Insights & Trends

What does AI mean for venture studios?

Insights & Trends

What does AI mean for venture studios?

Words Sahil Sachdev

November 8th 2023 / 4 min read


What do you need to build and scale a startup?

An idea—a validated concept that solves a real problem in an innovative and scalable way. Talent, for sure, with the right drive, skillset, and vision to thrive amid uncertainty. Perhaps most importantly, money—to fund not just your team but everything you need to grow your business. 

AI is likely to transform the extent to which founders need, or have access to, all of those things. Ideas will be easier to arrive at and test. Talent will be super-powered by technology. And money? Well, we might need less of that than before.

The building blocks of starting up are set to change. What does that mean for venture as an asset class? And indeed, what does it mean for venture studios like Founders Factory?

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A new paradigm for venture?

The fundamental transformation enabled by AI, in this context, is a simple one. Barriers to entry for launching and scaling a startup are lower than ever. And the resources needed to get to scale are likewise lower than ever.

"If previously, companies needed to raise $500m-$1bn to get to real scale, they might now need just fractions of that."

Take headcount. How many people do you need to scale a company to a $1b valuation? Previously, you would have needed scores, hundreds even — teams of engineers, salespeople, growth marketers, customer support staff to power growth and keep up with it. In the new paradigm, AI radically supplements and replaces many of these hires. AI co-pilots (for everything from code to customer support) already help one person do the work of many; over time it’s likely that much of the busy work will be automated away entirely, with only a few humans needing to stay in the loop. Without the need to hire large teams to do work that the computer can do faster, better and cheaper, startups are freed to use their war chest to fund fewer, higher value and higher impact roles that have a better chance of moving the needle.

Leaner, they will move faster. And they will also need to raise less. If previously, companies needed to raise $500m-$1b to get to real scale, they might now need just fractions of that. Just look at Midjourney, a company that’s generated $200m in revenue with no outside investment raised and with a team of around 11. Brilliant for founders and team members, less so for later stage investors.

At the idea stage, AI has an equally transformational role to play. AI is already supercharging our ability to quickly analyse data, make sense of market and user research, create mockups and more. AI’s ability to do MVP-worthy design work, write decent code and even run a growth marketing campaign is only going to improve dramatically in months and years to come. So there is a near future where it will be relatively straightforward to run multiple new startup experiments without having to invest much in terms of time, money or headcount, progressively dedicating more of each as experiments bear fruit - or don’t. So even startups at the idea stage are going to require less capital than before.

All of this has quite significant implications for the world of venture. The amount of capital needed for new ventures to start up and then scale is going to be considerably less than before, perhaps even orders of magnitude less. Later stage growth or crossover funds are likely going to be most deeply affected, but even earlier stage funds are not going to be immune. 

Venture Studios—support-heavy, cash-light

One model of venture, arguably, is going to be privileged by these new developments—the venture studio model. The ability to quickly and cheaply spin up new startup concepts, matched with the deployment of the right amount of capital into de-risked opportunities, alongside targeted support for founders from expert thought partners, feels far better suited for this new paradigm of capital efficient, headcount light startups that can go on to significant scale. 

Support begins at a much earlier stage, before capital even really comes into question. Venture concepts are formed, tested, and de-risked by our team before founders even join a startup. We then back teams in those early, testing times, helping them find product market fit and generate early traction before they go on to scale. 

"The support needed is not headcount but high impact, high value expert support."

Capital is still deployed, albeit in smaller amounts. In this new paradigm, companies will be looking for cheques that, by ZIRP (zero interest rate phenomenon) standards, might feel modest but serve a necessary function: enough to keep the lights on and the founders focused, but without room for unnecessary headcount expansion that has typically been perceived as a marker of success for early stage teams.

The key differentiator in the model is the support. And not just any support. The value of AI tools is in their ability to automate or make more efficient the work on the more commoditised end of the value chain—getting a website up and running, writing the copy for an outbound sales campaign, getting an MVP into user’s hands - now done in a matter or hours rather than weeks. The support needed is not headcount therefore but high impact, high value expert support, offered by deep subject matter experts with the experience and context to help founders make the right decisions at the earliest stages. The kind often found at a venture studio. 

So what does this mean for the startup ecosystem?

Employees in scale-ups are finding themselves sitting under increasingly large preference stacks. Public tech companies have already gone through a round of layoffs, with hiring freezes in place at many. And it’s never been easier to start up yourself. This combination of lower barriers to starting your own business and a growing incentive to leave your existing one (or, for freshly minted graduates, to start your own rather than join a FAANG) is a fascinating one for venture. We expect, and are already starting to see, a Cambrian explosion of AI and AI-powered startups.  

More people from more places will be able to tackle more problems. With capital being less of a constraint, the surface area of opportunity will become greater. And for acolytes of e/acc or even those who simply believe that advances in technology tend to have positive externalities, this might eventually prove to be a quite significant net positive for the world.

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About Sahil

Sahil Sachdev is Head of New Ventures at Founders Factory. He leads our Venture Design team, responsible for generating ideas to build in our Venture Studio. He spent a decade at Saffron Brand Consultants as their Director of Strategy in Brand Innovation, before spending two years at last-mile delivery startup Quiqup as their Head of Brand and Innovation. 

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