A couple of days before Andreessen Horowitz Martin Casado and Matt Bornstein published an interesting piece dealing with the world of startups for artificial intelligence (AI), and in particular with the performance of these companies as a company. The essence of the argument is that while founders and investors bet "that AI companies are similar to traditional software companies," the well-known venture company is "not so sure."
Given the fact that TechCrunch is very concerned with the basics of the startup business, the notion that an often discussed and well-funded category of venture-backed startups could be much less attractive than we expected was worth our attention ,
Andreessen Horowitz's perspective (a16z) is straightforward and argues that AI-focused companies have lower gross margins than software companies due to cloud computing and input costs, endure problems due to "edge cases" and less product differentiation from competing ones Businesses enjoy compared to software problems. Today we're going to look at the gross margin point because it's inherently numerical that we can get other informed market participants to weigh up.
If a16z is right in terms of AI startups with lower gross margins than SaaS companies, they should – with otherwise identical conditions – generate less per dollar in sales. or, to put it more simply, you should trade with a sales multiplier Discount for SaaS companies, with the latter category of technology companies still at the top of the valuation hierarchy.
This is important given the amount of capital that AI-focused startups have raised.
Is a16z correct in relation to AI gross margins? I wanted to find out. That's why I spoke to a number of investors this week from companies that made AI-focused bets to get their views under control. Read the full a16z piece. It is interesting and worth your time.
Today we hear from Rohit Sharma from True Ventures, Jeremy Kaufmann from Scale Venture Partners, Nick Washburn from Intel Capital and Ben Blume from Atomico. We start with a summary of their answers to our questions, with their raw notes at the end.
AI economy and optimism
We interviewed our group of risk investors (selected with the help of research from Arman Tabatabai from TechCrunch) three questions. The first dealt with the margins themselves, the second with the resulting valuations and finally we asked about their current optimism interval for AI-focused companies.