At a Strictly VC event in Los Angeles, M13 co‑founder Carter Reum and Basis Set partner Chang Xu sparred over AI investing as valuations surged. M13 manages $2.5 billion and has backed 17 unicorns, while Basis Set operates a near $1 billion fund focused exclusively on early‑stage AI. Their dialogue highlighted pricing pressure in a market moving at unprecedented speed for venture capitalists seeking returns.

The pair warned that growth curves now defy historic benchmarks: ChatGPT generated $40 billion in revenue within six months, and portfolio company Open Art vaulted from $1 million to $70 million ARR in two years while staying cash‑flow positive. Xu argued valuations must reflect the “compounding accelerant” but cautioned against pricing every deal to that extreme, and underscores why diligence matters more than ever.

Investors now sift between “depth” markets—hard problems like regulated healthcare or biotech—and “velocity” markets where rapid execution wins. Reum favors friction‑based moats in sectors such as 911‑center AI, while Xu seeks defensible technical edges that can survive pressure from OpenAI, Anthropic or the hyperscalers. Both agree only truly differentiated teams can thrive in today’s hyper‑fast AI race, to capture outsized upside before larger players step in.