Unusual Ventures

What will gross margins for foundation model companies look like in the coming years? Cloud providers serve as an illustrative example and the answer is: probably higher than one would expect. With OpenAI’s price drops and significant spend on compute, some may have thought that theirs is a low-margin, high-volume business model. But that’s an incorrect assumption. OpenAI’s gross margin is estimated to be 41% today and expected to grow to 48% next year and 67% in 2028. Microsoft’s OpenAI service is at around 40% today. In 2006, soon after it started, AWS’s gross margin hovered around 47%. In subsequent years through 2014, it was estimated at 48%, 48%, 49%, 49%, 50%, 50.5%, 51%, 53%. This despite more than 40 price drops (presumably to maintain/grow market share in light of competition with an emerging Microsoft Azure and Google Cloud at the time), some of which were over 50% reductions at a time. It’s reasonable to expect a similar trajectory for foundation model companies. Model APIs are analogous to compute instances;  different models are equivalent to different instance types. Model API margins will improve as inference gets cheaper the same way cloud servers got cheaper at economies of scale. OpenAI and others will become more sophisticated at managing capacity/utilization and forecasting demand. Eventually, different pricing tiers for model usage could emerge, similar to how cloud providers offer reserved instance and spot pricing. All of these will help improve margins, even in light of aggressive price reductions. Of course, OpenAI and others are also already moving up the stack to offer services built on top of the API just as the cloud providers did on top of EC2. ChatGPT, potential new agents, possible robotics offerings, etc. are just some examples. This further drives them towards a higher margin profile and increases the opportunity for customer lock-in. So while there’s a lot of attention on OpenAI’s top line and “CapEx” for model training, the margins are key and those look quite promising for them and other foundation model companies. Sources:  https://lnkd.in/gZgKZHkC https://lnkd.in/gCYEt-2u https://lnkd.in/gqzQRUkH https://lnkd.in/gp5RdcHV

"Pitching investors is more art than science; it’s about creating a strong connection with investors." Unusual GP and 3x founder Lars Albright provides founders with 5 concrete tips to nail their first pitch! Link to the full blog post in the comments!

I end many startup pitches with the same question almost every time: "Capital is a commodity - Anyone can give you money. What are you looking for/what do you want from your investors?" Answers can vary widely and be some combination of the below (and more!): - I want customer introductions or investors who have relationships/LPs in this space - I want investors who were former successful founders and have been in my shoes - I want the highest valuation/least dilution - I want investors to leave me alone - I want investors to only be around on the rare occurrence I need their advice - I want help hiring my first few technical hires - I want successful investors in this segment who have seen what success looks like from start to finish - I want the most well known VC brand as a stamp of validation - I want to expand into a new geographic market - I want someone who is aligned in my company vision - I want someone who I can get along/be friends with - I want someone who is direct and willing to give me tough love What founders say (and don't say) can tell you a lot about their strengths/weaknesses and how they may run their company. It also tells investors what they need to prove to founders in order to win the deal.

I'm thrilled to be speaking at the SaaS Stage at TechCrunch Disrupt 2024 about what investors look for in early-stage companies. I've built 3 companies and I've invested in dozens through Unusual Ventures. Having been both a founder and an investor has given me a unique perspective on evaluating ideas and determining which ones have potential. I'll be joined at Disrupt by Rudina Seseri from Glasswing Ventures and Chelcie Taylor from Notable Capital. This is a conversation I'm looking forward to. If you have any questions you'd like to see addressed, let me know in the comments below.   Date: October 29, from 2:45PM - 3:05PM (PST) https://lnkd.in/eNKRSmKb Frederic Lardinois, Ron Miller

We’re thrilled for Lydia Hylton and Priya Krishnan as they officially launch Strella to increase the speed and quality of customer research. Lydia and Priya were part of Unusual Academy earlier this year. With Strella, they are leveraging AI to quickly derive actionable insights from customer research. Congratulations! We look forward to your continued success!

🚀 Today marks a monumental leap forward for Relyance AI. We’ve just closed our Series B funding, spearheaded by Thomvest with strong participation from M12, Microsoft's Venture Fund, Cheyenne Ventures, and our long-standing partners Unusual Ventures and Menlo Ventures. This isn’t just another milestone; it’s the start of a new standard in governance for the AI era. With our Series B funding, we’re unleashing the next chapter (or next act, as we call it) of our journey, expanding Relyance AI to encompass DSPM (data security posture management) and AI governance. This isn’t just an evolution; it’s a transformation. We are building the world’s most comprehensive data protection, monitoring, and management platform—one that drives business outcomes by ensuring governance isn’t just a function but a force multiplier. The future demands a new standard in trust technology, and Relyance AI is leading that charge for the AI era. We’re only getting started, and the next chapter of our story will set the benchmark for the industry. I am beyond excited for what’s to come. Thank you to all our customers, investors, and, most importantly, the team. Read more about our journey here: https://lnkd.in/gFWtne6s #DataPrivacy #Security #Governance #AI #Trust #RelyanceAI

Massive congratulations to Relyance AI on their latest funding round! It's been an honor to support the team since day 1 on their mission to ensure companies can be trusted to handle sensitive personal data safely in their software and increasingly in their AI models. Companies like Snowflake, Logitech, Coinbase, Notion, and many more use Relyance AI so they can accelerate their software and AI projects with full confidence and have the appropriate data protection controls and governance in place. Read more from John Vrionis about our partnership with Relyance. We can't wait to see what they do next! ⬇️ Link in the comments!

Small changes to our habits can be transformative! Our team recently read James Clear's "Atomic Habits" and its tips have provided us with ideas for aligning our behavior with the team we want to be. 3 key takeaways from the book include: 1️⃣ Getting 1% better every day is enough; you don’t have to do it all at once 2️⃣ Cue, Craving, Response, Reward — you need all 4 to build a habit 3️⃣ Environment design is key to creating and adopting sustainable habits Link to our review in the comments!

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