Microsoft invested $10 billion into OpenAI, (the parent company of ChatGPT) at a $29 billion valuation.
Until that headline-grabbing moment, few people were aware of exactly how far AI had come, but afterward, you seemingly couldn’t scroll a feed anywhere without hearing about the miraculous things that OpenAI could do.
“Create a three-day travel itinerary for two different couple-friendly cities in the US.”
“Write me code in Python to analyze historical weather data to predict the weather this coming month”
“Show me an image of a giant mouse riding a motorcycle smoking a cigar.“
The last one is a personal favorite.
It is seemingly endless what you can use AI for, and we’re really just scratching the surface. The next decade is going to completely change the world as we know it.
Over the last few years here at Edge we have become fairly good predictors of emerging trends early in their formation such as psychedelic medicine, blockchain, and even the boom in plant-based food products.
Since last summer you would have heard us beating the drum on Artificial Intelligence.
We started last June when I had the pleasure of putting a spotlight on VERSES when they joined me on stage in Vancouver at Deal Night.
Subsequent to that, I’ve been fortunate to spend a ton of time with their CEO and capital markets team. I have since become an investor and it’s now the largest individual holding in my portfolio, and for good reason.
The story isn’t simple, in fact, it took me hours and hours of digging to really wrap my head around what they are building, and that is coming from a guy who wrote an eBook on Blockchain.
However, when I got it, it was one of the biggest “ah ha” moments I’ve had in my investing career. That is the reason I’ve been so vocal about these guys. Companies like this (in my view) are so rare to come by, especially when the timing feels absolutely perfect.
I will also mention that since their CEO Gabe joined me on stage in June, the stock is up over 200%, though I don’t think they have come even close to reaching their full potential.
We are still in the early innings.
We’ve written about VERSES many times previously, so I won’t use this as an opportunity to rehash what you have already read, instead, I want to lay out why I personally am so in love with this company.
However, before I do so, I’ll be clear that in addition to owning shares in the company, my team also helps them with their investor relations program. The thoughts in the following article are genuinely mine, though should not be considered investment advice (but you already know the drill).
Timed for perfection?
With large-cap companies, fundamentals are the most important aspect to determine how the share price will perform. Growing revenue, improving margins, free cash flow, balance sheet health, etc…
Of course that is still incredibly important for small-cap stocks, but I have found in my experience that in the short to medium term, being in the right sector at the right time has been a better predictor.
In 2023 the AI Bull Market has been undeniably in full force, with billions of funding coming into the space in the last year. The advent of ChatGPT and DALL-E have brought in a wave of hungry investors who are searching for a way to participate in this disruptive sector.
The global AI market is estimated at US $180 billion in 2022 and is expected to grow to a whopping US $1.6 trillion by the end of the decade, which is 2x as fast and 4x the size of the Web 2.0 (or mobility) market. These numbers are likely to be revised upwards in short order given the current trajectory.
But with so few opportunities for direct investment, where will their investment dollars go?
The biggest challenge to investing in the AI megatrend is that most companies in the space are either a) private and VC-backed, or b) mid-to-mega cap US-listed companies, often with AI as a small component of their overall business. VERSES is a “pure play” AI company and is an ideal way to get real exposure and leverage in the space.
Just take a look at search trends for “AI stocks”, which are at a high for this year.
A Team That Can Execute
VERSES’ executive team has decades of deep tech and AI experience solving problems for Fortune 500 and Global 1000 companies and government entities. Founders Gabriel Rene (CEO) and Dan Mapes (President) co-authored a #1 bestselling tech book in 2019 called “The Spatial Web.”
In 2020, Deloitte put out a landmark report called “The Spatial Web: What Business Leaders Should Know About The Next Era Of Computing” which was essentially a condensation of the book. This report has contributed to the massive inbound sales leads from Global 1000 CIOs and CTOs that now fill VERSES’ pipeline.
Deloitte is an incoming reseller and partner of VERSES and the now former Independent Vice Chair of Deloitte has joined as VERSES’ Chair.
Dr. Karl Friston heads up VERSES as Chief Scientist, along with the entire Nested Minds team of 15 AI PhDs (an analog to Google’s Deep Mind). Dr. Friston is best known for inventing all the mathematics behind the fMRI scan. He is short-listed for a Nobel Prize and has over 260,000 academic citations. He is widely regarded as being as important to the field of “Intelligence” as Einstein was to “Physics.”
Friston and his team are making huge strides in what is known as Active Inference, the next great leap in Artificial Intelligence.
Not Just an Idea, It’s Already a Business
In 2017 I invested money, and more importantly a lot of time into a company that was pitching certain elements similar to Verses’ Spatial Web, and it all turned out to be fluff (i.e. non existent).
The tech was complicated and hard to understand, and there was no way for a normal person to tell if it was real. What made things click for me with VERSES was their first commercial agreement for their in-house developed app titled “Wayfinder”.
After a successful pilot program, VERSES landed a US $26.5 million contract over 10 years with NRI, a 3rd party logistics provider. Additionally, the world’s largest Warehouse Management System (Blue Yonder) signed a reseller agreement with VERSES in 4Q22. This agreement is expected to launch in Q2 of this year and is expected to deliver exponential growth.
VERSES is targeting 10-30% penetration of BY’s 3,000+ clients within 3 years, with a best estimate of US $1-2 million of SaaS revenues per client per year on the system.
Forecasts are always uncertain, but let’s do some quick back-of-the-envelope math:
10-30% of 3,000 BY customers is between 300-900 customers within 3 years.
$1-2 million average annual revenues from each client would result in $300 million to just shy of $2 billion each year.
Add whatever size grain of salt to this internal forecast you wish, but after the success with NRI, I can’t help but be pretty excited about the potential here.
And Wayfinder is just one opportunity in the pipeline.
Explore the KOSMOS
When Apple launched its iPhone, one of (if not the biggest) innovations was the App Store. But an empty App Store would be useless and embarrassing, so Apple had to create the first handful of apps before developers could take the wheel.
VERSES is taking the same prudent approach. The equivalent of the iOS App Store is KOSMOS, and the first app that they built and launched is Wayfinder (with multiple others coming soon).
An App Store is scalable, nearly pure margin, and once built requires limited maintenance.
But the question you are likely asking is “Why does the world need another App Store?”
Well, this App Store is different and will be capable of a lot more functionality than slingshotting angry birds across your screen.
The Spatial Web
You will see the terms “Spatial Web” and “Smart Cities” more and more frequently in the coming years, so I wanted to provide a quick refresher, and also explain how VERSES fits into this picture.
Web 1.0 was where it started. Researchers would interact with a gigantic computer, clicking buttons to accomplish fairly low-tech tasks (like a giant calculator). The data was stored in front of you on a server that you were directly interacting with.
Web 2.0 is what we generally think of as the current web environment. We’re now able to move around and access data from our phones, iPads, etc.. pulling information from servers far away (AWS for example).
Web 3.0 is where the concept of smart cities really becomes relevant. In this environment, we now access the web in a more immersive way through techs such as augmented reality glasses and other smart devices. The web is now projected all around you, and data is being pulled in from everywhere you can imagine: sensors on your car, your multiple calendars, your home thermostat, and basically everything else that is connected to the internet.
Instead of relying on button clicking we can interact with hand gestures, and sometimes we don’t need to interact at all, as AI will just do the thinking and acting for us.
The VERSES team are the pioneers of Spatial Web technology, and their operating system is going to make it much easier for companies and individuals to start building software that can really take advantage of true Web 3.0.
With a better understanding of the functionality of Spatial Web technology, you can probably start to think of a million ways to build cool apps by leveraging it.
And that’s exactly the point. However, coding is not easy as it seems, and building apps for this new Spatial Web from scratch would be incredibly challenging.
By handling the core development of the operating system, and creating a set of software development tools on top of it, VERSES plans to make building apps for the Spatial Web simple, and ultimately achievable for anyone.
A True Competitive Advantage
With an opportunity this massive, competitive threats are inevitable. However, one thing that Verses has going for it is a fairly significant head start.
In addition to publishing a book on the Spatial Web, VERSES created a set of standards for things such as interoperability and governance, much like how electric vehicles generally use the same charging port to help with the adoption of EVs at large.
VERSES chose to donate these standards to the Spatial Web Foundation, after which the IEEE decided to include it in their standards and deemed it a public imperative.
If you are unaware, the IEEE is the body that governs all kinds of technical standards, including those for Wi-Fi and Bluetooth.
This matters because KOSMOS is built using those standards, so by the time they are officially published as standards for other companies to follow, VERSES will have had plenty of time to get a head start.
What About The Risks?
It would be unfair to look at such a disruptive technology without assessing some of the key risks, the first of which is a high burn rate.
Verses is not selling cookies, they are developing a truly revolutionary technology that requires some of the best talents in an industry that is highly competitive in regards to attracting a skilled workforce.
As of their latest financial statements (dated Dec 31, 2022), the company’s 9-month burn was just shy of $14.8 million, which equates to roughly $1.6 million a month. And though some items may be reduced in the future such as investor relations, which is critical for a newly public entity, the biggest line items are not surprisingly R&D and Personnel.
What is critical for VERSES is that they continue to successfully raise significant capital at increasingly higher valuations, which to this point they have successfully achieved. To date, the company has now raised over $40 million, with each financing round completed at a higher valuation. I also need to commend their capital markets team, because this has been a challenging market, where companies have struggled immensely to raise adequate capital.
Another risk will be competition from much larger peers. Though it does appear that VERSES has some level of exclusivity or at least a meaningful head start in developing their Spatial Web platform, competition will inevitably be hot on their heels at some point.
The question is how far ahead can VERSES get before that happens, which remains to be seen.
Of course, this list is not exhaustive, but the final risk I am choosing to highlight is their key man risk.
The entire team at VERSES is unbelievably impressive, but their CEO Gabe Rene is highly unique in my view. I have met many intelligent technical minds, and many charismatic people-pleasers, but to find a CEO that is the intersection of both is extraordinarily rare.
With his significant insider ownership, he is undoubtedly motivated, but in the (hopefully) incredibly unlikely event that something were to happen to him it could be truly detrimental to the company.
Gabe if you are reading this, please look both ways before crossing the street, and don’t get in the car with any strangers.
The stars have seemingly aligned from a traction and timing perspective, and VERSES has a team that really seems to be capable of pulling this off.
It can’t be understated how big of an opportunity Spatial Web and AI are and it certainly seems that the market has taken notice, with the stock up 85% from its lowest trading price this month.
I can’t stress enough how much I believe in this opportunity, and I want to push you to dig in and really understand both VERSES as a company and Spatial Web as an overall technology.
We at Edge will continue to provide you with updates and research as new information becomes available, and we always welcome you to get in touch with us to discuss should you be as curious as we are!
To learn more about VERSES AI (Canada: VERS.NE)(USA: VRSSF), check out its investor presentation here.
We are not brokers, investment, or financial advisers; you should not rely on the information herein as investment advice. If you are seeking personalized investment advice, please contact a qualified and registered broker, investment adviser, or financial adviser. You should not make any investment decisions based on our communications. Our stock profiles are intended to highlight certain companies for YOUR further investigation; they are NOT recommendations. The securities issued by the companies we profile should be considered high risk and, if you do invest, you may lose your entire investment. Edge Investments and its owners currently hold shares in Verses AI stock and are compensated by Verses for Investor Relations Services, amounting to eighty-nine thousand seven hundred sixty dollars. Edge Investments and its owners reserve the right to buy and sell shares in Verses AI without further notice, which may impact the share price. Please do your own research before investing, including reading the companies’ public filings, press releases, and risk disclosures. The company provided information in this profile, extracted from public filings, company websites, and other publicly available sources. We believe the sources and information are accurate and reliable but we cannot guarantee it. The commentary and opinions in this article are our own, so please do your own research.
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