How VCs Evaluate AI Startups: The 3 E's Framework

March 19, 2025

Hi friends,

I just got back from Austin, where I spoke at SXSW about what I look for when investing in AI startups. Lately, I’ve been captivated by how AI is enabling founders to do more with less, whether it’s hitting $25M in ARR in five months with fewer than ten people or rapidly signing multiple Fortune 500 clients. We’re witnessing a shift in startup velocity that seemed unthinkable a few years ago, and at Flybridge we’re placing bets on teams that harness this momentum in smart, sustainable ways.

At SXSW, I was asked for a quick, actionable framework that founders can use to see if we’re a fit. Over time, we’ve refined what we look for into a simple approach I call the “Three E’s.” It’s how I evaluate new opportunities in AI:

1. Efficiency

First, we look for startups that can deliver a measurable 10X improvement in productivity. Having invested in multiple AI companies, I’ve seen how being AI-native from day one lets founders punch well above their weight class. For instance, I recently met a founder who is building an app that helps doctors complete charting or insurance-related tasks ten times faster. That 10X jump is tangible, and it translates directly into quantifiable value for customers. I’ve also seen enterprise AI startups that augment entire business processes, anything from content creation to user support, resulting in massive savings for teams still used to older, slower workflows. If your product offers that kind of efficiency boost, you immediately stand out.

2. Expansion

Second, I look for real potential to unlock new markets or reduce costs to the point where more customers gain access to your product or service. One of our legal tech investments illustrated this perfectly. They slashed a $20,000 task down to $1,000, enabling smaller clients to finally afford the legal help they needed. Suddenly, a startup can target markets that were previously “too small” to be profitable. We’re seeing this in consumer companies as well. AI is so broadly applicable that founders are rapidly scaling globally, sometimes out of necessity, sometimes because the tech lowers operational barriers. For me, the key is whether your solution paves the way for a broader customer base or a category that never even existed before.

3. Excitement

Finally, excitement is something you can’t fake. It shows up in rapid adoption, strong user engagement, and customers who treat your product like a must-have rather than a “nice-to-have.” I’ve watched companies go from zero to millions in ARR practically overnight because there was genuine enthusiasm behind their offerings. This kind of product-market fit is uncommon. But we’ve seen a lot of startups emerge in the past year where people try it, they instantly love it, and they tell their networks. If you’re seeing that kind of response to your product, that’s a powerful signal to me.

AI is evolving quickly. Traditional playbooks don’t always apply. Whether you know someone building specialized language models, agentic AI, or consumer apps that rely on machine learning, I want to hear from you. We’ve backed a ton of companies that embody all three of these E’s.

🗽 Mind the Tech NY - I’ll be speaking at Mind the Tech NY on March 25 at 1:30 p.m. at Quorum by Convene (1221 6th Ave). RSVP to secure your spot.

🎙️ Cornell Tech @ Bloomberg - I’ll also be speaking at the Cornell Tech @ Bloomberg Speaker Series on Wednesday, March 26, from 5:30-8:00 p.m. at 120 Park Ave.

​💰 Flybridge is an early-stage venture fund that backs ambitious founders building our AI future. We've backed incredible companies like MongoDB, FalconX, Nasuni, BitSight, Codecademy, Chief, and Zest AI – typically leading the seed rounds.

Now that I’m back from Austin, I’d love to hear from you. Let's connect if you know someone who meets these criteria: efficiency, expansion, and excitement. I’m in New York or available over Zoom. Just shoot me a message.

Until next time,

Jesse