Month: June 2023

@pmarca on AI

Marc Andreessen: Why AI will save the world. Long read on AI with a more positive view than most.

“Rather than allowing ungrounded panics around killer AI, “harmful” AI, job-destroying AI, and inequality-generating AI to put us on our back feet, we in the United States and the West should lean into AI as hard as we possibly can.

We should seek to win the race to global AI technological superiority and ensure that China does not.

In the process, we should drive AI into our economy and society as fast and hard as we possibly can, in order to maximize its gains for economic productivity and human potential.

This is the best way both to offset the real AI risks and to ensure that our way of life is not displaced by the much darker Chinese vision.”

Price low at first

Wall Street Journal reports that Netflix allegedly (based on third party research) had the most new subscribers signing up since 2019 the last week of May. This includes the top during the pandemic. It coincides with Netflix tightening the screws on account sharing in the US.

This is an example of a later stage action to drive revenue for a mass-market service.

Netflix started at $7.99 per month for the service, added more content to increase value and user growth, added additional tiers (number of streams and technical quality) at higher prices to increase average revenue per user, made price increases, as subscriber growth slowed added combined paid and as-supported to drive volume for more price sensitive viewers, and now trying to lower account sharing.

For companies with both the time to grow and a great mass-market product it is probably the best approach, which explains why Disney and others have also had low initial pricing for streaming. The question is if they can create must-have products that can compete.

It is also a reminder to cut startups some slack during an initial phase of subscriber growth for not monetizing fully. For great products with low churn that is simply a good strategy.

Living in the future

Sometimes it feels like the future is already here, even if unevenly distributed. In the last 18 months several “science fiction” technologies have matured and made the jump into the “real world”.

  • Generative AI and LLMs
  • Self-driving taxis on the streets of major cities (like San Francisco)
  • Apple Vision Pro
  • 1X creating humanoid robots

It is a little bit like a 90’s science fiction movie.

Sequoia Capital splits in three (big is great, but highest returns comes from smaller funds)

Sequoia Capital will be splitting into three regional investment firms in the beginning of 2024. The three companies will be Sequoia Capital for US/Europe, HongShan (China) and Peak XV Partners (India and Southeast Asia). Some background in Forbes.

Splitting up is going in the opposite direction of consolidation, which is what Christian Sinding, CEO of EQT, told Bloomberg (as reported by DI.se) that he sees coming among alternative asset and private equity managers (which is much broader than venture capital).

Larger venture funds allow pension funds and other institutional investors to invest larger amounts of capital, which is valuable/useful and could be a driver of consolidation. Even after splitting up Sequoia Capital and HongShan and Peak XV Partners will be major players in their respective geography.

However, in venture capital there are diseconomies of scale, especially for early-stage investing. There are limits to how much money can be invested at seed and Series A. Therefore the best performing funds historically, when measuring profit in the number of times capital is returned, have been quite small in the $50 million to $300 million size range. Like Earlybird Digital East Fund I at $150 million with a 24.9x return (as of 2020) and Creandum II at ca 70 MUSD with a 13x return (as of 2019).

Benchmark: Sales KPIs from 300+ SaaS companies. NRR not a top 3 KPI for startups with less than $10 million ARR.

Insight Partners has released its latest SaaS Sales KPI report (thx Arne). The buckets are geared towards slightly larger companies than in the report ChartMogul released awhile back. This makes sense as Insight is a later-stage investor, which could influence the data they have gathered.

For companies with up to $10 million in ARR, the median growth rate in 2022 was 90 % year-over-year with the top performers growing 190 % y-o-y. This is similar growth rate to ChartMogul with its $1-3 million bucket having 183 % y-o-y growth and the $3-10 million bucket having 119 % y-o-y growth.

The Net Revenue Retention for top performers was ca 120 % in Insight’s data vs ca 110 % in ChartMogul’s data.

A related point on KPIs. Insight doesn’t have Net Revenue Retention as a top 3 KPI for startups with less than $10+ million in revenue.

Having the money to have a vision

For a startup being too early with a product is the same thing as being wrong, as the end result is the same when the company runs out of money. This is not a problem large corporations like Meta, Alphabet, Amazon and Apple have. That is why they can try and kickstart new platforms before success is obvious.

With that in mind I found Apple’s presentation of the Vision Pro headset at WWDC exciting from a technology point-of-view, but to me it was not (yet) obvious why I really want to buy one. It will be interesting to see what developers build for the Vision Pro, especially when the price comes down from the initial $3,499.

Europe is strong in AI, but needs to step up its game

Oliver Molander, a co-founder of Validio and now angel investor among other things, shared his notes about AI/ML from a startup and investor perspective from the Lattitude59 conference. It is a good read. Some of the points Oliver made.

  • Regulating LLMs completely is like trying to regulate SQL.
  • “I’m not saying regulation is bad. I’m saying that bad regulation isn’t good”.
  • …data is the key differentiator when building high-performing Foundation Models/LLMs. Not the size.
  • Most importantly; Europe should be an AI powerhouse when looking from the outside. … It’s worth noting how strong France is.
  • As an asset class, VC has to remember its role both when it comes to the power-law nature of the business and backing transformational technologies.

Especially the point that France is an AI powerhouse is something I think many in the Nordics have missed.

Video is magic, for advertising

I find it interesting how well Netflix, Hulu and other video streaming services have been able to monetize their paid+advertising tiers to the same level as their paid-only tiers.

Especially as outside of Google and Meta most online publishers have not been able to monetize online advertising nearly as good as traditional media. Not even Spotify, which in theory should be a good ad environment and has scale in many countries.

Maybe more video (for both music and podcasts) would be a good thing for Spotify’s advertising saleS.

Speaking about fintech at Arctic15

Tomorrow I’m participating in the Future fintech transformations panel at Arctic15 in Helsinki.

Fintech is a strong and exciting sector in the Nordics with startup successes like Klarna, iZettle, Tink and Pleo and many, many more. This heritage I believe makes the Nordics a great place to build the next generation of fintech companies.

Alliance VC has invested in several fintech companies like Ark Kapital (data-driven lender), Two (buy now, pay later for B2B), Bits Technology (KYC/KYB orchestration layer), IndyKite (digital identity solutions/identity and access management), (Apexx (payment orchestration layer), and Aprila Bank.

We hope to continue to partner with Nordic founders building the best fintech companies going forward. If you are building something interesting, please contact me either digitally or at Arctic15!