Chi-Hua Chien has spent more than two decades as a venture capitalist, but he thinks like a cultural anthropologist. As co-founder of Goodwater Capital, a company focused exclusively on consumer and prosumer technology, he has built a portfolio spanning entertainment, healthcare, fintech and live experiences, with investments in companies such as MIDI Health, Fever and Monzo. He was also, as a 27-year-old Accel associate, the person who initially founded a six-person company launched from Harvard called The Facebook.
That ability to read human behavior at scale informs everything from his view that Americans will never rely on a single app for both their social lives and their finances, to his belief that the gap between the most advanced AI model and what can run on your phone (which was previously two years) will shrink to three months within the next year.
These days, he’s also willing to say out loud what many in venture capital are only thinking: that the commoditization of the model layer is already underway, and that the biggest winners of the AI era won’t be the companies that sell AI at all.
We spoke last week; This interview has been edited for length and clarity.
Lately, more founders and investors have publicly shared their complaints about venture capitalists. What has changed?
It’s part of the memeification of everything: you’re seeing what’s happening on the political side spilling over to the business side, and it’s probably also a sign of some peak in the market. The reason you see some of these outspoken investors speaking more publicly is because venture firms have become largely vertically integrated, so the really big ones have enough capital to not necessarily look for syndicate partners. There used to be decorum in wanting to preserve good relationships with other co-investors, because you had to work with them at different points in the process. As companies have gotten larger and vertically integrated, that need is less.
What about “fast follow” rounds, in which companies invest a large portion in one valuation and a smaller amount weeks later in a much higher one, making the headline number seem more impressive than it really is? Is this really new? How widespread is it?
I think this has been going on for quite some time. The best companies run successive rounds very quickly; now it may only be three to six months between rounds, and valuations change very quickly… Valuations are being marketed very aggressively as a way to demonstrate market leadership, attract talent, and potentially block competition. There is probably some element of froth, because what these quick financings are most illustrative of is that there is much more demand than supply. An investor can come in, set a price, complete a financing, and a couple of weeks later there is still excess demand and the company can immediately price a new round at a higher price.
You have argued that infrastructure companies become commoditized and that applications capture most of the value over time. Are we already seeing that play out in this cycle?
If you look at the PC cycle, the web cycle, and the mobile cycle, they all follow fairly consistent patterns. Infrastructure market capitalizations actually peaked in 2000, but if we fast forward 25 or 26 years later, and in nominal dollar terms, the market capitalization of those infrastructure companies has not surpassed the peak of 2000. In the web era, new infrastructure entrants produced $400 billion of new market capitalization. App companies created $3.1 trillion, 88% of new value. In the mobile era, it’s very similar: infrastructure produced around $700 billion, while app companies produced $3.7 trillion. Companies like Netflix, Spotify, Meta, Uber, Airbnb.
And (last week) you saw something quite interesting: Google announced that its subscription AI product will drop the price from $7.99/month to $4.99/month and double the storage. We are already in the era of price competition, and companies like Google, with structural advantages in vertical integration and distribution, can begin to bundle and compete on price for the average consumer.
You keep coming back to personalization as a through line. Is that what separates the next wave of winners?
Hyperpersonalization is definitely a key line, because what does personalization give you? If done right, you’ll see higher customer satisfaction, deeper engagement, and higher ARPU over time.
We have entertainment companies in our portfolio (companies like Triumph, Ritten and Flow GPT) where the customer doesn’t say “this is an AI application.” They say it is an entertainment application. These companies are bringing in 100 million, 400 million, 600 million ARR very quickly, at huge margins, because AI makes the experience more customizable and personalized, but it’s not the core capability they’re selling.
We also have a women’s health company called Midi Health. One of the fundamental limitations in women’s health is that there are not many providers well trained in hormone replacement therapy for perimenopausal women. By using AI, they can substantially expand the offering of care and treat hundreds of thousands of patients they would not otherwise be able to reach. And they can do it profitably, expanding access to a market that previously had limited supply. This can be advanced in all categories with limited supply where human experience is the bottleneck.
How far are we from AI that feels truly personal and ambient?
I don’t think we’re very far away at all. You can now run AI models locally on your phone that are as good as the best models were about six months ago, and that lag is narrowing. Two years ago, the lag between what could be run on-premises and what was in the cloud with frontier models might have been 18 to 24 months. It’s been six months now. Probably next year it will be reduced to three months around this time.
What we don’t have yet are very well-defined use cases. You saw it on mobile devices: When the iPhone was released in 2007, people largely thought that all web applications would move to mobile devices. It takes time for entrepreneurs to filter down to what is now possible.
What LLMs do, if you extrapolate from how they work to what they do, are basically two things: they allow you to process large amounts of context and make sense of it all, and they allow you to customize down to the individual, cost-effectively, with a feedback loop that makes the product better and better over time.
You’ve seen Facebook try and fail for years to create a super app. Why is it so difficult to combine financial services and social entertainment for American consumers?
They have taken multiple shots at goal: Facebook Credits, which was launched in 2009… Facebook Pay, Libra… They have never been able to create a true super app. I think people have an intuitive perspective on trust, and there is a trust gap between entertainment and social products, and commerce, banking and financial services, particularly in the Western world.
There is a seriousness to financial transactions that is very different from the triviality of social media. And don’t get me wrong: that triviality has created a billion-dollar-plus company. But financial services are actually the opposite: while the audience is very time consuming and relatively low monetization, financial services transactions are very high monetization and relatively low time. You don’t want to hang out on your banking app. You want to make a transaction and be done with it, but with extremely high confidence in the security and reliability of that transaction. This psychological expectation of customers is very difficult to overcome.
Are you betting that people crave in-person connection as a counterreaction to all of this?
We really believe in this. What do people crave in a world where there is an infinite supply of digital content? They long for what limits them the most, which is real human contact, real-world experiences.
We have an investment in a company called Bump, based in Paris, from the original founders of Zenly, which was acquired by Snap… They have created an interface that allows people to interact in the physical world, catalyzed by digital information. We also have Fever, based in London and Madrid, essentially the Live Nation of Europe. They started with smaller, more extravagant events (candlelight concerts, the Bridgerton Experience) and have since gone mainstream.
I think we’re moving back in the opposite direction of pure online consumption, and AI as an enabling technology, knowing where you go, who you hang out with, where you tend to spend time, can extrapolate a lot of relevant interests that make the real-world experience more useful and more personal. That’s very exciting for us.
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