INSUBCONTINENT EXCLUSIVE:
A few days ago, Andreessen Horowitz Martin Casado and Matt Bornstein published an interesting piece digging into the world of artificial
intelligence (AI) startups, and, more specifically, how those companies perform as businesses
Core to the argument presented is that while founders and investors are wagering &that AI businesses will resemble traditional software
companies,& the well-known venture firm is ¬ so sure.&
Given that TechCrunch cares a lot about startup business fundamentals, the notion
that one oft-discussed and well-funded category of venture-backed startup might sport materially less attractive economics than we expected
captured our attention.
The Andreessen Horowitz (a16z) perspective is straightforward, arguing that AI-focused companies have lesser gross
margins than software companies due to cloud compute and human-input costs, endure issues stemming from &edge-cases& and enjoy less product
differentiation from competing companies when compared to software concerns
Today, we&re drilling into the gross margin point, as it something inherently numerical that we can get other, informed market participants
to weigh in on.
If a16z is correct about AI startups having slimmer gross margins than SaaS companies, they should — all other things held
equal — be worth less per dollar of revenue generated; or in simpler terms, they should trade at a revenue multiple discount to SaaS
companies, leaving the latter category of technology company still atop the valuation hierarchy.
This matters, given the amount of capital
that AI-focused startups have raised.
Is a16z correct about AI gross margins? I wanted to find out
So this week I spoke to a number of investors from firms that have made AI-focused bets to get a handle on their views
Read the full a16z piece, mind
It interesting and worth your time.
Today we&re hearing from Rohit Sharma of True Ventures, Jeremy Kaufmann of Scale Venture Partners, Nick
Washburn of Intel Capitaland Ben Blume of Atomico
We&ll start with a digest of their responses to our questions, with their unedited notes at the end.
AI economics and optimism
We asked our
group of venture investors(selected with the help of research from TechCrunch Arman Tabatabai) three questions
The first dealt with margins themselves, the second dealt with resulting valuations and, finally, we asked about their current optimism
interval regarding AI-focused companies.
