’ll send them a response saying your invoice is incorrect. And when you get a new invoice, you get a new net 30. So, that’s a massive amount of float that every company can get. So, their AI gets better and better with every invoice, every single accounts receivable, know, accounts payable and vendor contract. And they’re just getting smarter and smarter and better.
Brian Smiga
Okay.
Raju Rishi
Another example is a company called Avena that we invested in. Avena is a really smart set of entrepreneurs. They had actually created a company that prior to this that was an overlay on top of, for yoga studios and gyms, to tell them whether their customers were going to sort of churn or how to maximize revenue. The could say, Brian Smiga likes yoga, but he tried hot yoga. Now he’s spending more money, now we give him a different aerial yoga, some of the other types of yoga. All of a sudden we expand the revenue pool for Brian. Or he’s a member, but he hasn’t showed up in three weeks, and he normally comes every day on Friday. So you might want to ping him. MindBody wound up acquiring the company, and they said, we want to do the same thing for a broader category. So, they expanded into sales and marketing. Now this company ingests all of your sales and marketing data. your Google AdWords, you know, feed your marketing engine, Marketo, HubSpot, whatever it is, takes all your Salesforce data and it automatically creates these ICPs. says, you think you have one ICP, you have five, you know, and this is the way each of those five has bought in the past. So, let me look at your pipeline, and they map your pipeline into these buckets. So, the next thing your sales and marketing team should do for this customer is this.
And it’s leveraging the customer’s own big data. It’s munging it using AI, and it’s providing value back to those companies. And that to me is applied AI. Now I do think there are other categories of AI, like generative AI and, you know, sort of really broad sectors that will create success. Search is the big thing that everybody’s after I just think that that’s not a great venture bet you know because billions of dollars are being put into Open AI and you know Mistral, Anthropic. So, you know who’s getting a lot of leverage from them? It’s the partners right? Amazon’s getting a lot of value because you got to use Amazon’s cloud, for Anthropic, and Microsoft’s getting a lot out of value because OpenAI has to use the Azure platform. Not only that, but they got to get billions of dollars worth of spend in Azure to offset the investment by Microsoft. Venture guys, we don’t have anything to get back, right? So, we have nothing to sort of gain by investing in these broad categories. And not everybody’s going to be a winner. It’s like, remember the browser wars? Alta Vista, Lycos…
Brian Smiga
Right. We can spend billions and be an “also ran” or “did not finish”. Totally agree with you. At Alpha we therefore have invested in RAD.AI in radiology, Pearl in dentistry, Shield AI in autonomous piloting, and Second Front in applied AI. Applied AI, you heard it here first. I hope you didn’t give too much away, Raju.
Raju Rishi
I might have, I might have. That’s okay. You know what? Long ago I’ve figured out that it’s not just about your thought process. It’s important to put it out there because then entrepreneurs who hear this podcast are going to say, “Listen, this is the guy I want to invest in us. He actually has a strong thesis. Or, also seed investors that have invested in a company in this space now know, Raju’s focused in this sector. That’s okay.
The second part of the equation needs to be the proprietary access to those entrepreneurs, people who want to work with you, people who sit there and say like, hey man, I’ve diligenced this guy, all his entrepreneurs and all his founders love him and would absolutely recommend him. That goes a long way and it’s just as important the thought process.
Brian Smiga
Sounds like one of the Rs in RRE needs to be relationships. That is definitely your advantage. That’s something that can’t be copied or built in a day. It’s built over a lifetime. In RRE’s case, built over 30 years. So great interview. I’m going to say goodbye now. And thanks so much, Raju.
Raju Rishi
Absolutely. Anytime, Brian.