Founder Fridays No. 103
The AI Summer -- AI’s $600 Billion Question -- New Marketing Metric: Share of Model
Happy Friday. Raising a round right of funding now can still be pretty tough, especially if your last raise was in 2022 when valuations were sky high. Nearly 30% of venture capital deals in early 2024 resulted in flat or decreased valuations, marking a stark departure from the frothy pandemic-era market. Investors now prioritize lean, profit-focused startups over growth-at-all-costs models. While some companies have rebounded, many face the harsh reality of significantly lowered valuations, with the potential for further declines looming on the horizon.
The Artificial Intelligence (AI) Summer
The "AI Summer" has arrived with a bang, but its warmth may be more fleeting than anticipated. Despite the initial explosion of interest in tools like ChatGPT, which reached 100 million users in just two months, sustained engagement has faltered, with most users trying it once and not returning regularly. This phenomenon extends to the business world, where countless pilots and experiments have been launched, but full-scale deployments remain relatively scarce. The "AI Summer" might be teaching us that while Large Language Models (LLMs) are impressive technologies, they are not finished products in themselves. The path to widespread, practical AI integration may require a slower, more methodical approach to product development and market fit than many had hoped. Ben Evans (6 minutes)
AI’s $600 Billion Question
The AI industry is experiencing a massive surge in infrastructure investment, far outpacing current revenue generation and consumer adoption. This overinvestment is creating a bubble-like environment, with companies stockpiling graphics processing units (GPU) resources at an unprecedented rate. Some compare this to the early railroad boom, arguing that AI infrastructure will eventually lead to valuable applications and economic activity, just as railroads led to new industries and opportunities. However, AI differs from physical infrastructure in key ways, including faster depreciation and less pricing power, which could lead to significant capital losses for investors. While this may be bad for investors, it's likely good for consumers because the excess capacity will drive down costs of AI computing, making AI-powered services more affordable and accessible, and allowing innovative companies to develop transformative applications. Sequoia (5 minutes)
New Marketing Metric: Share of Model
The concept of "share of model" refers to a brand's presence and perception within LLMs like ChatGPT, Google's Gemini or Anthropic's Claude. This metric aims to measure how frequently and favorably a brand is mentioned by AI systems when responding to relevant queries, similar to traditional brand recall or share-of-voice metrics. While the exact calculation method remains unclear, the idea is to evaluate a brand's footprint in AI responses compared to competitors, potentially leading to new optimization strategies and services. As LLMs potentially become the new search index, understanding and improving a brand's share of model could become increasingly important for marketers and businesses. Content Marketing Institute (3 minutes)
Founder FAQ: How Do I Grant Equity to My Startup Advisors?
Granting equity to startup advisors is a crucial strategy for incentivizing valuable expertise and guidance. Advisors typically receive between 0.25% to 1% of fully diluted equity, aligning their interests with the company's success. This compensation model encourages advisors to provide ongoing support in areas such as industry insights, fundraising and scaling. When determining equity grants, startups should consider market rates and the advisor's level of involvement to ensure a fair and competitive offer. Westaway (5 minutes)
Startup Funding Guides
I’ve put together a series of guides to equip founders to excel at fundraising. These guides break down the deal term by term and give you negotiation tips so that you can speak to investors with confidence.
Convertible Note: Guide / Video
Is the billable hour right for startups?
Most law firms bill startups by the hour because that's the status quo. But while it may work for big companies, the billable hour is likely the wrong model for startups. Why?
It incentivizes inefficiency. Firms are motivated to pad hours rather than work efficiently. This adds unnecessary costs.
It rewards busywork over results. Startups care about outcomes, not hours logged.
Costs are unpredictable. With fluctuating monthly hours, legal spend is hard to budget.
It stifles innovation. Hourly billing gives no incentive to find better solutions. Startups need forward-thinking counsel focused on results. That's why we've ditched the billable hour for transparent flat fees.
If you're ready to explore a law firm with a better billing model, let's talk.
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