Key Facts
- ✓ Jenny Xiao, a former researcher at OpenAI, now leads Leonis Capital, a venture firm she cofounded in 2021 to address the gap between research and investment.
- ✓ According to Xiao, discussions at major AI conferences trail the actual thinking of top researchers by a margin of 3 to 5 years.
- ✓ Unlike traditional software companies built on stable technology stacks, AI development is characterized by rapid, unpredictable shifts.
- ✓ Xiao advocates for a new generation of investors who possess deep technical fluency to navigate the non-linear progress of artificial intelligence.
- ✓ The venture capitalist emphasizes that AI progress occurs in 'lumps' rather than steady increments, challenging traditional investment metrics.
Quick Summary
The rapid ascent of artificial intelligence has sparked both investment frenzy and fears of a market bubble. Amidst this volatility, a critical disconnect has emerged between the cutting-edge world of AI research and the financial markets that fuel its growth.
According to Jenny Xiao, a former researcher at OpenAI and now a venture capitalist, the investment community is operating on a significant time delay. Her analysis suggests that while capital flows toward AI, it is chasing yesterday's breakthroughs rather than tomorrow's innovations.
The 3-to-5-Year Gap
The core of the issue lies in a temporal disconnect. Xiao, who cofounded Leonis Capital in 2021, argues that the excitement surrounding AI investments is far behind the actual research occurring in laboratories today.
"There is a massive disconnect between what researchers are seeing and what investors are seeing,"
Xiao stated during a recent appearance on the Fortune Magazine podcast. This lag is not merely a matter of months; it spans years.
She quantified this delay, noting that topics dominating the conversation at the largest AI conferences are actually 3 to 5 years behind the forward-thinking concepts preoccupying top researchers. This gap creates a dangerous environment where funding decisions are based on outdated technological paradigms.
"We are so behind the technical frontier, and that's the gap I really want to bridge,"
she added, highlighting the mission behind her firm.
"There is a massive disconnect between what researchers are seeing and what investors are seeing."
— Jenny Xiao, Leonis Capital
A Nonlinear Trajectory
Investors accustomed to the steady growth curves of traditional software companies are ill-equipped to handle the unique nature of AI development. Xiao points out that unlike SaaS companies, which are built on a "stable tech stack," the foundation of AI is constantly shifting.
She warns that viewing AI progress through a linear lens leads to fundamental misunderstandings about the technology's capabilities and timeline. Progress does not happen in a straight line; it occurs in unpredictable bursts.
- Steady increments: Traditional tech follows predictable versioning.
- Lumpy progress: AI advances in sudden, significant leaps.
- Technical fluency: Investors must understand these patterns to succeed.
Questions regarding whether AI progress is "slowing down" or "speeding up" are often misleading. Xiao asserts that the reality is neither of these extremes but rather a complex middle ground defined by sporadic breakthroughs.
Bridging Two Worlds
Xiao’s perspective is shaped by a unique career path. She dropped out of a Ph.D. program in economics and AI to join OpenAI as a researcher before pivoting to venture capital. This dual background drives her conviction that the industry requires a new archetype of both founders and investors.
Leonis Capital was established specifically to connect the worlds of deep academic AI research and high-stakes venture capital. Xiao argues that financial support must now be tailored to both the market and the underlying technology simultaneously.
To keep pace with the velocity of change, investors are urged to become as technically fluent as the founders they back. The era of passive capital is ending; the new standard requires a deep understanding of the technical frontier.
"With AI, there needs to be a new generation of founders. There needs to be a new generation of VCs,"
Xiao said, emphasizing the necessity for an evolved investment ecosystem.
The Investment Imperative
The warning from Leonis Capital serves as a critical directive for the financial sector. Relying on traditional metrics or historical tech cycles to evaluate AI startups is no longer sufficient. Investors must adapt to a landscape where the rules of engagement are rewritten regularly.
For those who have not yet immersed themselves in the technical side of the industry, Xiao offers a singular piece of advice: accept the nonlinearity. Understanding that AI evolves in "lumps" is the first step toward making informed, forward-looking investment decisions.
Ultimately, bridging the gap between the laboratory and the boardroom is essential for sustainable growth. As the technology continues to evolve at a breakneck pace, the investors who thrive will be those who look beyond the current hype cycle to see the true potential lying years ahead.
Looking Ahead
The insights provided by Jenny Xiao highlight a pivotal moment for the AI industry. As capital continues to pour into the sector, the alignment between financial backing and technological reality will determine the success of future ventures.
By recognizing the 3-to-5-year lag and embracing the nonlinear nature of AI progress, investors can move from chasing trends to shaping the future. The bridge Xiao is building at Leonis Capital may well become the standard for the next generation of technology funding.
"We are so behind the technical frontier, and that's the gap I really want to bridge."
— Jenny Xiao, Leonis Capital
"With AI, there needs to be a new generation of founders. There needs to be a new generation of VCs."
— Jenny Xiao, Leonis Capital
