1Mby1M AI Investor Forum: Nicholas Fok, General Partner, Erez Capital (Part 2)

Sramana Mitra: For those of you who are listening, it’s actually not a bad business to do a wrapper. You can build a business by doing AI wrappers that are specific to a vertical or specific to a use case, and you would find customers. It’s better as a bootstrapped business. VCs are not going to invest in wrappers, because the VC funded company has to go from zero to a hundred million dollars in five to seven years. So, you need a defensible competitive advantage. You need an exit strategy and so forth, none of which are going to be viable with just a wrapper business.

But if you’re doing a bootstrapped business, a wrapper business can actually work.

Nicholas Fok: That’s a good point. If you’re bootstrapping and you’re trying to keep it lean, it’s totally viable. With the tools right now, you can definitely do it. I was a former founder and I bootstrapped it, it’s fully viable and you get 100% of your capital, right? It’s 100% yours. However, from a VC standpoint, it’s not defensible.

Sramana Mitra: It’s not defensible because the minute something successful comes about that is easy, there’re going to be a million copycats. It’s not a good VC business if it’s so easy to replicate, so easy to copy.

Nicholas Fok: Exactly. So, we’re looking for something that’s defensible, that actually has great technology, but also solves a pain point.

I think a lot of times, we get all caught up in the technology. But the pain point, the product-market fit and what’s it solving are key. The second point is, are people willing to pay for that? It’ll be great if you solve a pain point, but if nobody pays for that, then that’s not a viable business. You need to be able to create something that has a defensible position, solves a pain point, and is also something that people will want to pay for. It’s painful enough that people want to pay for it.

Sramana Mitra: Let’s do the examples of what you have invested in. I think, theoretically, it’s hard to grasp for people listening.

Let’s do use cases.

Nicholas Fok: Sure. So, I think one use case would be Curio. While this is not exactly AI, but it’s energy tech. Curio is a company that deals with nuclear waste. It’s kind of AI adjacent, if you will, because it’s energy. It invented a technology that can recycle nuclear fuel with 97% efficiency and reduce waste by 96%. It’s a $53 billion market. This technology has been proven. It’s real technology, not like a wrapper.

Sramana Mitra: Nicholas, One Million by One Million focuses only on tech startups. If you could keep your examples just to the information technology field, specifically AI, that would be helpful right now.

Nicholas Fok: Okay. We have Unplexc that deals with AI powered payments.

Sramana Mitra: That’s more AI FinTech. That’s great.

Nicholas Fok: So, the key here is that they deal specifically with mobile payments. An estimated half of all payments are mobile. It’s a huge market, right?

Sramana Mitra: What is the AI angle?

Nicholas Fok: The AI angle is the customer experience and how it’s interfaced with WhatsApp. It’s focused on the Indian market for expats.

A majority of the WhatsApp users are from India. It has 900 million users in India alone. Brazil is the second largest with 150 million users. In the US, it’s about a hundred million users. But it’s a huge adoption in WhatsApp, and it enables payments on WhatsApp, which reduces a lot of the friction. The AI angle is the customer interaction and the customer service angle. It reduces a lot of the friction with the payments.

Sramana Mitra: I understand the WhatsApp angle, I understand why WhatsApp payment is interesting. I don’t understand the AI angle.

Nicholas Fok: It’s for the customer service. AI enables the interaction with customers. It answers questions like where’s my payments, or it reduces a lot of the friction with the customers.

Sramana Mitra: For those of you who are listening, I want to point out something. I have companies in the 1Mby1M portfolio right now where I’m experiencing this as well in our premium program.

Sometimes, even though you have some AI here and there, your primary value proposition may not be an AI value proposition, right?

In this use case that we are discussing with Nick right now, the primary value proposition is not AI. The primary value proposition is WhatsApp payment. Nick is absolutely right in that there is an incredible number of WhatsApp users around the world, especially overseas.

In fact, I was just thinking that these 100 million US users, probably a large percentage of that is Indians who are communicating with people at home, right?

So, I know that even in Europe, our European family and friends also use WhatsApp very extensively. Overseas WhatsApp adoption has been fantastic. Cross border payments on WhatsApp is a very valuable use case. It’s a very valuable opportunity to create a company. That is the real value proposition.AI may be doing some things here and there, maybe the software development is happening with a lot of AI co-pilots. That doesn’t make you an AI company.

So, in 1Mby1M we work on positioning a lot. How you position your company is key to explain what kind of a company you’re building and what is the business, especially if you’re going out to raise money.

So, if your primary value proposition is not AI, do not pitch it as an AI company.

That’s my guidance, and I’m seeing this a lot right now because everybody’s trying to ride on the AI band wagon. If you position yourself as an AI company, and then the investors receiving that pitch don’t see AI in it, they don’t like that. So that’s just something for the audience to take away.

This segment is part 2 in the series : 1Mby1M AI Investor Forum: Nicholas Fok, General Partner, Erez Capital
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