On Friday at the SXSW conference in Austin, Jim Adler, founder and general partner at Toyota Ventures, the independent investment arm of the carmaker, told the audience that hype cycles ultimately are natural market mechanisms that maximize innovation. Tech is in the midst of a boom around AI that’s frequently described as a hype cycle, in which valuations are soaring for AI startups—even though many are losing money. 

“I very much believe hype cycles are good,” said Adler. “They’re really important for the market. I’m an old control systems engineer. If you look at any transient response, how do you get to 60 miles an hour? The fastest way to hit a point of operation, if you’re driving a car, you slam the accelerator to the floor and you’ll get to 60 miles an hour as fast as any possible way. But you also overshoot 60 miles an hour, then you slam the brakes on, and then you’ll pass below 60 miles an hour. Then you hit the accelerator again, and you kind of settle in. That’s a hype cycle.”

In a hype cycle, Adler said, talent and investment flood into a space quickly. 

“The good news about a hype cycle is it finds the answer as fast as possible,” said Adler. “A hype cycle brings in talent, it brings in capital. It’s the market’s way of finding the right answer as fast as possible. So, people say we’re in an AI bubble right now, and we probably are. And that’s great.”

Of course, there’s one key rule in any hype cycle—whether it’s AI, the dotcom era, or 2000s cleantech.

“Just don’t buy at the top,” said Adler. “You want to buy below the plateau of productivity. If you buy above it, you’re going to suffer a loss. You buy below it, you’ll clock a gain.”

That’s easier said than done. History certainly shows that plenty of VCs misstime hype cycle peaks, companies crash, and LP cash gets torched. But there are areas where Adler believes there’s long-term value for Toyota Ventures, including in robotics. 

“We’re really excited about robotics and the physical embodiment of these technologies,” said Adler. “We’re super excited about it, because we can’t find enough people to build our cars. So, we definitely would love to be able to press this technology into service to solve some of those problems.”

(Robotics may also help cut costs by replacing human workers, or at least part of what they do.)

Toyota Ventures’s portfolio includes robotics companies like Intuition Robotics, and space startups like Apex, and aviation companies like Joby Aviation.