New York to Beirut // New technology is shaping modern warfare and children's toys
Marhaba from the end of a chaotic week in Beirut.
Two days of exploding pagers and walkie talkies used by hundreds of Hezbollah militants has been followed by intense exchanges of fire along the Lebanese-Israeli border and a strike on southern Beirut that has left at least five dead, all children.
I wrote about the view in Lebanon of a major escalation in the war for The Journal and the aftermath of the first day of attacks for The Irish Times. The ngo Human Rights Watch has issued a statement on the legality of booby traps in war which you can read here.
You can also read a piece I wrote about a peace camp for Israelis and Palestinians here that was published last week. If you’re blocked by The Irish Times paywall let me know and I’ll send it to you directly.
The first piece in my American series for The Currency was published this week and focuses on a AI teddy bear that an Irish venture fund is betting big on. I’ve included the piece below for anyone who isn’t a subscriber to The Currency
The Guardian also sent a Slovak reporter to work in a hotel in Ireland and the resulting article is worth a read here.
Have a good weekend,
Hannah
Teddy bear robots and data centres in space - Nebular’s Finn Murphy explains his latest investments in New York
In the corner of VC fund Nebular’s office space in New York’s Flatiron district, two plastic teddy bears are sitting beside a small 3D printer. The toys are prototypes of an ‘AI companion’ for young children being developed by Nuha (an Arabic term for wisdom).
Nebular, the VC fund launched by Dubliner Finn Murphy, became the start-up’s first investor at the end of 2023, following an introduction between Nuha’s founder, Lama Al Rajih and Tom McCarthy, who founded Patch, the start-up accelerator for young entrepreneurs in Ireland.
At two desks in the middle of the Flatiron office, Al Rajih, 24, and her colleague Sarvesh Bab, 21, are working on a large language model programme that will enable the bear to engage in conversation with children. Computer science graduate Al Rajih views the bear as a way to reduce young children’s exposure to screen devices. “Smartphones and tablets are tools that were designed for adults,” says Al Rajih. “We shouldn't be giving them to six-year-olds to fill the void for playtime.”
Despite being well over the target age for the product, Bab, a Stanford engineering graduate, invites me to ask the screen something. “Promise me you’ll never leave me,” I say, to which the screen responds: “I’m sorry you’re feeling lonely. You can always talk to me and play with me.”
Nebular’s New York office space is shared with three other funds. “We're not really competitive [with each other] but we all invest,” says Murphy. As a solo GP, he says he enjoys having some camaraderie in the office - “otherwise, I might need one of the bears.”
$30 million to back early-stage ventures
Nebular has, so far, secured $30 million in funding to invest in pre-seed and seed companies focused on healthcare, manufacturing and space, with a focus on companies like Nuha which are utilising generative AI technology.
The venture fund aims to invest 50:50 in US and EU companies, with investments ranging from $500,000-$1.5 million per deal and allowing for a possible further investment of 20-30 percent. In return for investment, Nebular will take a 4-12 per cent stake in each start-up, with Murphy says he’s targeting an equity share of 10 percent per portfolio company.
This vision for Nebular has attracted investment funding from individuals including Workvivo chief executive John Goulding, Pointy’s Mark Cummins, Localyze chief executive Hanna Asmussen, as well as funds Amlan Ventures, Emergence Ventures, Ninja Capital, RSJ and K8 Capital Fund.
Murphy’s former fund, Frontline Ventures in Dublin, has also invested in Nebular. Murphy says his former colleagues weren’t surprised when he left the Dublin-based VC fund in 2022 to embark on a solo venture and says the investors all remain on good terms.
Opportunities from long-term trends
Murphy says his investment strategy is focused on broader macro-trends rather than short-term events - like, for example, who’s going to be in the White House next year.
“Macro changes are more straightforward to bet on as they are ‘going to happen’ and you have to see what the opportunities from that will end up being,” he says. “[With] short term changes you have to make a double bet on ‘if they will happen’ and what opportunities will there be from that.” He says he prefers to back teams that can react and move on events as they happen.
Looking forward, Murphy believes that AI companions like Nuha’s bear will be in demand as working families with only children become increasingly common in developed economies - “childhood anxiety is going through the roof and many kids actually aren't getting enough socialisation to develop their micro skills.”
While devices like iPads often involve children passively watching streams of cartoons or short, highly-edited videos, the bear is verbal and reactive. The robotic toy is equipped with a motion sensor which means that if it’s picked up, it will ask the child where they’re going. “The bear gets the kids into actually using their language skills and using some kind of social skills,” says Murphy, “it can talk about rocketspace and play games.”
Nebular’s GP says the bear could be trained to recognise speech impediments and deliver exercises that a speech and language therapist would prescribe for issues like stutters - “the bear can pick up what the kid is trying to say and walk them through a slow repetition exercise.”
Devices like iPads and computers which are connected to the internet come with a host of well-documented issues for children including online grooming, digital addiction and body image issues. Since the bear isn’t connected to the internet in the same way, “there’s not really much that can go wrong,” says Murphy (optimistically).
The bear will record the child and their conversations. This will allow the bear to recognise the child and its family members, as well as recall earlier conversations.
The White Hatter, an American internet safety and digital literacy education specialist company, says that while an AI companion “can simulate certain aspects of a relationship, it cannot replace the depth and authenticity of human connection” and warns that these devices “can discourage genuine human interaction, masking underlying issues that prevent fulfilling relationships.
Meanwhile, a significant amount of personal data will be amassed and stored by companies operating AI companions for children, which is likely to draw concerns from digital privacy groups and scrutiny from data protection watchdogs.
Al Rajih says Nuha takes “data privacy very seriously” and will provide tools for parents, as well as design its system “to process as much data as we can on-device and prevent it from being transferred to third parties if at all possible. While Murphys says: “Changes to data privacy regulations aren’t what make or break early stage technology investments. I think smart companies will figure out working with whatever frameworks are out there.”
The basic version of Nuha’s bear is expected to cost around $200 and will include parental safety controls regarding what the bear can say. A paid subscription service is then expected to be available for parents to purchase if they want deeper analytics, longer memory storage, or a bear that can speak multiple languages.
There are already several competitors in the AI toy space: Moxie, “the world’s first A.I. robot friend,” according to its founders, is already available to purchase online for $799; while early adopters can sign up for the chance to buy a beta version of voice-activated soft toy Curio for $99. In Al Rajih’s view though Nuha’s biggest competitor is screen time.
Healthcare shortages present an opportunity for AI technology
Another strand of Murphy’s investment approach focuses on declining population growth in developed countries and the impact it will have on the ratio of healthcare workers to patients: “the volume of people requiring healthcare is going to increase, and the volume of people capable of delivering that care is going to decrease.”
The GP believes that negative attitudes in the US around immigration will persist: “the odds that the shortfall in health workers [in America] is going to be solved through immigration are quite low and make me more confident that the [gap] is going to have to be backfilled with technology.”
In August, Nebular invested in an early stage German company devising an automated medical appointment booking platform. The model involves an AI pilot with the capacity to schedule appointments and answer certain queries answering calls in the first instance at a medical or dental practice - “but if the person said they were unwell, they would be transferred to a person,” adds Murphy.
“In Germany a lot of people prefer to call their dentist or doctor as they don’t have a website but a lot of these practices aren’t big enough to support a customer support team so receptionists end-up having a dual purpose of administrative work and answering calls,” says Murphy. “We're not anywhere near to AI replacing people, but freeing up 10-20 percent of someone's day who's on a full wage is actually really valuable to a lot of businesses.”
“In most countries, particularly in continental Europe, every year, the number of people who are working is in decline and there's just not going to be enough young people to actually do those jobs,” says Murphy. “It’s better that an AI answers than no one answers.”
Several of Nebular’s other investments also hinge on reducing the workload for healthcare professionals through AI-backed software. Murphy says that Teton, a Danish startup which helps secure consent from patients and their next of kin in a way that is compliant with data privacy requirements, is going “well.” The start-up raised $5.3m seed investment from Nebular and VC firm Plural in April 2023.
Co:helm rebranded as Anterior after securing a $3.2 million seed investment led by Sequoia and with backing from Nebular. The healthtech start-up which utilises a large language model programme to help nurses and doctors gather medical documentation required by insurance companies has recently secured $20 million in Series A funding from New Enterprise Associates, Inc. (NEA).
Data centres in space
Companies using complex and large AI programmes typically require access to processing power and memory from data centres on a scale that is becoming increasingly difficult to secure reliably. Following increased scrutiny from the public and governments over data centre’s high levels of energy consumption, the expansion of data centres is likely to be curtailed by planning restrictions and issues regarding access to national power grids.
Many investors now view limitations on data centre capacity as a bottleneck for the growth of AI-backed technology companies.
At the end of 2023, Nebular invested in Lumen Orbit, which Murphy believes is the type of company that will be primed to take advantage of a future where data centres are built in space - which he believes will be a possibility in the next ten years.
The team behind Lumen Orbit is hoping to build a network of data centres in space and is currently planning to launch a low-orbiting satellite platform in 2025 that will assist with data retrieval and processing from higher orbiting satellites in space. These high-orbiting satellites are currently restricted to downloading data during specific fly-over windows when they’re physically stationed above ground stations.
Lumen Orbit aims to expand that processing window by building a satellite platform that will sit at a lower orbit and assist with pre-processing or compressing the data, which could then be sent to a platform like Starlink or Kuiper.
Lumen Orbit has already attracted the support of leading start-up accelerator Y Combinator in San Francisco and Murphy says the company is “getting a lot of attention as the possibility of data centres in space is looking more and more likely with long lead times and regulatory uncertainty [for the expansion of data centres on earth].”
The risk of an AI bubble
When asked about the risk of an AI bubble, Murphy says: “one of the best VCs ever said that the only way to protect yourself from the downside of a bubble is to squeeze every last drop of the upside because you just don't know - nobody knows - when it will burst.”
“On their most recent earnings calls, Microsoft and Meta said the risk of being under invested in [AI] is much greater than the risk of being over invested,” says Murphy. “They’re the most profitable companies in the history of the world, and they've all decided that this is their next big thing.”
The Dubliner says he expects to spend the next decade in New York - “it takes ten years to fully see a venture firm get to an interesting size and for the companies to have grown into really interesting businesses.” By then Murphy hopes to have built one of the world’s leading early stage VC funds based out of New York - “that’s the plan right now.”