Bootstrapping is the practice of launching and growing a business using minimal external funding or resources.
* Editor’s Note: This is the second part of predictions for the industry.
In addition to growth in the areas of deep tech, life sciences, clean energy, aerospace and service-as-a-software (SaaS 2.0), the Puerto Rico tech sector will move toward bootstrapping, and AI will undergo a “cleansing” of sorts, Héctor Jirau, executive director of Parallel18, told News is my Business.
Bootstrapping
Jirau believes the tech sector will experience a resurgence in bootstrapping — the process of starting and growing a company with minimal external funding or capital.
Through bootstrapping, entrepreneurs rely on their personal savings, revenue generated by the business, and resourcefulness to sustain and expand their operations instead of seeking significant investments from outside sources such as venture capitalists, angel investors, grants or banks.
“Entrepreneurs are noticing that the stories that came out of Silicon Valley — that you have an idea, get $10 million in funding, launch, and in 10 years you worry about whether you’re making money or not — were far from what entrepreneurship is about,” Jirau said.
“That’s a classic example of survivor bias, of focusing only on the businesses that did well while ignoring the many that didn’t. It paints a picture that isn’t true,” he added.
Jirau named Amazon and Mega as examples.
“We focus a lot on Amazon, forgetting that Jeff Bezos had a multibillion-dollar hedge fund and came from a circle of people that had a lot of capital to help him. We think about Mark Zuckerberg because he started Facebook in his dorm room in Harvard, but we forget that his mother came from a Fortune 500, not from a supermarket. She came very well-trained, with many connections and lots of capital.”
The point of entrepreneurship, Jirau said, is to start a business, and a business is based on making money.
“We’re going to see more businesses focusing on being profitable first, then seeking capital once the operation is stable,” he said.
Jirau acknowledged that the resurgence of bootstrapping is a controversial subject.
“There are many opinions about this, but I think bootstrapping is a very sensible thing to do,” he said. “If you start a business, it’s because you want to make a living at it. But some people are used to a well-developed ecosystem in which you raise capital to see if you can push the business forward, and if you’re going to fail, you fail quickly.”
He did point out, however, that bootstrapping in science is different from bootstrapping in other industries.
“To open a cafeteria, you save, you get a loan, build the infrastructure, and as you make money, you pay off your loan. In bioscience you must rely on intensive capital because you need $4 [million] or $5 million to complete each phase,” Jirau explained.
A few words on AI
When it comes to artificial intelligence, Jirau had sobering words. He strongly believes that a “great purge” is underway.
“There’s going to be a cleansing in the AI ecosystem,” he said. “Right now, we have a lot of companies saying that they’re in AI, but what they’re doing is using ChatGPT, and they think that by adding a chatbot to their websites, they’re an AI company.”
Jirad believes the companies that will remain after the purge are those with functional, proprietary AI and language learning models. “The other so-called AI companies will disappear. I’m sure this is going to happen. I have no doubt.”
As to reports that AI can cause harm, Jirau compared it to what was said about the internet.
“There are always going to be repercussions because tech is not always efficient, but we have to understand that, although it seems fast to us, this is a gradual process — we’re just now seeing the results of something that took 15 years to develop. AI didn’t emerge in the last five years,” he said.
He stressed that the belief that AI is much more intelligent than humans is based on a misconception. “AI greatly depends on humans behind the scenes prompting and fine-tuning what AI does,” he said.
“These systems need a lot of human intervention. You can’t leave them on their own. You have to tell AI what you want, why you want it and how you want it, so it’s not that efficient,” Jirau said, adding that AI will open many opportunities for software and prompt engineers.
Jirau also highlighted the dangers of the Ouroboros effect. The Ouroboros is an ancient symbol of a snake eating its own tail. In AI, it refers to a scenario in which systems begin to consume their own outputs as training data, creating a self-referential feedback loop that can lead to degraded quality, inaccuracies and potentially harmful biases, essentially eating their own tails.
“This is an effect that so far no one knows how to control. AI and language learning models are creating so much content, so much information, synthesizing thought based on the information you give them, and they’re releasing that information out there, basically into the same environment where they, themselves, gather the information to ‘think’ and generate the information you ask for,” he explained.
“So, you have all these models producing information at such a scale that it’s possible for them to start nourishing themselves from the same information they’re producing,” added Jirau.
G. Torres is a freelance journalist, writer and editor. She’s worked in business journalism for more than 25 years, including posts as a reporter and copy editor at Caribbean Business, business editor at the San Juan Star and oil markets editor at S&P Global Platts (previously a McGraw Hill company). She’s also worked in marketing on and off for decades, now freelancing for local marketing and communications agencies.