Electric Sheep, Small Fundraising, and the Problem with AI

Last week we went big, so this week I thought we’d go back to our roots. And look at a small pre-seed company, that might tell us something about how the world could look in the near future.

Electric Sheep (and the actual reality of early-stage funding)

Electric Sheep just announced they raised $500K from Dasein Capital, Spatial Capital and Look AI Ventures. Now before I tell you anything at all about the company, the product, the founders, the market.

What do you think? When you hear $500k for a pre-seed round, instinctively, how do you feel about it?

I ask, because we’re starting to get to the point where I don’t know the background of everyone who’s reading this. I can assume you’re interested in startups, entrepreneurship, venture capital. Probably at least one of the three. And maybe you want to start a business one day. 

But if you’re not familiar with early-stage fundraising, I imagine you might see $500k for a venture round, and initially you probably just glance past it (because you’re scared of numbers, don’t blame me). But then you really think about it. And you realize, huh, that’s not really that much money for a business, is it? 

That’s 5 people making $100k for 1 year, or 10 people making $50k for two years. And that’s pretty much your runway, Somewhere between 12 and 24 months depending how you slice it. Which is…not much.

Electric Sheep Raises Perfectly Reasonable Amount of Money

I know I’m burning my own runway of 1,000 words on this. But I wanted to highlight that $500k number. Because I think a lot of people only hear about the big winners. We see a big Series A from Andreesen or Sequoia for $50M and think, “That’s how it works.” 

But in niche industries, early stage rounds are often $500k…$200k…or less. Pre seed, angel, and “friends and family” rounds start small. It means you have to be scrappy. It also means you have to plan how you’re gonna get to that next phase, and raise further money (hopefully at a higher valuation). 

But remember: the benefit of starting small is you can win small too.

That might sound weird. But winning at all is way better than losing. Everyone wants to be a billionaire. But if you raise small, it’s easier to raise the next round. Grow. And get acquired for something reasonable, like 20 million dollars. Which doesn’t sound like a lot. Unless you’re the founder who avoided dilution, and still holds 80% of the company. In which case, congrats. You now have 16 million dollars. 

Wanna be friends?

“Won’t someone please think of the VFX artists?”

Anyway, back to Electric Sheep.

Despite my rambling, it’s true, they’re a small startup. Gary Palmer founded the company all the way back in… March 2022.

And at this point I’m realizing we’re almost halfway through and I haven’t introduced the company. So here we go:

Electric Sheep is building a visual effects (VFX) tool for rotoscoping with the aid of AI.

For the layman, rotoscoping is when VFX artists carefully trace the edge of a shape so they can remove an object from a larger image. There’s a good demonstration on their site: check it out.

“Why this very happy man is in a full suit on the beach, we’ll never know”

If you’ve ever heard of rotoscoping, it’s probably in the context of green screens for movies. Because big budget action flicks have huge teams of people sitting at computers manually tracing the edges of objects in order to (virtually) transport actors from the backlot of a studio to the gates of Mordor.

Electric Sheep promises to make that tedious process far faster and easier. 

I did some research (Googling) and it seems that depending on specifics, it really can take VFX artists hours to manually go through and rotoscope the outline of an object. This means that doing hundreds or thousands of VFX shots for a big movie can take potentially tens of thousands of man hours. Clearly there’s a need for innovation.

An Elegant (but unoriginal) Solution

And this is where AI comes in. (Sidenote: that could basically be the tagline for 2023)

Using artificial intelligence and machine learning, Electric Sheep claims to have created a platform that allows VFX artists to do something in minutes that once would have taken hours. 

It’s revolutionary. 

Or it might have been. If I didn’t immediately find 10 other companies doing literally the exact same thing. There’s even a guy on Youtube walking you through how to use one of the competitor’s software. 

Gary Palmer, the CEO of Electric Sheep, is an industry professional with experience in production and editing. So maybe he has some insight into key features that simply don’t exist in the competitors’ products. 

I talk a lot about crowded markets as the end-all-be-all. But it is possible for an entrant to win share and simply outcompete their rivals. It’s just:

• Difficult

• Rare, 

• Expensive

• Leads to slim margins

But other than that, crowded markets are great.

Hey, has anyone mentioned these AI things might take our jobs?

What’s so interesting to me about this situation is that five years ago this would’ve been an amazing technology. Now it’s just another widget doing the same thing as a million other widgets. AI is quickly becoming wildly powerful. But, strangely, that enormous power is accessible to almost everyone.

What’s scary is we can’t really know just how far the commoditization of everything will go.

Personally, my instinct is that we’re only just beginning to see the potential of artificial intelligence. That would mean that in only a few years, you might actually be able to tell ChatGPT to build an app, create an online business, or do a million other things that create real economic value without much oversight. 

What happens when tasks don’t just get automated, but whole businesses do?

One possibility is that margins go down everywhere, and ordinary consumers benefit. But it’s also likely that differentiation itself becomes increasingly rare. And a huge number of businesses suffer as a result.

Whichever way things go, I don’t like the outlook for Electric Sheep.

Until next time. This has been,

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