Welcome back to βTactical Tipsβ by Jerel and Shuo at DECODE, the largest founder community co-hosted across Berkeley and Stanford.
Weβll be landing in your inbox twice a month, alternating between one of our foundersβ top questions on how to build, sell and operate 10x better, and trends on whatβs new and next in startups and tech to keep you ahead of the curve.
Today, weβll look at how fast top startups are scaling revenue, who is really paying the frontier AI labs, why fundraising now happens in two steps, and two shifts we think are coming next.
And ... weβve curated a YouTube playlist featuring our best founders, operators and investors.Β
π₯ Inside this issue:
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3 trends in startups/tech/venture
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2 theses on whatβs next
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1 tool to love
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3 trends in startups/tech/venture
π Top startups are seeing 26x YoY revenue growth
We all now know that AI enables founders to build in hours what used to take months. However, the latest data shows top startups are scaling revenue exponentially faster, too.
According to the Pacesetter Index, the top quartile of startups generating under $10M in revenue is growing ARR by an astounding 26x year-over-year (meaning a startup generating $10M today would hit $260M this time next year).
A prime example of this speed: Typesafe AI's Jev β an advanced decision-making model thatβs great at multiple choice β scaled from $0 to $100M in just 7 days.
π€ Frontier AI labs are seeing customer concentration
Per the latest data from Ramp, ~80% of OpenAI and Anthropicβs enterprise revenue comes from just 1% of customers with a heavy concentration in tech and AI.
Anthropicβs leaked IPO prospectus confirms this datapoint, with ~25% of Anthropicβs revenue coming from just 2 unnamed customers.
Bottom line: Yes, enterprise AI spend is surging, but this spend is coming from a small handful of players.
π° Startup fundraising has become a 2-step process
In the past, when startups raised money, theyβd approach investors and raise as big of a round as they can in one go. That process is now being split into two steps:
Step 1: Raise at a lower valuation from strategic partners who help build the company.
Step 2: A few months later, land a big valuation markup from deep-pocketed capital partners.
We havenβt just seen this process play out repeatedly across our portfolio. It is also validated by data from Sequoia which suggests that founders are raising at an average post-money valuation of $110M in step 1 and then raising at an average post-money valuation of $3.4B post-money in step 2.
2 theses on whatβs next
π€ Intelligence per megawatt will become the new metric to measure
With so much money flooding AI startups, the bottleneck to startup growth is no longer monetary but physical: electricity access, permits, and supply chains β and how to get access in the most capital- and time-efficient manner possible.
Therefore, it will no longer be enough to say that youβve got the most powerful model; youβll need to be the most powerful on a per-megawatt basis.
π€ Startups will increasingly pursue value-based pricing
When determining how to price their product, startups typically take 1 of 3 paths:
1. Competitor-based pricing: Looking at what the market charges and then charging within the same range.
2. Cost-plus pricing: Looking at how much it costs to serve a customer and then adding a margin.
3. Value-based pricing: Looking at the ROI the product can generate and then asking for a percentage of the spoils.
Currently, over 1/3 of AI startups default to competitor-based pricing, whether or not it makes sense.
However, as more companies implement AI (and as we have more data to prove the ROI of AI investments), we expect more founders to lean into value-based pricing to fully capture the upside.
This was one of the top topics we discussed at the Jeffersonian dinner we recently hosted withΒ Megh Gautam, Head of Product (Apps) at Box and Vinay Seshadri, Senior Director of Product at Chargebee. Find other key takeaways from the session here.
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