Good morning, this is Tools of AI, waking you up from your Saturday hangover slumber with terrifying news of how AI will take over the world.
Just kidding, I’m in denial too- won’t cover that.
Last week, I wrote a piece on why this is the best time to be building a Generative AI startup. Some of you said it was too long, so here’s the tl;dr version:
- Gen AI companies that focus on solving the customer’s pain points- will win. Basic business savvy is required, forget talk of whether there’s a moat or not.
- Founders will have a golden opportunity to sell in the next 3 years to larger players, PE firms etc as the space explodes and then starts to consolidate.
For today’s piece though, let’s take a step back and think macro.
There are many players involved in this game today:
- Founders
- Angel investors
- Accelerators
- PE firms
- VCs
What should each of them be doing?
Here’s my take:
#1 Founders. Bootstrap or raise a tiny amount of money only. Build to sell from day 1- that’s the opportunity in this market right now.
When Adobe finally is ready to incorporate AI tech across all it’s platforms a year or so from now, be so perfectly positioned in the market that acquiring you is a no-brainer.
The likely outcome will be in the low tens of millions of $, which is why you need to retain maximum ownership in the company to make that a good outcome.
#2 Angels. Find founders building AI tools focussed on product led growth, i.e: having customer at the centre of all development. Investing 99% time in finding those companies with most chance of success, i.e being acquired and having a founder with the right mentality will be crucial.
#3 Accelerators. Same suggestions as Angels.
#4 PE Firms. PE firms should definitely be on the lookout for AI startups working in their Industry starting today, track progress over the next 1/2 years and develop cases to invest/buy out the startups.
Potential gains- incorporating the solution into their wider portfolio (if it has synergies) for efficiency gains OR running it through the PE machinery, and upselling it.
#5 VCs. I think they should stay as far away from the Generative AI space as possible because the huge outsized VC model returns are just not likely in this space because there’s no moat. They’ll be probably better off working with startups developing their own AI models, not those building a solution on top of the existing AI models like Chat GPT-3.
That’s all for today- if you liked this edition, please let me know!
Perhaps even share this newsletter with a friend and ask them to subscribe?
Alright- see you next week!
Shubhankar