What we look for in AI companies (and why they are different)

With Generative AI’s budding reasoning capabilities, a new class of agentic applications is starting to emerge.

What shape do these application layer companies take? Interestingly, these companies look different than their cloud predecessors:

• Cloud companies targeted the software profit pool. AI companies target the services profit pool.


• Cloud compa

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Sobriety source #2: AI as the next platform shift. Every wave of new companies that transforms their respective industries is fueled by a major platform or technology shift. The advent of the web did this. The smartphone and mobile applications did this. And there is no doubt that AI is our next wave. But does every new wave always necessarily favo... See more

AI is like water.

Or more specifically, generative AI applications are like water. We've looked at hundreds of AI companies, and much like bottled water, many of them are the exact same under the hood.

This is just the reality: there will be 100 teams trying to do what you are doing, in the same way you are doing it. True tech differentiation in AI... See more

As we see base models continue to proliferate, and fine-tuned models begin to sit on top of them, our hypothesis is that these “thin layer” products should focus on having a clear opinion of how they form the output or how they shape the human to AI interaction layer. Put simply, the maximally viable product in AI is likely not where the vast major... See more

However, we have noticed in many cases that AI companies simply don’t have the same economic construction as software businesses. At times, they can even look more like traditional services companies. In particular, many AI companies have:

Interface > Data > Model: The “interface” and “data” layers will further distinguish market leaders while the “models” layer becomes increasingly commoditized and pushed to the edge. As a growing number of our everyday use-cases of powerful GenerativeAI models fall below the frontier of “the best models,” they will be enabled by cheaper commoditize... See more