Navigating AI’s iPhone Moment
Angular Ventures Weekly Issue #179: For the week ended March 28, 2023
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Navigating AI’s iPhone Moment
Gil Dibner
Some weeks, I’m very plugged into the news. This week went by in a bit of a blur: a lot was going on and news from the tech world sort of flew over my head. Four live deals and a six-year-old’s Frozen-themed birthday party can do that to you I guess. On Sunday, when I was finally able to come up for air, the news was full of the latest generative AI wonders. Twitter, for example, is full of videos of ChatGPT powered robots planning meals, ordering groceries, writing API calls, generating CSS for landing pages, social media drip campaigns…you name it. One example even showed how auto-generated emails were sent to thousands of prospects, proposing customized software solutions to each one, and generating fantastic response rates that left the senders puzzling over how to deliver solutions fast enough.
In the words of the NVIDIA CEO, we are living through the “iPhone moment” of AI. The point he’s making is this: now that foundational AI models are readily available to everyone behind drop-dead simple UX (ChatGPT), the entire planet is suddenly experimenting with what these tools can do. Just as the iPhone put the power of semiconductors and the intuitive interface of a touchscreen in the palms of a billion hands, these natural interface AI models are suddenly putting the power of AI (generative and otherwise) in a billion hands. Mobile ate the world, software (and SaaS) ate the world, and now AI will eat the world as well — but what does that actually mean?
With that question echoing in our minds, we at Angular continue to review and process near-record numbers of opportunities to invest in seed-stage companies. Perhaps surprisingly (given the market conditions), the pace of seed stage company formation seems to be higher than ever (our internal data shows that only 4Q22 was higher).
We are investing right now (chasing four deals pretty furiously this week), but we also must admit that this feels like a pretty dangerous time to invest. The world is changing extremely fast right now — and while the magnitude of the change is clear, the shape of the change is less obvious. Here are a few observations that David and I have had recently:
- As we have for years, we continue to be excited by companies that are exploiting deep fundamental insights to provide foundational tooling for data processing and handling, including in ways that can power the essential “AI stack,” but not exclusively. Some of these might be relevant for generative AI, but others are more about achieving a 10–100x improvement in performance, ease, or reliability of basic IT capabilities. Our view is that the AI’s iPhone moment makes these companies more valuable than ever. Companies like Firebolt, Paradime, Tensorleap, and Valohai are in this category, as are a few we can’t talk about yet.
- We are also very excited about companies that leverage deep vertical expertise. Sometimes these companies benefit from advances in AI, and sometimes not. AI is just one of many inputs in their value chain, but their ability to capture value depends mostly on understanding industry workflows and sales processes. These companies are rarely threatened by advances in AI. Companies like Aquant, Crux, Fixefy, Planable, and Vault are in this category.
- Our thesis that “basic” AI models are commoditizing led us to invest in Levity, a company that is building a complex and powerful UX/UI layer on top of basic AI capabilities. The more powerful the foundational models Levity can leverage, the more valuable Levity can become — but the value and power of Levity is in a robust UX/UI layer — not the AI itself. Again, that’s just an input.
- We worry about companies that appear to be providing a very thin layer on top of a foundational model. We’ve seen a ton of these popping up lately. Where there isn’t a complex, powerful, or deeply industry-aware workflow to build, we wonder if these companies can really create enough sustainable value.
- We worry about companies that are creating value by “generating” anything: code, summaries, images, emails, marketing text, etc. That capability is going to get commoditized pretty fast (we believe it already has), and our prevailing view is that something that costs nothing to create is going to be worth nothing to consume. When our email inboxes are full of AI-generated emails, we just won’t read them. That has interesting social implications — but I’m not sure the business implications are that interesting. Spam is spam, and more spam is even more spammy.
- We also worry increasingly about companies that are creating value primarily by helping human software developers write code faster and better. Our suspicion here is two-fold. First, it’s increasingly clear that coding “copilot” tools are going to be adopted very rapidly. We wouldn’t be surprised if the majority of code that gets written next year begins in a copilot authoring environment. Second — and perhaps ironically — we suspect that software development itself is one of the first professions to be most fundamentally upended by generative AI. The key issue here is testing…(see the next bullet).
- One area where we are actively looking but have not yet found the right company is software testing. Software testing is an incredibly important and expensive activity — that does not appear to have been fundamentally “solved.” To date, most companies have pursued one or two paths: Some companies have invested a ton of money and effort in manually-generated testing scripts, which create complex management problems of their own. Other companies have essentially given up on testing (QA) as a separate discipline and have attempted to move to some version of “test in production,” with varying degrees of success. Modern AI capabilities should enable the automatic generation, deployment, and evaluation of test scripts in real-time. This insight is not new: thoughtful entrepreneurs in the space have been talking about this for years. But so far, no one has managed to pull it off. It’s much harder that it sounds for a number of reasons that are very technical — but if you are working on this or think you’ve cracked it, we’d love to chat…
As I wrote above, we know the pace of change is faster than ever, and we know the magnitude of change is immense. We are eager to meet with and invest in those teams that have a strong opinion on how that change will manifest itself and how — in a world of increasing commoditization of some many things that were once very challenging — a given company has a chance to build barriers to entry that will last long enough to support a valuable business until a large outcome. Ultimately, while technology is constantly evolving, the true essence of building a technology business remains constant: building meaningful barriers to entry — true defensibility — around significant customer value. The creation of customer value itself is essential, but insufficient on its own. The business is in the barriers.
If you are building in this space with a thesis around defensibility, let’s talk.
EVENTS
May 31 / US Immigration Best Practices
Jennifer Schear, Founding Partner, Schear Immigration Law Firm
FROM THE BLOG
Principles for AI Product Design
Or how we could all learn a little from Google’s conversion optimizer.
Has Everyone Gone Chatbot Crazy?
Large language models have taken the (tech) world by storm, and all of a sudden it’s 2016 again.
Why (and How) Investing in Billboard Advertising Sometimes Makes Sense
Part I of a series on non-standard growth experiments.
The Hierarchy Trap
Hierarchy is an important tool for providing structure and alignment, but it can easily grow like a weed if not managed.
EUROPE & ISRAEL FUNDING NEWS
Poland/Ecommerce. Vue Storefront raised $20M for its frontend-as-a-service offering for e-commerce businesses.
United Kingdom/Legal. RightHub raised $14.8M for its collaborative Intellectual Property (IP) platform for managing and enforcing innovation and ideas.
Denmark/Energy. Lun raised $11M to help heat pump installers decarbonize homes.
Israel/SW Development. CodiumAI raised $11M for its AI-enabled automatic test generation software.
Israel/SW Development. daily.dev raised $11M for its professional network of developers, helping them to learn, collaborate, and grow together.
Israel/SW Development. Backslas raised $8M for its unified application security platform.
Germany/Energy. ampere.cloud raised $5.4M for its operating system, helping power renewable energy plants.
WORTH READING
ENTERPRISE/TECH NEWS
ChatGPT’s App Store. With the launch of plugins, OpenAI had its “iPhone moment” this past week, showing the world just how dominant a platform it could build. Companies can build ChatGPT plugins without writing a line of code (ChatGPT can write the code for them), they just need to write a description of how to interact with their APIs (and specify each endpoint). A great breakdown from swyx here. There are countless demos all over Twitter, but here’s an example of one use case from Greg Brockman (President of OpenAI) to get your mind going with the possibilities. I think Elad Gil said it well: OpenAI feels like Google circa 2003–2008, when Google was launching interesting, significant products consistently (Gmail, Maps, Android, YouTube), and was consequently dominating the (tech) conversation and attracting all the best talent.
Goodbye Moore. Gordon Moore, cofounder of Intel and the eponymous predictor of “Moore’s Law,” passed away this past week at the age of 94. Moore was a brilliant scientist, and many of his breakthroughs at Fairchild Semiconductor and Intel served as the backbone for the technology industry over the past 50 years.
HOW TO STARTUP
No PMF. Gokul Rajaram notes that many founders that raised large amounts of capital over the past few years may now be realizing that product-market fit is nowhere on the horizon. They may feel beholden to investors and employees to keep the company going, but may be increasingly convinced (deep down) that they’re on a bridge to nowhere. Rajaram tells the story of a founder who was in this situation and, after much painful deliberation, ended up returning capital. This founder was met with investors and employees who were 100% supportive. As Rajaram counsels, this is an option that more founders should be aware of (and more investors should discuss openly with their founders).
The lion and the gazelle. Ravi Gupta published an excellent post this past week about the danger that complacency poses to startups with 3–4 years of runway. He references the oft-cited proverb of the lion and the gazelle (the gazelle wakes up knowing it has to outrun the fastest lion, the lion wakes up knowing it has to outrun the slowest gazelle…either way, both wake up running), and suggests that startups with lots of cash might think they don’t need to be running…but that’s a mistake. Your goal is to move your company towards excellence. That’s not something you can turn on or off. To be great, your standards need to be consistently high. He ends on a fascinating article by James Astill about why American children are so bad at math but so good at swimming. The reason? The unforgiving standard of the water. “If [the swimming] instructors had focused on making [the children] feel good about swimming, instead of on making them swim, they could have drowned.”
HOW TO VENTURE
What to watch in AI. Thoughts from 10 investors, compiled by Mario Gabriele of The Generalist, on what opportunities exist in this brave, new AI-powered world.
How much to raise? An interesting (and controversial, based on the replies), thread from Jason Lemkin of SaaStr on how much money YC companies should be out raising right now. Lemkin’s advice to YC founders was that if the YC brand enables you to raise more than $2M at $20M or $30M post (the going rate for YC companies this batch), then you should. More money is better, given how challenging raising a series A can be these days. In the replies, other investors countered that (1) a “too high” valuation early can kill companies (suggesting that the average YC company may be in trouble 12–18 months from now), and (2) more money isn’t always better if you feel pressure to spend it.
PORTFOLIO NEWS
Aspecto was acquired by SmartBear.
Planable launched Universal Content on Product Hunt.
Forter will help IXOPAY merchants drive revenue growth, improve the customer experience, and deliver a clear business impact.
Front announced generative AI capabilities using ChatGPT’s API.
