Nvidia (NVDA) shares have soared thanks to its early investment in artificial intelligence. Now, investors are constantly on the lookout for the next Nvidia-like stock, especially as the buzz around AI also continues to be the center of discussion on Wall Street.

Costanoa Ventures Partner Martina Lauchengco, an early investor in startups, joins Yahoo Finance to discuss where the next round of innovation will come in the AI sector.

Lauchengco affirms what's the most important factor in investing in AI-based companies: "For sure the team is the most important thing, you have to assess that through references, but the bar has just become higher. There was $11.5 billion invested into the seed stage last year, but thats down from its peak from a couple of years ago. So we always want to make sure is this a team that knows how to learn and adapt quickly."

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.

Editor's note: This article was written by Nicholas Jacobino

Video Transcript

JULIE HYMAN: Well, NVIDIA is on a tear so far this year. Surging nearly 80% thus far in 2020 for Bank of America seeing shares will head even higher. Of course, there's a world beyond NVIDIA for those looking to get into the AI arena. Some of them looking to get in very early.

Joining us now Martina Lauchengco, Costanoa Ventures Partner. Thanks for being here, Martina. So you are at the very early stage of some of these next waves of AI. You guys are at the seed stage in venture capital. So not just specifically but also sector wise, where are sort of the next innovations going to come from when it comes to AI?

MARTINA LAUCHENGCO: Yeah, well, Julie, you ask a really great question, which is if you're not NVIDIA, which is doing the compute, what do you look for? That is enabling this same gen AI era.

And for us, that is really all about data infrastructure because someone has to write all the models. You need the data coming, in and being stored, and having the pipelines, and having the data scientists that can build the models that are doing all of this work. All of that is in the category of data infrastructure. And so we see that as being one of the biggest, most important areas to continue to invest in.

There's also applied AI, which is in specific verticals like defense where you can take in all of this raw data and intelligence data, and then do the job of an analyst. Or cybersecurity, where the bad guys are doing a lot of bad stuff with this gen AI and we need an equally strong cohort on the cybersecurity side fighting for the good guys.

JOSH LIPTON: Martina, I'm interested in your role. You're talking to a lot of young smart entrepreneurs focused on AI. And you've got to decide who you write a check to and who you don't.

How are you making those distinguishing between these, Martina? How do you distinguish between what's real, what looks meaningful, and what looks like marketing fluff?

MARTINA LAUCHENGCO: Well, for sure, the team is the most important thing. And you have to assess that through references. But the bar has just become higher.

There was $11.5 billion invested in the seed stage last year. But that's down from its peak just a couple of years ago. And so we always want to make sure, is this a team that knows how to learn and adapt quickly?

We joke there's a founder in our portfolio that says everything that I know will be obsolete in five years. And that could be true technically. And so we have to have people that know how to adapt to how quickly things are changing on the technology front, as well as be able to respond to market segments and how dynamic they are. And that comes up in how they behave, and what their references say about, what they've done in the past.

JULIE HYMAN: If things are changing, though, that quickly, I mean, why don't we see some of these companies maybe change entirely? What they're doing in that period of time?

MARTINA LAUCHENGCO: That is absolutely going to happen. That's a really normal thing for early stage investing is we can't be married to the idea, which is why the team becomes so important. Are they reacting dynamically to what they've built? And how it might need to adapt to what it market or technology reality when they are finding that traction point? So early stage investing is really about being able to roll with all of that as it evolves.

JOSH LIPTON: Martina, can you give us maybe an example of an AI focused startup in your portfolio one that you're excited about?

MARTINA LAUCHENGCO: Yeah, well, Vannevar labs is a great example of that applied AI that I was talking about. So they are ingesting all of this raw image data, audio data, and being able to process it in a way that lets and essentially does the job of an analyst.

And so the Defense Department can be much more specific and fast in how they're allocating resources where a company like Delfina, which is helping the data scientists who are building all of these models that are creating this era of Gen AI build better models faster. So this is going to yield more intelligent sales forecasts, better fraud models, more dynamic bets on how you are able to do your ad buys.

And all of this is powered by gen AI. And so you need the people who are actually doing the work to be able to build these better models faster. So that's what this toolset and this data infrastructure or the supply is giving us.

JOSH LIPTON: Martina, thanks so much for joining us today. Appreciate your time.

JULIE HYMAN: Oh. Thank you guys so much for having me.