No Priors: Artificial Intelligence | Technology | Startups
00:03:12 · Elad Gil
[00:03:12] S0: Well, it's more like a punctuated equilibrium. Right? If you look at theories of evolution, one of them is punctuated equilibrium where you have a Cambridge Explosion and you have consolidation and things are kind of steady state for all. Then you have an explosion. And so that's kind of like the history of technology, right, if you think about it. We had a big social wave, but there isn't a dozen new social companies all the time right now. We had a SaaS wave, then they kind of settled down. So we just had a giant AI wave, and there's still more to come. One could argue that Internet had four or five periods to it. I had the Internet of the nineties, I had social of the early to two thousand ten, 2012 ish kind of era. You had SaaS. You had cloud. You had big security companies. You had crypto as a wave, so you had all these waves happening. And sometimes they had two pieces. Right? Bitcoin had a couple different cycles, and other technologies will have that. AI undoubtedly, there'll be some giant breakthrough in model capability, and we'll see another step in some of these startups again. Right? But we see these moments in time where things go from zero to a lot, and then those things become consolidators. And then the question is what comes after that? And so I think we've now seen at least some of the consolidators emerge. And the question is how many more giant companies are coming in the next handful of years? And that's different from saying what happens over the next twenty years. Of course, there's gonna be tons of interesting stuff over twenty years. Over two years, three years, there's still things that will grow a lot. You know, there's still a lot of $100,000,000,000 companies to be built, but multi trillion dollar companies are kind of hard to get to.
00:04:42 · Sarah Guo, Elad Gil
[00:04:42] S1: I wanna talk to the investors you're talking to because I feel like I run more into a failure of imagination of how much bigger or better something can be than the closest proxy market from a previous era. And, like, I I think, like, being able to rethink market size is just still, like, a key underpriced investor skill right now at any stage. Right? If you think about Sure. Take some of the, like, application companies that, you know, we have in common or that other people have invested in. I think there are a lot of investors who have intellectually recognized this idea of AI companies delivering services value. They don't act like they believe it. They look at everything a little bit more linearly. Right? So think of, if you're looking at Harvey or a Bridge or something, then they think about a per seat or per, yeah, per, like, lawyer or per doctor TAM. And they're not actually, you know, asking the question of, like, what does the company look like if they can charge for outcomes? And actually thinking about, like, what's happening in the the coding domain, which is consumption and value, you know, a 100 x from here. [00:05:48] S0: Coating, I think, is like a much, much bigger market than anyone thought. And, you know, I think both of us were saying that a year or two ago. [00:05:53] S1: But now the evidence is out there. You don't have to be a genius to, like, take that to domains.
00:05:57 · Elad Gil
[00:05:57] S0: The evidence is out there, but it's also what is a trillion dollar market and what is a $100,000,000,000 market? Both of those are big numbers. Right? I actually wrote a blog post in 2010 or something talking about how hard it was to get to 10,000,000,000 in market cap, right, Which is now like a seed round for some of these Neo Labs. Don't get me wrong. I think that the reality is that there's a lot of these things that could be a 100, but I don't think there's that many that could be a trillion. Those are just different orders of magnitude. And so then the question is, what are these things that could actually be a trillion dollar market? Because you just think of the revenue basis that's needed for that. You need a 100,000,000,000 of revenue or 50 to 100,000,000,000 pretty easily. So then the question with good margin. Right? So then the question is, where are the $50 to $100,000,000,000 revenue streams for single companies? That's a different question than is the TAM really, really big. Right? That's huge TAM. Right? That's a very small number of markets in the world. There's a lot of them. There's a dozen plus companies that are there ish. But how many more will there be in the next five years? That's my question. It's not what in the next twenty years. It's what in the next five years we'll be able to get to 50 to 100,000,000,000 of revenue. And that changes how you think about this. Right? There's tons that can get to 5 or 10,000,000,000 of revenue, and there'll be a $100,000,000,000 company.
00:07:14 · Sarah Guo
[00:07:14] S1: I think I'm looking at more both a little further out. And then I'd say, like, I don't know that there are that many markets that are gonna get to 100,000,000,000 of revenue in the next couple years that aren't. Like in France. Right? Tell me what else what else you think in that timeline. Perhaps some supply chain, like energy type technologies.
00:07:34 · Elad Gil
[00:07:34] S0: Maybe. Yeah. Yeah. There's there's like a list. You can make a list of, like, five or six areas that seem promising. And then part of it too is you actually if it's a physically it's a physical goods company, energy, robotics, etcetera, do you actually have the footprint to get there that fast? Again, I'm doubting the size of some of these markets. I'm doubting the speed at which you can get there. Yeah. A 100%. And that's the issue. And people are, at least in my experience, collectively at least investing against the fact that they believe the speed is there, which is different from the market size. People are conflating the two things right now in my opinion. The other phenomena that I think is happening is almost the opposite of it, which is I see some really, really excellent founders going after niche markets because they're not scared of the Neolabs. And I think there's much less head to head competition. If you look at the markets that Harvey or Open Evidence or Decagon or any of these folks at Sierra entered four or five years ago, three or four years ago even, Cognition two ish years ago, it was big, big markets that could be in the roadmaps of these labs. But I feel like the the two things are happening at the same time. One is for the mid to late stage technology markets, people are continuing to invest as if there's velocity to get to a trillion for many companies where I don't think there's a velocity. Again, I think some of them will get to 20, some will get to a 100, some of course will go to zero. And then there's a separate thread of all the new stuff that's coming. How aggressive and ambitious are the founders relative to what the labs are doing? And I think that's why you're seeing a flight to hardware companies. Oh, the labs will never do this hardware thing, and so we'll do that. And American Dynamism, and niche applications of AI, and something that should be provided by an inference cloud, and etcetera, etcetera. Right? So there's a lot of these types of companies that I think are gonna be potentially a bit more derivative. And don't get wrong, there's people doing huge amazing things simultaneously. Right? It's not every startup. But there's more and more, at least to my perception, of people doing smaller niche things out of fear of the labs. And that's also I think a negative.
00:09:37 · Sarah Guo, Elad Gil
[00:09:37] S1: And you feel like they're being too meek, like they should just take on the head on competition because you can create a much better experience and go just compete on the product, on the distribution, any of it. [00:09:46] S0: I think so. Yeah. For certain markets. Of course, there's some markets where the labs will just eat it naturally, but there's a bunch of markets where they won't. But I think people are staying away from both. [00:09:54] S1: Oh, we have companies in the portfolio that are going against pretty central premises. So I don't think all the founders are being too meek. [00:10:00] S0: Oh, I don't think it's all. I think there's more. My point is it's more a trend line and it's the newest stuff. I'm not saying a thing that's a year old or two years old. I feel like it's a trend line that's shifting. And again, it's not all of them. It's just enough of a subset. It's a subset of the good founders. I'm not concerned about the median founder. I'm concerned about the best founders. What are they doing? [00:10:22] S1: I am more often disappointed right now that founders are being less ambitious than they could be. So maybe that's the trend that I'm talking about. We were talking about when companies when founders should sell their companies. What is your thinking on it at this point in time or your framework for it?