For the first few months of the AI craze, I stood pat. Now, it’s time to move.

Sitting at this laptop two months ago, AI investments looked weak. I saw one startup after another at 9 digit valuations with minimal defensibility.

Many were a thin wrapper for OpenAI and nothing more.

Today, I’m seeing thoughtful implementations of generative AI. These companies could be the next unicorns.

For example, take my latest investment, Micro1. Micro1 is a platform for hiring engineers.

Micro1 uses AI at every step of the process. It scans resumes with AI, tests engineers with AI, and teaches them how to be more productive by using AI.

But it also includes a human being in the loop, evaluating engineers to be sure customers get the best.

What founder Ali Ansari has built isn’t easy to replicate. And it’s certainly no OpenAI wrapper.

I’m beginning to see more and more companies that use AI intelligently, like Micro1 does. Founders are integrating it into workflows to make products better, instead of just launching new skins for ChatGPT.

So how can investors know the difference? The best explanation I’ve seen comes from Jake Saper at Emergence Capital:

“So, how do you know if you’re building a cool app on top of OpenAI vs an enduring business? Start by asking a simple question: “How much of the job to be done (JTBD) we’re focusing on can be done within OpenAI/Anthropic/etc?” Enduring businesses tackling complex jobs to be done likely require meaningful software beyond the generative AI element; the good old fashioned building blocks of SaaS, like complex workflows, data integrations, advanced permissioning, etc will likely prove to be the scaffolding around which defensible generative AI-enabled businesses are built.”

ChatGPT only came out 8 months ago. It makes sense that the first companies to appear would be thin skins over its technology. They take less time to build!

The complex implementations of AI take longer. But those are the real businesses.

Best of all, I’m seeing much more reasonable valuations in AI companies. Pre-money valuations are usually around $10-15 million, even in the best seed stage startups.

Some AI companies still fetch eyewatering prices. They’re usually producing a foundational model — an OpenAI competitor, in other words.

That requires a massive number of specialized AI chips. They are in short supply and cost a fortune.

This means the company has to raise a container ship full of cash in order to get off the ground. With that massive raise comes a correspondingly massive valuation.

I’m not playing that game. The upside is minimal at those prices, and incumbents with more resources will probably kneecap the upstarts.

But the overall picture in AI is bright.

Startups that are more productive and capable than ever are raising at reasonable valuations. I’ll do that deal all day.

What are you seeing in AI today? Leave a comment and let us know!

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