🤷♂️ Issue #103: How Can AI Startups Win?
VC and HMC BOT Sergio Monsalve shares his playbook on the key ingredients AI startups will need to build an impactful, durable, and VC-fundable business.
💬 Welcome to issue #103 of Between the Lines
Good morning & happy Thursday. New startups and corporate giants are fiercely competing these days for dominance in the AI space. It’s the innovation and agility of startups going head-to-head with the resources and infrastructure of larger incumbents, and there is plenty of speculation out there on who will win.
This week, VC and HMC Board of Trustee Sergio Monsalve shares his playbook for AI startups to reinvent the playing field and build a VC-fundable business, addressing the David vs. Goliath dilemma that is going on. It’s a Claremont world out there. 👇
~ Josh, Miles, Pat
👤 Community Spotlight: Sergio Monsalve
HMC Board of Trustee Sergio Monsalve is the Founding Partner at Roble Ventures – an early-stage VC fund focused on the future of human enablement technologies, including workplace productivity software, remote work platforms, edtech, and job-creating marketplaces. He started his venture career as a Partner at Norwest Venture Partners for 12 years and was an early investor and board member of two — Udemy and Adaptive Insights.
At Roble, he has invested in dozens of companies and was an early investor in Kahoot! (IPO 2021) and Clerio (IPO 2022). Sergio is also the co-founder of Stanford’s Entrepreneur in Residence Program and is the Chair of HMC’s Entrepreneurship Committee.
The David vs. Goliath Dilemma
Our team has reviewed thousands of early-stage AI startups over the past year, and we see a concerning pattern emerging — one that could result in countless startup failures in the near future.
This is mainly due to a lack of differentiation or competitive advantage (i.e., no “moat”) in these products. There are still far too many startups simply adding thin UI layers or light analytics atop an existing LLM like ChatGPT; this won’t be enough to compete with the Goliaths of the tech world or even other startups, many of whom have enough funding, data, and resources to create their own generic or fine-tuned AI models.
The good news is that we have created a framework beneficial for early-stage AI startups looking to build something much more differentiated and VC-fundable. While AI will create a lot of opportunities across the full tech stack in many sectors, this playbook focuses specifically on the subset of software companies looking to build and sell applied AI (e.g., machine learning capabilities) to a corporate client in order to solve a specific problem that they are facing.
In this segment of AI products, we are convinced that targeting the right early-adopter customer profiles will be critical, and that they will mostly depend on advantageous data partnerships. And, though they may be considered a foregone conclusion, the winning business model in this first inning of AI may not look like your traditional SaaS approach.
So, let’s dive in.
We agree with many great AI experts that in just a couple of years, we will see much more consolidation around roughly two major paradigms for AI, including:
1. A handful of dominant big tech companies that provide generic LLM capabilities.
Foundational LLMs like GPT-4 and Bard, as well as their open-source counterparts in Meta’s LLaMA or Google’s PaLM 2, will continue to evolve and refine their architecture and capabilities….
2. Fine-tuned models focused on specific sectors and functions.
This narrower focus will give startups the best opportunity to challenge incumbents and defend themselves from scrappy new entrants (e.g., the next YC batch). Models that are trained on specific data sets, enriched with a combination of public and private data, and are solving for a particular verticalized sector or function — such as a fully-automated, lightning-fast multilingual customer service line, a virtual assistant to draft briefs and analyze case law for a legal firm, or a clinician’s assistant to provide diagnosis assistance and drug interaction analysis — will be the most valuable in this first inning of LLM application layer solutions….
“The holy grail lies with what feeds the AI model — relevant, proprietary data sets.”
One glaring issue: proprietary data is the name of the game, but startups, by definition, do not have it, while incumbents such as Meta and Salesforce already have more than they know what to do with.
Although startups should be aware of this data disadvantage, it is not as intimidating as it may first appear; even Goliaths require additional specialized engineering or model architecture to fully unlock their potential.
In many cases, a custom LLM with the right intuition and context can yield better, faster results than a more generic model with access to a broader data set. Nevertheless, founders should still operate under the assumption that incumbents will have the resources available to craft those custom LLMs, so how are startups meant to compete? How does David beat Goliath?….
The fight against incumbents with more proprietary data and engineering resources will be tough, but it can be won, and the payoff for doing so will be substantial. The key to success will look different for startups than it will for larger companies, allowing founders to redefine the rules of engagement.
David knew he couldn’t win against Goliath in close-range combat, so he refused to play his game. Instead, he defeated the giant from a distance — turning the battlefield on its head by leveraging his own unique agility and ingenuity.
Check out the full article on Roble’s website to gain access to Sergio’s playbook and in-depth analysis.👇
🤝 Claremont Introductions: Brendan Suh & Tandem
Empty office spaces. Endless Zoom meetings. What's that you say about the future of work?
Tandem, co-founded by Brendan Suh (CMC ‘19), is building a marketplace to help companies share and split office space. From AI startups to public rideshare companies, Tandem is making it possible to share space with dozens of Hosts around the LA and Bay Area. Whether you want to monetize excess space or search for a new home, they streamline the process and do the heavy lifting so you can enjoy a more fulfilling workplace.
A bit about me - I studied PPE at CMC and graduated in 2019. After Claremont, I joined Bain & Company as a consultant, which is where I met my now co-founder, Rafi. Between Bain and Tandem, I ran marketing at a CPG startup, worked on a consumer brand of my own, and have fallen in love with building.
I would love to speak with any Claremont teams who have underutilized office space or are in the market for space of their own. If you're interested, grab some time on my calendar or shoot me an email.
🚨Claremonster Call-Out: Ben Colman & Reality Defender
Over the past 15 years, Claremont graduate and cybersecurity expert Ben Colman (CMC) has scaled multiple companies at the intersection of privacy, AI, and cyber security. Ben is the co-founder and CEO of Reality Defender – a deepfake detection platform enterprises use to flag fake users and fraudulent content in real time. Before this, he led cyber commercialization at Goldman Sachs as their VP. He was also the previous co-founder of PlaceAVote, the first blockchain-based e-voting platform.
In 2021, Ben originally launched Reality Defender as a non-profit. He and his team then decided to turn to outside financing as soon as they realized the scope of the problem with deep fakes and the growing commercial demand for deep fake-detecting technologies.
Reality Defender recently raised a $15M Series A round led by DCVC that will go towards doubling their current team and improving its AI content detection models. Ben shares more about the company’s future plans in this article. He also recently sat down with Joanna Stern from WSJ to talk about deepfake detection, social media, and the lack of existing AI regulation.👇
💼 Who’s Hiring?: AddGlow & Reality Defender
Ina Herlihy (SC '14) is the founder and CEO of StoryHouse portfolio company AddGlow, a SaaS startup that helps e-commerce brands build a community on their website (think Reddit for brands) to increase their conversion rate and generate additional revenue. AddGlow is backed by strategic beauty-brand investors, and they’ve partnered with named brands such as 4AM Skin (137K followers & 5M likes on Tiktok) to personalize their websites and customer engagement. Ina is hiring an additional Full Stack Engineer to join their growing team of ex-Walmart, Nike, Twitch, and Google engineers. For more details on the opening, feel free to reach out to Ina directly.
Reality Defender, co-founded by Ben Colman (CMC), helps companies identify deep-faked audio, video, and images. Their API and web app provide real-time scanning, risk scoring, and PDF report cards, and the team has spent 20+ years at Google, Goldman Sachs, and the US Intelligence Community at the intersection of data science and cyber security. Their early investors include Y Combinator, DCVC, Eric Schmidt, Microsoft’s Defending Democracy Program, and the AI Foundation. They are currently hiring for numerous positions and are looking to fill them with Claremont talent.
Check out the other ~5,000 open jobs at 400+ Claremont-affiliated companies here on our Storyboard. Plus, create a profile and enter your preferences to get alerted to new job postings relevant to you, be they the 1,000+ remote jobs, 100+ internships, or 40+ part-time positions available. We’ve published research that shows that Claremont-founded companies that disproportionately hire Claremont talent outperform — so pay attention, Claremonsters!
If any of these roles catch your eye 👀 , apply and mention Between the Lines. Or, if you are an employer looking to hire tip-top Claremont talent, fill out this form to have your jobs featured.
🗣️ Conversations on the Interwebz:
This week’s top read 🔥
Claremont entrepreneur and founder Nadia Lee (SC) sat down with Home Business Magazine to share the inspiring origin story of her startup company and how technology is changing the fashion industry. Nadia is the CEO of Kollectin – an all-in-one fashion platform that empowers women entrepreneurs and aspiring micro-business owners to build their online AI-powered fashion business.
This week’s Claremont financing 💸
Congratulations to Retirable on their recent $4M Seed round. Retirable, previously co-founded by Claremont alum Brian Ramirez (PO), is a fintech startup specializing in planning, advising, investing, and income generation for adults in or near retirement.
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🍽️ BTL Snacks:
🏆 The Million Dollar Winning Company….. KAV, makers of custom helmets for cyclists and other recreational sports, was recently selected as one of the five $1M winners by startup accelerator and incubator 43North. KAV, together with the other selected companies, will be making their way to Buffalo to grow under the guidance of 43North, helping to create jobs and making investments in the region. Claremont grad Whitman Kwok (HMC ‘97) is the founder and CEO of KAV.
⚕️ The Era Of Cutting-Edge Medical Advancements….. Claremont grad Mahrad Saeedi (KGI) recently shared an article diving deep into the challenges of the clinical research industry. He also discussed the untapped potential of patient-led outreach, a strategy that empowers patients to become the driving force behind clinical trial narratives. Mahrad is the co-founder of WeHealth – a clinical trial recruitment company that uses digital tools to accelerate patient recruitment for clinical trial sponsors.
Feedback? We love to hear it. Hit us with an email. 👊🏼