A couple of days Martin Casado and Matt Bornstein of Andreessen Horowitz recently 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 theinformationsuperhighway is very concerned with the basics of the startup business, the notion that an often-discussed and well-funded venture-backed start-up category could be far less attractive than we had expected caught 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 more simply, they should trade in sales from multiple 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 asked our group of risk investors (selected with the help of research by Arman Tabatabai from theinformationsuperhighway) 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.