AI startup

“I think a lot of startups often go out, or technology companies go out, and feign this experience that, you know, I'm building this machine or AI that's gonna be able to operate just like a person. And I think one of the challenges there is that you start to c…”

“I think a much bigger question than, like, can you train a large model is, like, does anybody want it, right? Like, is it going to be useful? And, like, you could answer some of those questions up front.”

“And so if you're a startup, I get that you have the advantage of speed, but you need a multi-year execution window to be able to take advantage of all that product you can ship quickly. If these big companies are able to ship this quickly, they've got so much …”

“If you're going toe-to-toe right now with an incumbent on their home turf and their shipping, I think it's a hard bet to take the opposite side of, you know, in our business.”

“I think there's actually a lot of opportunity out there for non-consensus thinking. I think there are a lot of companies that aren't getting very much love because they're not AI. The teams aren't fancy founders that came from well-known companies that are jus…”

“So you know, but I don't subscribe to a lot of the criticism about the business model because it will change. You know, you don't have to have necessarily proprietary data to create a valuable business. You can offer tools. You can offer services that really c…”

“At some point there's going to be a disillusionment with the technology and then funding might dry up and then these places are really in trouble.”

“I think some of the rounds were pretty big, but I think it's also justified just because this stuff is really going to change the world. And so one bet, if it's right, has massive payoff.”

“I think if you were thinking about AI as AI APIs, I agree. If you're thinking of AI as a more radical paradigm switch to build technology, right? And if you think about an AI startup as a company that is actually training models, creating new architectures, op…”

“If you're describing bubble as the asset prices related to that general idea, I think we're in a very extreme bubble. I also want to throw out there, and I think this is very relevant to Oh, yeah, I mean, I think we're not quite at NFT level, but we're probabl…”

“I think it's gonna be a massive concentration in dollars, but fewer companies. I think the explosion of excitement meant that everyone and their dog got saved.”

“Yeah, I mean, I think there will still be a lot of money going into the long tail, but you're right that the concentration will happen in the top, but I think ultimately there will still be more companies getting funded just because some of the smartest people…”

“They spent a year or two thinking, looking a little bit at the hype, and now they're really getting into it, and I think those startups are gonna really crush it and avoid a lot of the early generation mistakes.”

“I think today, if you were doing an AI startup, The environment's slightly different, right? Like, you're not going to be bootstrapping your AI startup these days”

“If you're an AI startup and you don't have access to customer data and customers to test with, that can actually make you move slower.”

“However, 99% of the money invested into AI startups today will go to zero.”

“If you were to rebuild it today and you'd build none of what's there and everything would look totally different, then yeah, like it's go time, right? If you actually wish you could borrow all their servers and their sender reputation and all that sort of shit…”

“The valuations are gonna be slightly higher, but honestly, that's worth paying for.”

“We are seeing this obviously things in high flying categories, things that touch AI and have momentum, right? Massive multiples right now.”

“And like the way that we talk about it internally is don't make the cap table a risk to your business, right? Build a business the old fashioned way, raise smaller amounts of money, right? More frequently that are more milestone based. Where, when you raise a …”

“There will be companies born today that will be larger in the field of AI. Then the companies that are the largest companies that we have today, and they will start as toys and they will start as something that is probably overlooked and something that is not …”

“You can only hire that fast. You can only scale your infrastructure to manage more GPUs that fast, and you can only raise capital that fast. So there's some acceleration constraints that are pretty hard to fight, and that are pretty much the first principles o…”

“Part of the opportunity with selling work as an AI startup is that the market for that could actually be 10 or 50 X bigger than if you were selling software. Why is that? You're selling a 95% productivity improvement instead of a 10% productivity improvement. …”

“Fundraising processes are brutal. I think most people think like you just go to like, there's always these memes about like, oh, if it's AI, people are just like willing to write you the term sheet without even doing any diligence. Well, like, welcome. Like, w…”

“Now you're investing at a hundred to 200 times revenue when public names are trading at the best public names are trading at 15 to 20 times. That dislocation does not make sense to me unless you believe that these companies fundamentally have much more persist…”

“It's really dangerous when you make yourself a subsidiary of your cloud provider.”

“I was talking to a team that had gone like this last week, I was talking to a team that had gone like zero to four million, a four person team, zero to four million in four months. Amazing. Like just amazing kind of revenue trajectory. But I put like almost no…”

“And even in AI, Like, the teams have to get some kind of product market fit, some before, I think that can still be done reasonably capital efficiently.”

“Don't be afraid to do brand deals where you do get into brand names with tiny ownerships. The most important thing is that you align yourself with incredible founders and incredible companies in this new era, especially in this new era of AI, just get into som…”

“And so I felt like, 95% of people that were like, betting against the models getting better, five percent of people were betting for the models getting better. I think that's now reversed.”

“On paper, I would say it just seems silly to throw a bunch of venture dollars at lawyers instead of sitting down and talking about how you could Work together. You know, like, deciding to sue first and then ask questions later seems to me to be inefficient, bu…”

“That will probably be dead in two years.”

“So we mostly have evolved products that are not good enough, or we have adapted products with a coat of paint on top that says AI.”

“Probably the number one thing I would say is do not resell compute if you can. A lot of, you know, AI startups That are building on top of AI are trying to make a margin, you know, on top of a very big cake. And ultimately what they sell is compute. If you loo…”

“And now if you're a startup, you can do a little bit more of the over promising because people are kicking your tires, the early adopters, they have a little bit more of that. Sort of willingness to engage.”

“Often the companies that do benefit from those model generation shifts are not the ones that suddenly start that day. Like, gosh, you know, it sounds like cloud three, seven Sonic can do that. It's the ones that have been beating against the wall.”

“My sense of where it ends up being most valuable to exist is places where you have some differentiated go to market, some differentiated knowledge of some particular industry or some special data that only you have access to ideally two or even three of those …”

“On the average, I think they'll disappoint. And I think there'll be outliers that are better than we expect.”

“We'll have smaller teams, but we still need more compute. I mean, we're just really trading people for compute.”

“The SaaS trajectory is lock in, and Jason knows it so well, trouble, trouble, double, double, and that steady thing. The weird thing now is once you lock in, as you say, in 90 days, you go from maybe, to be fair, a year, six months, a year, you go from this co…”

“While I do think eventually a winner to emerge and they'll have the proper pricing power, and I do think in the long run you're able to extract value when you create value, there may be a lot of investor value destruction on the way up because people are compe…”

“I feel people are underestimating the risk of zeros, even though something can go from zero to a hundred million AR very quickly, and usually they're priced accordingly. And I, you know, I care about, like, what am I, what returns, what do you need to underwri…”

“What I worry is, is just that when there's so much competition, I think everyone's going to be less durable. It's not your ten-year-old SaaS company that is seeing less durability. I think everyone, I think this is new, this less durable revenue”

“There'll be a whole ton of these over the next, you know, two to three years as these large software companies, you know, Listen to Jason telling them they're screwed on this podcast and decide, I don't want to be screwed. I want to be a contender, right? And …”

“In terms of The amount of companies that are going to be around? Absolutely. Like, I don't know, like, 90, you know, 999 companies out of a thousand maybe is going to be around for a year, maybe two. It's going to be ruthless.”

“Someone's going to win, which by definition is not going to leave that much for the rest, which means that there's going to be a cleanup either through consolidation or through companies going bust.”

“Look, if you're an AI company right now you have two fundamental problems. One is getting noticed, so getting, getting customers, and then it's retaining them. In both, the vast, the overwhelming majority fail.”

“I feel that we are in a period that is very similar to the .com, but it's now .ai. So it used to be pets.com, it's now pets.ai. Whatever, it's the same bullshit.”

“So I'm making the bold prediction that you have just seen three of the incredible winners in the space, but they will be not the norm for whatever comes afterwards.”

“The industry as a whole is probably making the same mistake with AI deals that it made in 2021 with a range of other SaaS fields, which is the extrapolation of the current growth rate to the sky.”

“That's partly why this wave I think will be highly damaging to venture returns because the employee stock based comp dilution is going to be so significant and so much more significant than in prior generations of venture.”

“We're seeing businesses go from zero to a hundred million in 1.5 years. That's the supernova profile.”

“Right now the biggest problem I see in AI is if you see a good engineer, one that you would have hired before, they can go out and they can raise 10, twenty, hundred million, a billion dollars, and then rather than contributing to one of the other AI startups,…”

“Product market fit When you locked into it in SaaS land, you just didn't unlock for 10 years. Whereas here, you can lock in and out of product market fate as the models change, as things, approaches become, and you look back on the product a year ago and you g…”

“We used to catch up around 10 or twenty million ARR. And actually in some cases in SAS, you would lose your capital advantage around twenty million ARR because you would catch up, right? Like in the last year in our Qualtrics. I'm not sure that's true in the a…”

“Essentially it's an asset purchase. And I think that's something we'll continue to see more and more of”

“I think that the new playbook for these AI startups is actually going to be much more about hire the AI generalist, this 23, 24, 25 year old who's really native in AI, really passionate about it, and I think those are the sort of the front lines that are going…”

“You're either getting money from compute, right? This massive spend, or you're getting money because you're using AI to replace humans. Otherwise, you're not gonna grow.”

“You just can't take that early first month explosion as seriously as you used to. It's not as defensible.”

“If you have, like, the naivety to think you're gonna build something that's really close to what OpenAI is building, And they're not going to build it. You're crazy. Like, you know what I mean? So I think we've really stayed away from things that OpenAI will e…”

“Like, not to be on the AI hype train, but I do think we are going to have a lot of exits Eight years from now, around the hundred billion dollar mark.”

“As these guys grow, their NRR will go up and the churn will go down, just because for classic enterprise reasons, those big customers are going to be stickier.”

“We see a lot of talk of this, but right now we're not seeing a lot of these mashed together legacy company at hundreds of millions in B to B and hot AI startups and magically flipping it into a 20 X, 15 X era company.”

“If we ever see a company that pitches us as an AI company, and they have SaaS gross margins, we ask a lot of questions because it probably means that people aren't actually using the AI features.”

“If your customers are getting value from your AI agent that they can't get anywhere else, and you can make that value clear. Then you can charge enough to pay for your tokens, and yay you. If you're not getting, if you're not giving value, or if you're locked …”

“The fact that these companies have costs actually forces a business model hygiene that I don't think existed across the board 10 years ago, and that's a good thing.”

“As the models get better, downstream players' ability to take those capabilities, productize them, and raise prices, Has outstripped the raising costs, right? So the incremental cost increase potentially, and in many cases not a cost increase, but it's, you kn…”

“Like the bigger the better, but certainly 50% is solid, right? And if you're 60, 70%, I mean, we're very, very happy.”

“So I think that there is a pocket that startups can really thrive in, which is building these weird products that really touch on many core aspects of humanity that the models can reflect, but the big corporations are uncomfortable.”

“Your terminal operating margin may actually be higher in this world than the last world. Your gross margin might be lower, but your operating margin, which is ultimately at the end of the day is really what matters, may end up being higher.”

“If your story is not changing significantly every six to nine months, you are probably falling behind. In fact, not probably, you are falling behind.”

“Both of us together, it's almost like old guard of Sarah's and new guard of like truly employees that don't have that context, that don't have that baggage is what creates a perfect harmony that pushes the company forward. Because you can prevent stupid mistak…”

“But if you focus on cost at the expense of performance, you're going to lose.”

“Working in this world is, is completely insane and unhinged and it's over, it's all consuming.”

“I think that the reality is it will come to haunt some of these companies one day, because I think right now where there's a gold rush and everyone's like desperate to sign, you know, and get more tokens from these people, it's easy. They're kind of like, in m…”

“If you're already the market leader and you only have share to lose if you're already the incumbent, that's a really tough place to be because there's not really share to gain, there's only share to lose, and AI is a great way to for startups to take share fro…”

“And now every single good AI company that they could acquire is too big for them to acquire and they can't do it. And so then it's like, well, we don't have the talent internally. We can't build a good AI product portfolio because we don't have the talent. The…”

“Is I'm seeing Series A is priced at three to 500 on two to five million in revenue, but I'm finding the B at a hundred million in revenue priced at one to 1.5. It's a three X price increase for a 50 X revenue increase.”

“You know, a lot of companies, just because of the cost of computing inference, it's harder to say you're going to be an 80, 90% gross margin company anymore. But, you know, great companies are, you know, 60, 70% gross margin.”

“And the thing that you really need to believe is that if the valuation is ten billion today, that you're going to generate the revenue, let's say it's a 30 X revenue multiple or 25 X revenue multiple to become a hundred billion dollar business. And so what tha…”

“Like, 95% are not going to be there.”

“There's very little evidence yet that These hot, hot AI companies that are raising huge amounts of money are capital efficient, right? They're anything but capital efficient. There's, like, the jury's out on whether that's going to work still.”

“The multiple rounds that happen and, you know, we used to have seed and series A, series B, and I think the milestones to get from one to the other used to take you 18 months. Now you can move so fast with AI that things happen so quickly. And so it's only nor…”

“The answer there for every startup that I know outside of a very few. Is, yeah, it's, well, we're hoping the price, we're hoping the cost curve makes it efficient in 18 to 24 months, right? In the meantime, you're subsidizing in part, right? Because that's wha…”