Mayfield's leader Navin Chaddha (left) with new partner hire Vijay Reddy, who will be solely focused on investing out of the firm's new AI Start fund.
Mayfield FundLongtime venture capital firm Mayfield Fund is launching a new investment vehicle specifically to back artificial intelligence startups.
The “AI Start” fund will dedicate $250 million to companies at the seed stage and earlier in order to capitalize on a wave of nascent ventures being founded amid the current boom period in generative AI. Mayfield did not raise new capital but is rather drawing the money from its existing dry powder, the firm's leader Navin Chaddha told Forbes. That pool sits at about $1.3 billion.
“Having participated on web, mobile and cloud, we think AI is an even bigger opportunity and this is going to make humans superhuman,” he said.
Chaddha, a perennial Midas List investor who ranked no. 5 this year, said he began to plot out an AI-specific venture fund some six months ago, not long after OpenAI’s ChatGPT catalyzed a craze for the technology in Silicon Valley. He plans to lead the buildout of the new fund and has so far hired one new partner — Vijay Reddy, who formerly worked at Intel Capital and Clear Ventures — who will be focused specifically on investing out of the new fund. He added that he may also make one or two more partner-level hires.
The new fund is the first seed stage-focused vehicle that Mayfield has ever launched. Its 54-year-old flagship fund invests from the seed stage up to Series B; it has enjoyed success under Chaddha’s stewardship with early investments into Lyft, Poshmark and HashiCorp. Seven years ago, it added a later-stage fund to double down on its most successful portfolio companies.
But while Mayfield has followed a traditional VC playbook with its existing funds — typically writing $7 million to $12 million checks and taking 20% stakes into companies — Chaddha told Forbes he believes the generative AI ecosystem necessitates a different approach. The new fund, more than announcing Mayfield’s intent to lean in on AI, will allow the firm to “widen the aperture,” as he puts it: backing companies that would not have otherwise fit the bill for investment by the primary fund.
“Dinosaurs never survive,” he explained. “You have to meet the entrepreneurs at day zero and in their needs, which we weren’t doing.”
“When the raises become big, the smaller funds back off.”
Investments through AI Start could be much smaller and see the firm taking ownership stakes below 10% in order to make room for more angel investors and other firms to get on a startup’s cap table. Reddy, who has experience working on such syndicate-style investments at Clear Ventures, said the approach is beneficial for fledgling startups as they stand to receive a wider array of help — say, a robotics startup that would benefit from Mayfield’s high-level institutional knowledge and a robotics-specific micro VC firm’s narrow expertise. “When the raises become big, the smaller funds back off,” Chaddha said.
Mayfield also has a wide aperture on how it defines an AI company. Chaddha said he’s interested in companies across the tech stack, from application software to semiconductors. Reddy told Forbes he is particularly excited for the coming crop of co-piloted AI applications, which keep humans in the loop of decision making, as well as companies building infrastructure tools for AI trust and safety.
The firm is not alone in committing a pool of capital to the burgeoning space — Bessemer Venture Partners and Sapphire Ventures have each announced plans to spend $1 billion from their existing funds to AI investments. Still, a sector-specific approach has scared some investors off in the wake of a massive pullback for crypto funds (last quarter, VCs invested just 19% the amount into the sector compared to its first quarter 2022 peak, per PitchBook). Mayfield is not worried: “Having been to the metaverse, the fundamentals don't support the hype,” Reddy said. “With AI, there’s good fundamentals. It’s creating meaningful business changes for enterprises.”
The new fund also provides Mayfield with a creative way to decrease the size of its main funds at a time when overall venture capital investment has slowed. Founders Fund reportedly pushed about half its $1.8 billion fund to a future vehicle. In May, Mayfield announced $580 million for its 17th flagship fund and $375 million for its third follow-on fund (it has about $300 million left over from its previous funds too, Chaddha estimated). The firm will be taking money out of those funds to bankroll AI Start — easing the load of later-stage capital deployment while concurrently putting more money in at the seed stage, which has historically rewarded investors who invest during a downturn.
Still, Chaddha insists the new fund represents a long-term strategy for his firm. If the AI-focused fund is a success, he said he could launch additional seed stage funds in other sectors, such as deep tech. For now, the veteran VC who has made a name for himself by taking a generalist approach in investing across sectors said he anticipates spending the majority of his time over the next four to five years on AI Start. “This wave is forever. AI is going to touch all our products,” he said. “I’ve told my team this has to be, from a mindset perspective, 90% of what I'm helping the firm with.”
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