The AI Native Paradox 😈

Hi friends,

Recently, we invested in a consumer company that achieved $25M ARR with just nine employees — not over years, but in five months, and profitably at that. If someone had suggested this possibility a few years ago, it would have sounded like science fiction. Yet, this is our new reality.

Another company in our portfolio, an enterprise AI startup, went from launch to signing multiple Fortune 500 clients in less than nine months. The speed and efficiency at which these companies are scaling forces us to reevaluate our understanding of what's possible.

We are witnessing a tectonic shift in how entrepreneurs build businesses. I describe this phenomenon as the "AI-Native Paradox," which is forcing us to reconsider long-held beliefs about company growth, operational efficiency, and the metrics we use to evaluate startups.

Contrary to what many might assume, extraordinary growth is not just about having a clever product. The real 10x (or even 100x) improvements come from integrating AI across every facet of the business. The most successful companies are finding ways to leverage AI for content creation, customer support, logistics, sales, and a ton of other operations.

By being AI-native from inception, startups are gaining an enormous competitive advantage, enabling small teams to compete with, and often outperform, much larger, established companies.

This shift is transforming the way VCs measure success. Traditional benchmarks for evaluating startups are becoming obsolete as we see companies accomplish in months what once took years. It's compelling us to reconsider our assumptions about co-founder potential and company growth trajectories.

But as we grapple with these changes, a paradox that challenges our notion of what it means to be "AI-native" emerges. Through countless conversations with founders, I've realized that being AI-native isn't determined by when a company was founded or even the specific technology it’s building. Instead, it's about a mindset — an approach to problem-solving that places AI in front of everything (or nearly everything).

Consider Microsoft, a company not born in the 'AI era,' but one that has wholeheartedly embraced AI under Satya Nadella. Their investment in OpenAI and the integration of AI across their product suite demonstrates a willingness to disrupt themselves before external forces do. This stands in stark contrast to other shall-not-be-named incumbents.

In fact, one of our LPs at Flybridge exemplifies the "AI-native mindset" perfectly. A 100-year-old insurance company might not be the first name that comes to mind when thinking of cutting-edge AI. Yet, they were a pioneer in their industry, implementing AI in production, long before their competitors were doing it (even startups).

Being an AI-native leader is about intellectual curiosity, humility, and openness to the possibility that AI could fundamentally alter every single business model we’ve grown familiar with over the past several decades.

The companies that will lead in the years ahead will be those that fully embrace AI. They'll be the ones willing to reimagine their entire business model and disrupt themselves before others do.

Until next time,

Jesse

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