The Future of AI From a $250M Venture Fund

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Hey, welcome to another episode of Making Billions, I'm your host, Ryan Miller and today I have my dear friend Gavin Myers. 

Gavin is a co-founder and managing partner at Prudence, a global venture firm investing in technology companies, leading the global transformation of the built world, like real estate, construction, infrastructure and climate adaptation. 

So what does this mean? Well, it just means that Gavin understands artificial intelligence and how venture capital is shifting to profitable allocations into the sector.

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[THE GUEST]: Gavin is a co-founder and managing partner at Prudence.

[THE HOST]: Ryan Miller is an Angel investor in technology and energy. 

Transcript

Ryan Miller  

My name is Ryan Miller, and for the past 15 years, I've helped hundreds of people to raise millions of dollars for their funds and for their startups. If you're serious about raising money, launching your business or taking your life to the next level, this show will give you the answers so that you too can enjoy your pursuit of Making Billions. Let's get into it. 

Ryan Miller  

If you could sit down with a venture capitalist or any fund manager that manages  $250 million what would you ask him? How might that advice change your life? Well, my next guest is just that guy, and he's about to peel your lid back on everything that he's doing and ways that you can not only make money, but also achieve excellence in the fund management space. All this and more coming right now. Let's get into it. 

Ryan Miller  

Hey, welcome to another episode of Making Billions, I'm your host, Ryan Miller and today I have my dear friend Gavin Myers. Gavin is a co-founder and managing partner at Prudence, a global venture firm investing in technology companies, leading the global transformation of the built world, like real estate, construction, infrastructure and climate adaptation. So what does this mean? Well, it just means that Gavin understands artificial intelligence and how venture capital is shifting to profitable allocations into the sector. So Gavin, welcome to the show, man.

Gavin Myers  

Thanks, Ryan, so glad to be here. 

Ryan Miller  

Yeah, it's great to have you man, we're certainly honored to have you. I mean, you've been running a pretty impressive firm for some time now, you're coming out of the industry. I'm really excited, this is a hot topic talking about artificial intelligence and its impact on the alternative asset space. So you know, we wouldn't, we wouldn't be a good show on alternative assets and allocators and all of that if we didn't really jump into the market. I would love to hear, just with our community, this is why we come together on this show is to really have a meeting of the minds, and you are absolutely brilliant in your sector. I'm just curious, we teased a little bit in the beginning about AI, let's jump into it. What is it that you're seeing from your vantage point? And maybe we can open that up a little bit. 

Gavin Myers  

Yeah, absolutely. Well, first I just want to say thanks for having me on. I'm a big fan of the show, and it's an honor to go from a listener to a participant. So thanks for having me to your question, AI, it's hard to avoid it right now. It's so topical. I think it's because it's just so interesting. I think we've all lived through if you're 40 years old, you've lived through so many technology cycles already, and it doesn't strike many as an overstatement to say that this is the big one, and it's been for a variety of reasons, and there's a number of opportunities that flow from it, but this is probably the one that all passed hype cycles and technology. We'll look back and say these were small waves by comparison, so this relatively larger wave, and it all comes down to this kind of basic concept of massive productivity gains, and the way that I like to frame it, and to think about the big picture is, is, you know, it's kind of funny, if you're a student of history, and you don't even have to be a student of history to know that we still measure the strength of a car by its horsepower, right and why did we do that? When we switched from horses to cars it was the reference point. It was the constraint that we were familiar with. And so we started measuring the strength of a car by the strength of a horse, or the number of horses. Nowadays, we don't think about horses when we say that a Tesla has, like 1000 horsepower, but I do think that what we will look back on, it's not completely obvious right now, is how we measure our own productivity. So today, if you just think about productivity, a very simple way to do so is the number of hours you work in a day, whether you work 8 hours a day or 12 hours a day, or you work for Elon and you work 18 to 20 hours a day, or you work at Prudence, and it's, you know, not quite Elon, but we still work pretty hard. Those are constrained metrics by the number of available hours per day. I don't think it's going to be long until we're measuring our output, our productivity in as a multiple of man hours per day that we are currently constrained by. And so can you work 50 man hours per day, 100 man hours per day? Will it not be that long before 500 man hours a day and how would we do that? It's arranging all these systems and processes that we go through and building in agentic automations throughout our own workflows to just get incredible productivity, the likes of which we've never experienced. 

Gavin Myers  

And so it's through that lens that we say, if that's possible, then what needs to be built. And we really break down this opportunity set as investors, as an investor, we have Prudence invest in early stage companies. We're really looking at two discrete types of opportunities. One would be foundational models, and the other would be the agentic applications that are built off of them. Right? When you think of foundational models, everybody knows open AI, increasingly they knew the other models, whether they come from Google, Grok that just dropped three digits they just dropped. DeepSeek out of China and others such as COD and now we're entering this realm where we're looking at workflows that can be automated, built on top of these foundational models. So we're looking to invest in both right now. We'll certainly have more opportunities as a firm to invest in agentic applications, because it's just unclear how many foundational models will be out there, but that is a wide open landscape. And the reason it's a wide open landscape, and I'll take, I'll take a breather after this has been talking for a little bit, the reason it's a wide open landscape is that these agentic applications, these automated workflows, are not going in to enterprises as part of the software budget. They are augmenting or replacing labor budgets and so this isn't looking at, you know, corporate P&L and saying, you know, one and a half percent of total expense goes to software. This is looking at the 40% of operating expenses that go to one, and what part of that can we participate in? That is an order of magnitude or two larger than the software opportunity that predated it. And so if you're me sitting as a venture investor, investing at the early stages, I want to map out every workflow that I think can be automated over the next 10 years and make sure we've got the entire surface area of opportunities covered as we look to deploy our capital.

Ryan Miller  

Brilliant and so when it when it comes to understanding AI and it's disrupting the labor budgets, while that sounds good and promising, especially for business managers and investors, after talking to you offline, you and I, we talked a little bit about how it is a bit of a challenge to value these things. So from an investor standpoint, venture capital, Angel and everyone in between. How are you going about valuing these kind of deals as an investor?

Gavin Myers  

Boy, it's some combination of pragmatically and irrationally at times. It's, it's, it's always a challenge as an early stage technology investor to apply rigid valuation metrics and do so consistently. I'll start with some basics, if I look back at some of my best investments, those were probably the worst value when I initially wrote those checks, but those were the biggest opportunities with the best founding teams with the most traction at the time I'd invested, and people that I really just had a high degree of conviction were going to see this through, rule in hand. On the other hand, most companies become subject to normalized public company valuation metrics, and so you're always triangulating between the art of what is changing in an industry. Who are these people? How do they operate? What are their soft skills? How are they at assembling talent? Organizing that talent, building products, going after market opportunities versus the science, what multiple of revenue am I paying? What is the size of the market opportunity? Could this market opportunity grow? A product like this hasn't existed before, and so you're layering in the art and the science to try to come up with what is a reasonable proxy for what you think the company is either worth today or will be worth at some point before they raise more capital, so that by the time that they raise more capital in the future, we're at least confident that we've seen some gain in our initial investment. 

Ryan Miller  

Brilliant. We see AI for everything these days, that's exciting, but it also make your head spin a little bit. So as an investor, we're kind of observing this phenomenon a little maybe less novel, I'm just guessing, but the novelty of it, I think everybody is getting excited about that and the possibilities. It's always fun, that's why I love VC. But where do you see, from keeping our investor hat on? Where do you see the entry point or where do these get inserted to start causing a lot of that innovation? Where do you see a place that you guys are looking Is it a sector? Is it a continent? Is it a certain type of app? Where are you seeing the entry point where money is going to be made here? 

Gavin Myers  

So for Prudence, we are on our third fund. Our first fund was a generalist fund. In our last two funds, we've been solely focused on the broader built world, which, as you mentioned, is real estate predominates, real estate, construction and infrastructure. Those are the three end markets that we're kind of hyper obsessed with. We know those end markets well, we know the players in those markets. For the most part, we understand where pain points exist, where we can reach people to validate pain points. And so when we look for opportunities to invest in, we are starting with the customer and their pain and how a solution solves that, and working backwards. And that is, it's really one of these famous Steve Job lines, which is, start with the customer and then work backwards, and then Jeff Bezos is very kind of proudly always talking about that. And there's been no greater determinant of at least initial product adoption than a company's focus on solving customer pain points. So if you have to distill everything down, it starts there, and so we are hyper focused on the acuteness of the pain point and the ability of this product to go solve it. If you can do that, that's a great start. 

Gavin Myers  

Now, we as investors tend to not get involved at the pre seed or even barely at the seed stage. We like to see products that are built in the hands of customers, where customers are using them, customers are willing to talk to us, so we can measure the criticality of that product to the customer, and thus determine what we believe will be their willingness to pay, their willingness to stay as a customer, their willingness to refer this product to other people in their in their circle of influence, or their sphere of influence. And so we are, we need kind of a base load of information to be able to make that decision that sometimes happens at the seed stage. That's typically there by the Series A, and in some instances it's proven by the Series B. So we invest seed to Series B, but we do so without kind of regards to the name we're the round. We focus more on the stage of the company and can we answer these critical questions? Because if we can, we're investing capital that is going to be going into not just product development, not to testing the market, but to accelerating the company's impact on the market in which they're focused. Which, as an investor, that de risks an investment for us, we invest, and they go on a nice growth trajectory that becomes a great catalyst for momentum. Momentum is so important in our industry. Why momentum? Customer adoption leads to great metrics. Great metrics leads to more investor interest. More investor interest leads to access to more capital. Access to more capital leads to more dollars to invest in growth. It's a positive virtuous cycle that we obviously want to find early and help catalyze.

Ryan Miller  

Brilliant and so. So that's what we're seeing right now, you know I'm curious., I just love to shift gears on, let's look ahead, because a lot of investors hire folks like yourself to really look around corners, as I like to call it. Obviously, we can't predict the future, but we do follow statistical models and our own investment thesis. So based on that wind up, I'm just curious, what are you guys seeing out there? Where do you think this, this market is going? And you know, how do you follow that? What are you looking at, as far as forecasting the future from your projections?

Gavin Myers  

Look, we're hyper bullish and I reached that conclusion having been in the technology sector through many cycles. That is to say, I was a lowly analyst at a college at the tail end of the.com bubble. I've seen the internet 2.0 cycle, the wireless with the app ecosystem cycle, the cloud cycle, the crypto cycle, the post COVID kind of juice the economy cycle, and then now is the AI cycle. This is the first one where there is not top down skepticism from big enterprise customers. If you look back on every other cycle, there was a little bit of like, yeah, the internet seems fine, it's a little bit slow and like, I don't know, it seems like everybody's using it for gambling and other kind of nefarious activities. And then internet 2.0 social media, that's kind of the thing that college kids do to send pictures. And it's like, is there really any bad to this, right? The app ecosystem, that was neat, but, you know, the top loaded downloads were like, Instagram, right? Continuous of cycle, 2.0 and then, you know, it started to be getting interesting with the on demand economy. Crypto kind of had its niche, and still has its niche, and we've actually made an important investment in the crypto sector, but it's not our core area of focus. 

Gavin Myers  

This is the first one where you meet senior executives at large companies in our space, in the real estate space, these are large owners of multi-family properties, 10s of 1000s of units, big construction companies doing $10 to $15 billion a year. They want AI strategies, they're asking for them, and they're putting pressure on their teams to go pilot that and find them. And so what that adds up to is an adoption cycle that is just going to be faster than most. You combine that with the fact that founders these days know how to not just build AI tools, but to use AI tools to build their own companies, and they were able to build companies faster and more capital efficiently than ever before, leveraging all the historical benefits that have led to kind of the tech stack for founding companies to be more efficient than it's ever been. And so we want to get involved early, and we're probably going to find ourselves investing a little bit earlier than we typically would have, because companies are getting farther on less capital, we just let a seed run out for a company that has just under a million dollars of annual recurring revenue that hasn't raised a penny, there's five people in the company. They're growing fast. They've got a big enterprise customer list, 4000 locations around the world. They sell their product in 11 countries with 11 different languages. That's the point of 11 different countries, right? Why? Because they can create a code base, and they can, that is fungible with from both a language and a local currency perspective, that they can sell into all these end markets at inception, at literally no incremental cost of being able to migrate their capabilities to both languages and local currencies. It's incredible, incredible, right? I mean, I never said anything close to this.

Ryan Miller  

As far as entry point as an investor in these AI companies, where do you see the right? Are you more do you see more opportunity at the early stage and why? Or is it later stage and why? Curious, where you guys see the best opportunities coming from as far as stage investing? 

Gavin Myers  

I think it's still at the early stages. I think, I think the amount of company formation and ideation is at a truly at an all time high. And so for us, it's early stage seed series A is going to continue to be the ideal entry point. You don't see a lot of the traditional growth equity investors investing in AI quite yet, you see a lot of venture capital firms, the large brand names that have raised a ton of capital investing in growth year stages of companies. And so I think the amount of company formation by strong founders that can build efficiently is at an all time high, and then naturally lends itself to invest early. And so that's where you'll see us continue to invest.

Ryan Miller  

Perfect and you know, to me, that really just sounds like the costs and the risks of starting a business is starting to go way down significantly with AI, which, as an investor, that's great. Bring on more deals, more startups, and if you can do more with less than I think that that sits all right in my book. So I don't know how you feel about that, but we're pretty, pretty happy.

Gavin Myers  

This company that we just invested in, you know, they incorporate large language models in their product. And, I mean, just the token cost has declined 15% of last two months, right? So that's that, that's a huge decrease in a short amount of time, and then we'll only continue to increase, but the decrease will increase. 

Ryan Miller  

Yeah, yeah,

Gavin Myers  

There a lot faster. 

Ryan Miller  

I love it. So, you know, I'd love to just switch gears from the market, and what you're seeing that's absolutely brilliant. Let's really boil it down to some fundamentals. So what are two or three areas that you would say that investors can implement in order to start winning in this sector? 

Gavin Myers  

So what I start with is always the team, the team that is going after this problem. We are often talking about founder companies fit, and it's how authentically do the founders understand the problem at hand, and are they the best position to kind of marshal the resources as well as to have the credibility and authenticity in their sector to build this business? I can give you an example. We have a we have a company called AI clearing the founders under you know came from the drone industry, and knew that drones were increasingly being used to fly over large construction sites, but they had this problem, which is, you would, you would get this imagery, whether it was actual photos or something called LIDAR cloud points that came from the LIDAR cameras that were on these drones. And it was the question was, what do you do with this data? And what they what they determined was the big pain point was they actually needed to build a foundational model to ingest this data to be able to tell you what is in that picture and compare it to the original design plans and the project schedule, so that you could know is this project on time and is it being built accurately, and so they had to build a foundational model to be able to process all this. So it's actually its own foundational model. That's a great setup. We had technical founders who knew the sector, knew the pain point, and were the right ones, commercial resources to go solve this. So that's a great place to start. 

Gavin Myers  

The second thing we look for is just a strong technical backbone. Is this is, this is a time where technical people will continue to shine even more so the pace of innovation, the ability to understand the strengths and weaknesses of all the various models, the ability to know how to connect disparate sources of data and information to help inform models decisioning for discrete problems and tasks. Is a new engineering field of prompt engineering that, you know, I think the experts in it have been doing it for years, right? Not 5 years, not 10 years, so a strong technical back backbone is hugely important. 

Gavin Myers  

And then ultimately, this is like the softer side of investing, which is, it's this desire to win, and there's, there's a reason you can just look on the successful companies. It's the ones that want it the most, that desire to win is so hugely important, because this is a hard business to be in. Building companies from the ground up is not easy. If it was right, there'd be more wild success stories. The vast majority of people are kind of not destined to go out and start a company. Then it takes a special type of person with a unique desire to win, a unique chip on their shoulder, a unique desire to prove to the world that they have the right vision to the future and the best position to build it. That is hard to find, and we're always trying to separate those who have that, those innate characteristics, versus those that are in it for whatever reason, posterity money, right? You can't be in this for money, right, money is just the end result of actually being really, really good at what you do and not actually caring about money, which is kind of somewhat backwards logic, but, but it tends to work out that those who care less about the financial outcome of being a founder tend to be the best founders because they're so mission oriented.

Ryan Miller  

Brilliant. So they keep the main thing, the main thing.

Gavin Myers  

100%

Ryan Miller  

Awesome. So as we round third base, I'm just curious if you have any say, two or three unfair advantages that you can provide our listeners around the world, if they got you for, I don't know, 10 minutes, what are two or three unfair advantages that you can teach them today?

Gavin Myers  

Number one is that you have to have, in my view, a sector focus to be able to understand where to allocate capital into the most important unsolved problems. It is no longer the case that a generalist is going to have the best access to opportunities and the best insight about which opportunities make the most sense to invest their time and effort and, of course, capital in. And I kind of draw a parallel to, I think, any other professional field, whether it's surgeons or lawyers. I don't you know there used to be somebody, you know, there used to be this job of a surgeon, and you'd go to a surgeon if you needed surgery. But now you go to the wrist specialist, or the knee specialist, the ankle specialist, you go to the person who knows that part of the body better than anyone else because they have the most experience in that. And you know, I think in a comparative sense, so too is our sector. I think when you look at the allocation of dollars into the built world, most of it has been misallocated by generalist investors who don't have an innate understanding of our sector and so that's what we think of our of is our role. We're here to validate great ideas early on, so that generalist investors can see that if Prudence is involved, that that's the right signal, that they need to lean in and follow our investment, which is why we spend so much time with the later stage investors. So that's kind of, I'd say, a hugely important point number one, of our unfair advantage is our sector knowledge. 

Gavin Myers  

Number two, our unfair advantage, this is kind of sound funny, but we're not greedy. We don't care if we raise the largest funds. I want to raise enough capital to make 10 investments per fund, and I want to keep the bar super high so that all 10 companies are great. I don't have any artificial pressure to deploy capital at a certain rate. I hold myself and our firm to just an extremely high standard, such that when we deploy capital, we do so with very high conviction, even at the early stages. And that becomes an advantage to us, because we end up with a portfolio predominantly of winners. In our first fund, we had 15 portfolio companies, 14 have exited positively, and the last one's getting ready to file to go public this year. We've had that will be our fourth IPO in that 15 portfolio, 15 company portfolio. We did learn from that, though, that 15 is like almost too much, so at that point, we decided to limit it to 10. But here we are kind of two years, maybe a year removed from really the depths of the last cycle. I don't have any problems in my portfolio. We literally don't have a single company at a fund two, which was a 2020-2022 vintage, not a single company to shut down. They're all capitalized, they're all Gurley, some clearly better than others, right? It's not, you know, it's not a portfolio of Grand Slams, but we've got, we've got some outperformers, and we've got some we've got a bunch that are just solid growers and that are capital efficient. So that's our other unfair advantage, is we're just not weighed down. 

Gavin Myers  

And I think number three, the other advantage, unfair advantage we have, is really an outgrowth of what I just said, which is, by constraining ourselves, we should have time to spend with our companies, and so we really get to know our founders. We just step in and help if they need help interviewing candidates, if they are having trouble getting access to certain customers, if they, quite frankly, have we'll say disagreements and they want to bring in a third party who's actually up to speed. That advantage is such that we're really riding shotgun with them. We understand what's going on with the companies to the point where actually board meetings are a little bit, I wouldn't say, boring, but their board meetings are, we're not learning much from. And Prudence, not learning much during board meetings because we're so in the weeds that we know what's happening and that it's, you know, it doesn't serve us, like if it's a general update that's not useful to us. And so what we really try to do is, is when we lead our board meetings, or when we have influence on how board meetings are led. We really try to focus on the three main areas that we need everyone's collective wisdom focused on. 

Ryan Miller  

So as we wrap things up, is there anything else you'd like our fans around the world to know? Anything at all, ways to reach out to anything at all?

Gavin Myers  

Yeah, we're easy to reach, if you email me gavin@prudence.vc, I'll get back to you. Our categories, our sectors that we're focused on, it's, as I said, it's real estate, which is predominantly commercial real estate, but a little bit of residential real estate. We were the first investor in Compass real estate, which is a publicly traded company that was a fund one investment. We do a lot of investing across the commercial real estate sector. We're a big investor in a company called Crexi, which is probably gonna be the first company in our second fund to go public. But we also, we've just been obsessed with the construction sector for the last couple of years, and are just, you know, can't find enough great opportunities there. And then infrastructure has been really, really intriguing, and it's really a subset of both construction and commercial real estate, right, because these are assets that have to get built, then these are assets that once built have to be managed. And so it's a natural extension of all the work we've done in construction and commercial real estate. So I'd say if you come across any companies, if you have any pain points, feel free to reach out. Always love to discuss the sector, we're very passionate about it. 

Ryan Miller  

Brilliant, thank you for that. So just to summarize everything that Gavin and I spoke about, be a specialist, we're on the dawn of specialists overtaking generalists. The second thing is, you don't need to be greedy. Just stick to your strategy. You can get nowhere just as fast as you can get somewhere, the difference is a plan and a culture. And then finally, learn to work with the constraints that your portfolio companies are facing and just roll up your sleeves and help out you do these things, and you too will be well on your way in your pursuit of Making Billions.

Ryan Miller  

Wow, what a show, I hope you enjoyed this episode as much as I did. Now, if you haven't done so already, be sure to leave a comment and review on new ideas and guests you want me to bring on for future episodes. Plus, why don't you head over to YouTube and see extra takes while you get to know our guests even better. And make sure to come back for our next episode, where we dive even deeper into the people, the process and the perspectives of both investors and founders. Until then, my friends, stay hungry, focus on your goals and keep grinding towards your dream of Making Billions.