businessmen shaking hands
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Nobel laureates and technology leaders who signed the “Act Now” pledge are not the only ones who understand how rapidly AI is replacing their jobs. In my first year of running my own media consulting business, I saw firsthand how quickly AI is replacing humans. During the hours I spent waiting for entry-level employees to decide whether to take on the project, I used AI to complete the work myself. I advised startups who were wondering if the technology they wanted to create would be overshadowed by AI before they even finished raising money. I’ve also talked to AI startup founders who say they can’t keep up with the innovation of giant AI companies that can create technology much faster than they can. Almost 60% jobs lost, group-favored cull IMF The predictions appear to be very realistic.
But this fear from the pace of innovation also poses problems for investors trying to decide which startups to bet on. Michael Sonnenfeldt, founder and chairman of Tiger 21, sees it from both sides. He is a founder who runs a family office and is looking for profitable investments. But the pace of AI innovation is accelerating so rapidly that he’s reconsidering what he should invest in. If you’re one of the student startups I’ve written about and you’ve spent less than $500 to get started, you’re good to go. But pouring millions of dollars into a dream isn’t enough.
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Sonnenfeldt says that before the latest AI boom, there was one company he would have loved to invest in. A startup spent years and millions of dollars developing an app that is the ultimate personal concierge. This, he thought, would be perfect for Tiger 21’s wealthy customers around the world. He oversees a network of 2,000 members in 30 countries with total net assets of $250 billion. But even though the founders had incredible expertise in creating this technology, Sonnenfeld realized that rival companies could reproduce the same product at one-tenth the cost.
“One person in particular had spent millions of dollars over multiple years building a beautiful app. And the question was, ‘What’s the value of something like that when technology is changing so rapidly that you can replicate most if not all of what they’ve done, at a fraction of the cost, in a fraction of the time, whatever the effort that went into the last five years, literally the last six months?'” he asked. “The AI landscape has changed so dramatically that if we start from scratch, we can achieve something similar at a dramatically lower cost.”
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But last year, Sonnenfeld invested in a company that uses AI to help organize data. This is because they believe they are keeping up with the speed of technological change.
“This company was founded within the past year by a talented team,” says Sonnenfeldt. “The company has the ability to start fresh and embed AI at its core. So as technology changes, the company stays on top of it in real time. In theory, if AI continues at the same pace a year or two from now, the time and money needed would be halved again.”
Here are three solutions Sonnenfeld proposed to attract investors like him.
- Has a strong management team. Sonnenfeld read my old Forbes magazine article How founders who had to spend $5 million to start a company 25 years ago can now do it for less than $500. But Sonnenfeld cautioned that it is possible and will invest in a strong management team. “Obviously, a $500 startup has to be managed by what I’ll call a million-dollar brain, someone who’s really smart and knows what they’re doing. ”
- There are barriers to entry: Mr. Sonnenfeld also plans to invest in companies that he describes as “how big of a customer moat do they have? In other words, can they retain those customers, or will they leave as soon as a competitor with the same technology comes along?” He understands that most technology startups face a lot of pressure in terms of time and money. “But to get interested, you also need some kind of competitive moat that gives you a chance to do something. It could be a patented idea, it could be a process, it could be a customer list.”
- Own the market: Sonnenfeld strongly believes that even companies that have spent too much money and time on technologies that will be replaced by AI still have a lot to offer because they know their markets well. “When you look at startups, first-mover advantage can create extraordinary tailwinds to success. If what it brings is a first-mover advantage that takes six months, one year, two years, you can afford to overpay for technology,” he said. The key is “the ability to dominate the market, or at least establish a position in the market.”
Sonnenfeldt pointed out that when all three factors are combined, founders have a much better chance of survival.
“Both of these startups rely not only on technology, but also on management and market. Think of it as those three factors. If you can command the market and have exceptional management, you’ll probably be able to keep AI relevant and up to date.”
