But according to Chan, who is now a longtime venture investor of more than a decade and a founding partner at $450 million VC firm FPV Ventures, it’s not going to be the generative A.I. startups or the OpenAIs that deliver the most promise for startups working on artificial intelligence. Chan wrote the first checks to companies like Robinhood and Plaid and was an early investor in the multibillion-dollar graphic design platform Canva. I recently chatted with Chan about all things A.I., the war between Google and Microsoft on A.I., and what the real potential of A.I. is when it comes to startups. 

The following questions and answers have been edited and condensed for space and clarity. 

Term Sheet: It sounds like you think the current A.I. cycle is overhyped, but I’m curious why.

Chan: It’s very nuanced. Everybody comes to me and says, ‘I have an A.I. strategy.’ I just had a company that was [doing] video ads, pitching something, ‘Oh, now we have A.I. to help you better distribute your ads.’ I’m like, what do you need A.I. for? The best analogy I can kind of say is, look, I’m an old fart in this business, but I’ve seen so many iterations. 2010 was the mobile hype—Zynga, Kleiner Perkins had its [$100-million] iFund, all of that shit is gone, right? There were all these mobile companies because mobile was hot, and there weren’t enough people who understood how to build mobile things. Now it’s table stakes—any computer science grad or even a coding bootcamp person takes a lesson on mobile and claims they’re a mobile developer. Every company, whether it’s Google, or Canva, or you name it, the grocery delivery companies—their app is inherently mobile, it’s just part of your business now.

It’s the same with A.I.—every computer science student is taking it, soon there will be a flood of everybody knowing how to do A.I. People look at it as like, ‘Oh, it’s the next generation.’ It’s just like mobile, it will be part of everybody’s strategy. If you talk to a lot of CIOs, and you talk to a lot of folks in normal businesses that aren’t hyping up A.I., none of them care.

What about A.I. as an area to invest in startups? 

We’re not doing the generative A.I. [stuff], like investing in A.I. just because it’s for shits and giggles or it’s fun. There are a couple of areas where it’s off the beaten path and no one truly understands it—like drug discovery. We’ve done four or five deals in drug discovery that are doing A.I. They’re not just doing A.I., but A.I. is part of it and they don’t even talk about it. But it’s an important part of it because the pharma companies, with their 150 scientists in the lab trying to figure out the next thing that cures a type of cancer, [is] not working. So the A.I. is giving people an edge on this, and that’s where the money is made. But no one is investing in the A.I. for the sake of A.I., everybody’s investing in the company because they think that A.I. helps them find a better drug. And if you do find a better drug and you cure cancer, it’s worth $10 billion, right? That’s where the money is. We’re thinking about the things that make money the old-fashioned way where A.I. makes it faster or helps, but we’re not investing in A.I. just because, you know, it’s fun. 

So that’s where you find the promise in A.I. for startups? 

It’s in companies that aren’t even talking about it. They’re finding new cancer cures. They don’t want to talk about it, the last thing they want is 50 people chasing that space. There’s a company that’s using A.I. in mass spectrometry that we’ve invested in, called Enveda, that’s using A.I. to identify what the active ingredient is in natural compounds [of] drugs. They don’t call themselves an A.I. company, they call themselves a drug discovery company that happens to have A.I. as part of their pipeline and workflow.

What do you think about how Google is trying to compete with Microsoft and others on the A.I. front? 

I was at Google when Android was there, and Google thought Apple was going to cut people off from the search engine. So they said, ‘We need our own phone system.’ But Google didn’t start Android because we’re like, ‘Oh, people need a better thing than the iPhone.’ They said, ‘We don’t want people cut off from Google. And if Apple does try to make a move and partner with Microsoft or Amazon, or whoever, or created their own search engine, then we’re screwed.’

Google is always going to be afraid of anything that cuts them off from the search engine, or interfaces with the search engine differently, right? And yes, ChatGPT could be one of those things. None of this behavior is surprising to me. But is it going to be the next war? I have no clue, and I doubt it.

Why do you doubt it? 

Because Google will make something good enough and then this stuff becomes commoditized. ChatGPT is the new flavor of the month, but say Google releases something new at DeepMind or Google Brain or whatever the A.I. effort is that is the next interesting flavor, and everybody starts going, ‘Oh my god, that’s so fun.’ I’ve seen enough of this in business.

When you get incumbents who have unlimited money spending [on it], it becomes commoditized. It’s a stalemate. And you can tell because Microsoft has the best one with OpenAI right now, and then all of the sudden, Google leapfrogs them a little bit, and then Amazon, or Netflix, or one of these other guys with outrageous amounts of money comes in as a dark horse and, surprise, you’re like, ‘Oh, okay, wow, I didn’t see that one coming.’ And then what are these startups to do who don’t have money?

So are all these startups focusing on A.I. putting themselves in a bad position to almost make themselves extinct if one of these big companies dominates it?

The problem with A.I. is that it’s likely that the people who are the three most well-funded [companies] will become the monopoly or duopoly or oligopoly in this business. And when that happens, what are these companies [going to] do? What are they going to sell? They’re going to have to find little niches to go sell things to—that’s a hard business, because right now, there’s no product-market fit or even product at all. There will be a frenzy where Google thinks it’s losing the war, and Google will snap up a bunch of A.I. engineers and companies for the talent and for maybe some edge that they think they can get out of it. 

See you tomorrow,

Anne Sraders
Twitter: @AnneSraders
Email: anne.sraders@fortune.com
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Jackson Fordyce curated the deals section of today’s newsletter.

VENTURE DEALS

- Freeform, a Los Angeles-based metal 3D printing company, raised $41 million in Series A funding co-led by Founders Fund, Two Sigma Ventures, and Threshold Ventures.  

- Lavender, a New York-based sales email coaching platform provider, raised $11 million in Series A funding. Norwest Venture Partners led the round and was joined by Signia Venture Partners. 

PRIVATE EQUITY

- Fishbowl, a Diversis Capital portfolio company, acquired Sellware, a Cary, N.C.-based inventory and order management systems provider. Financial terms were not disclosed. 

- Platte River Equity acquired Womack Machine Supply Company, a Farmers Branch, Texas-based industrial distributor. Financial terms were not disclosed.

EXITS

- An affiliate of Lone Star Funds agreed to acquire Titan Acquisition Holdings, a Norfolk, Va.-, Portland, Ore.-, and San Diego-based ship repair services company, from funds managed by Carlyle and Stellex Capital Management. Financial terms were not disclosed.

OTHER

- Convene acquired etc.venues, a London-based meeting and event venue provider. Financial terms were not disclosed. 

FUNDS + FUNDS OF FUNDS

- March Capital, a Santa Monica, Calif.-based venture capital firm, raised more than $650 million for a fund focused on cloud software, cybersecurity, and cloud/data infrastructure sectors. 

- Buoyant Ventures, a Chicago-based venture fund, raised $76 million for a fund focused on climate investments. 

PEOPLE

- Rotunda Capital Partners, a Bethesda, Md.-based private equity firm, hired Margaux Georgiadis as head of business development. Formerly, she was with CIVC Partners.