Latest / Unstuck Pod / AI Is Not Your Moat (Kyle Duffy and Jamie Schneiderman)
Transcript
- Jamie Schneiderman: Hi everyone, welcome to the Unstuck Pod. really excited today to have Kyle Duffy here with us. and rather than me butcher his background, his journey, what he's doing right now, I'm gonna pass it over to Kyle, let him share that with you. Kyle Duffy: Yeah, thanks for having me, Jamie. So my background, well, maybe start with where I am today. I'm the operating partner at Gradium Ventures. I've been here about six years. what that role means is I really help our our companies from a post investment support perspective. And we invest at the early stage, seed stage. So that means our companies are just getting started and means a lot of company building. you know, my my background is go to market. So my career I've been in sales, marketing, customer success, partnerships. I've led teams in those different disciplines and the careers varied a bit between big companies and startups. So I've had have two of my own startups, at least founding team of a startup and building out go-to-market org. So that's where I pull a lot of my experience from and it's really my my passion is the zero-to-one stage. so that that's really where I'm leaning in to help many of our companies, from a go to market perspective, you know, being that that's my kind of core background, but also from a kind of overall company building perspective as well. Jamie Schneiderman: Well, so I think that's helpful. and and great. Like obviously clear experience, Kyle Duffy: Mm-hmm. Jamie Schneiderman: you know, focusing on go to market, focusing on building, like you said, zero to one. What are the kinds of companies that you're focused on investing? Right. So you talked about the stage of the company. Is there an industry, technology stack type that you're focused on? Like gradient is focused Kyle Duffy: Mm-hmm. Jamie Schneiderman: on? Kyle Duffy: We we are AI investors. And I know a lot of investors say that these days. We're the OG AI investors. We've been around since 2017. We were incubated within Google. So we were a fund of Google for a time period. And then we we spun out of Google. what AI has meant to us and our thesis around AI have changed over the past going on nine years. What it means today is We do look at every layer of the stack within AI. So that means some at the infrastructure layer, I'll say a little bit less in hardware infrastructure, more software infrastructure. And then we do a lot within dev tooling. So it's kind of the picks and shovels of AI. And then we also do invest in application layer AI given a few verticals. You know, it's not across the board, but you know, within certain verticals, we do invest at the application layer. Jamie Schneiderman: So okay, so you're early stage, focused on AI, and then a you know, you'd say like a range of different parts of the stack, right? I I I get so so let let's so let's go back to go to market for a second. So if that's your focus and there you know it's AI and there's a ton of noise. there's a ton of good and a potential, but there's also a ton of noise on AI. and also all of those businesses are different. Cause I think so many people don't even know what AI what is AI. AI is impacting all these things. How do you think about, you know, go to market and go to market differently depending on those different types of companies? and How do you do it in a way that doesn't get caught up in the noise that exists around AI everywhere? Kyle Duffy: So much noise. Yeah. I mean it it's good that AI is getting the attention that I I think it deserves. However, with that, you know, AI is also creating a lot of the noise. I mean, there there's a lot more ability given that it's much easier to get a company up and running today. That in pretty much every segment there's, you know, dozens of companies getting started, which is creating a lot of noise and also AI has made it a lot easier to create content and put messaging out there. So there's a lot more messaging in the market today. And I think rising above the noise is probably one of the biggest challenges for our portfolio companies from a go-to-market perspective. And I think we see it through the whole, you know, sales lifecycle, but particularly acute, at least for my companies, is at the top of the funnel. if you think about it, these companies are just getting started. They often don't have a lot of brand, brand recognition built out. And they're going out to the market and saying, hey, we do this particular s thing with AI or we solve this particular problem. at a high level, a lot of other companies are saying that. So I I think it really is hard to break through that noise. something I focus on a lot with our early stage companies is around positioning. how Jamie Schneiderman: huh. Kyle Duffy: they message differentiation of their product and where they are positioned in the market. And then the second part to that is really where they figure out where they play, having a very refined ICP, ideal customer profile that they're targeting. You know, the spray and pray, it doesn't really work anymore given that, you know, there is so much noise because of AI. So I think the more targeted they can be with their message in their ICP, the better off they're going to be at the early stage. Jamie Schneiderman: Yeah, makes total sense. And then w I get that from a sort of top of the funnel. And then I I assume the motions are very different, right? The go-to-market motions have to vary outside of that quite dramatically depending on your ICP, right? And depending on what the solution is. So so is it like are you finding that it's a lot more direct? selling, who do you know? Can you get in the door, have the deeper conversation? Or can you lean into that can you lean into that positioning and that focus to drive more broad scale awareness and drive people inbound to you? I'm just trying Kyle Duffy: Yeah. Jamie Schneiderman: to get a sense of what's working or what's not. Kyle Duffy: Maybe I'll take that question up up one level is I I think Jamie Schneiderman: Sure. Kyle Duffy: companies also kind of adjacent to my yeah last answer is they also need to figure out what their early go to market motion is. And Jamie Schneiderman: Yes. Kyle Duffy: early stage companies, I I've seen that they can't really do more than one well, at least. You know, they can have two go to market motions, but they're probably only gonna actually find success with one of them. It's okay to experiment with multiple, but you gotta really focus and and specifically what I mean is Either you're gonna be, you know, these are not the only go to market motions, but either you're gonna have like some bottoms up adoption or PLG, or you're gonna be sales led. you know, maybe some combo of or may maybe somewhere in between. But you you do have to determine kind of what what direction you're going. And early on, you know, in terms of differences in terms of buyers or enterprise. I mean, one thing I've I've especially seen with AI across the board is that Buyers want to get their hands on the product earlier. And given that there's the ability to do that with AI products, and there's a lot more information out there about AI, they're coming into a sales cycle far more educated. So they're already 70, 80% along in the sales cycle, and they've done a lot of due diligence and they've probably gotten the hands on a product. So what that means to kind of bring it back down is that companies usually need some. version of a product that the buyers can get their hands on early. And we invest in a lot of companies that have some open source solution that they can start building on, at least get a sense of it. Or they have some self-serve solution that again, they can kind of at least trial the product. And then if it is more of like a this is a better for the enterprise, then it it kind of bubbles up from there. Jamie Schneiderman: So, which I think is great. I I'm try as you were talking through that, I'm wondering about does that mean that early on you're finding that the your portfolio companies are focused on more solution aware customers as opposed to trying to drive, you know, they're problem aware, of course, but they had have no idea about solution. Again, it's it's how broad I guess you want to go and how educational you wanna Kyle Duffy: Mm-hmm. Jamie Schneiderman: be. 'Cause when you're describing that they already know, I assume that they're solution aware and you're trying to be one of them. Kyle Duffy: I think that's a good way to describe it. Yeah. solution aware. I mean, there are companies that are kind of so far out ahead of the curve that they're having to do more market education. Jamie Schneiderman: Mm-hmm. Kyle Duffy: but ideally there there's there may be a solution in market. Ideally that solution is is an older solution. You know, it's it's kind of kind of last generation software and now they're coming in with a next generation solution. So the solution exists, but maybe it's more of a This is kind of the like the new way of doing things in the in the AI world solution. Yeah. Yeah. Jamie Schneiderman: A new way of doing it. I got it. Okay. Okay. All right. and is there around that, like so people are doing their due diligence, they're they're educating themselves, they're learning a lot. As you said, there's a ton of information out there. Is there more skepticism now around you know, given the range of solutions that exist? probably some of them have been burned by overpromise and underdeliver. Again, I'm not suggesting that that's the case with any of the that you're investing in. I'm just trying to get a sense of what they're walking into and the challenges associated with that. Kyle Duffy: Yeah, I think I think it'd be fair to say there is a a level of skepticism, especially at the I think the top of the funnel is where it's the trickiest. Because we're getting all this messaging, you know, I'm sure you as well, you're bombarded, you know, your inbox is full of you know, a solution that can kind of solve all your ills with with AI. so I think there is some skepticism around that. I I think the skepticism lessens once the customer prospect can get their hands on the product and that they see it actually works for them. So I I I think that's where like if they've felt that they've already like had some sense of what this product can do for them and then that and then you get them into a sales cycle, you've gotten over some of that skepticism. Jamie Schneiderman: Interesting. Yeah, I I show don't tell, I guess, is where like right? It's it's how do we get further more down that path. Kyle Duffy: Yeah. I think so. Yeah. Yeah. And and this especially goes for technical buyers. You know, technical buyers and and AI also has made it a lot easier to build and to implement products. So I think like they can they can kind of spin up their own P POCs. Yeah. Take an open source product. Like they can spin up something internally. Like say it's a a d a data product and you know, they can create a data app internally and kind of showcase that around before you even Maybe, maybe the company ever talks to them. So I I think there is opportunity there. for application layer, especially selling into say more legacy verticals, you know, and w we have companies that sell into lawyers and different healthcare organizations. And I think I think those where it's a less technical buyer or more of an operational kind of buyer. that's where probably like the the tops down and the you know, developing the trust at that executive. executive layer still holds true and you you do need to build a lot more of that trust you know before they're able to actually use a product. Jamie Schneiderman: that makes a lot of sense. So I I have a question so so there's look, there's a you your portfolio is AI, it's all AI. and you know, in all sorts of areas that are relatively, I say new just because that's what it is. There's no way, there's no way around that. And there's challenges, as you mentioned, because the companies are relatively new around brand. And so now it's newer product brand as a challenge, of course. Let me jump into the third part that I'm wondering about, which is these are I imagine that you have quite a few first-time founders that are part of your portfolio. So if you layer in the other two factors and then the first-time founders, are there issues that you're seeing come up sort of consistently that you're, you know. I know there's lots of things you're able to help them with, but are there are there sort of challenges that they're facing that you know others may not, that are just harder for building a business? Kyle Duffy: Are coming in younger and younger. It's pretty incredible. Yeah. I mean, and they're great. I mean, they come in, they hustle, you know, and they don't come in with any preconceived notions of how companies have been built in the past, you know, they are forging their own path in many ways, which, you know, it in is a good thing. Like, you know, we're in a new world and you know, you you can't necessarily recreate what was done in the past and expect to have the same Type of success. That said, you know, many of these founders have not even worked at a company before. So some and many, we we invest a lot technical founders. So they are very good at building products. I think where I see the some of the pitfalls happen is that they build first without talking to customers or the market and really getting a good understanding of what's needed. And then once they do have a product in market, they're probably not doing, you know, we we started the conversation talking about some like positioning and ICP work, foregoing that a little bit. And it's like, hey, we're just gonna get the product out there and we're gonna like, you know, throw it out to a bunch of different kind of segments and types of buyers. And I think not being more calculated about that early on burns unnecessary cycles. Jamie Schneiderman: Yeah, I would yeah. Yes, yes, yes, and yes. yeah, Kyle Duffy: Mm-hmm. Jamie Schneiderman: so so as the primary issues that I see for every one of my clients, they all fall into those categories. And they're further Kyle Duffy: Yeah. Jamie Schneiderman: along, right? So imagine that that's what you're facing constantly. I appreciate the challenge of shifting from the areas that these folks know around technical, some of the technical challenges that they're facing, excuse me, versus the Different, totally different challenges, which is how do you relate it to the market and where do you go with the market? So, okay, Kyle Duffy: Yeah. Yeah. Jamie Schneiderman: so and are and are most of so it the world of venture has changed also, the world of growth has changed in terms of where people are at. How much of your focus, or how much of your portfolio's focus is on grow to be profitable, or just growth, and then how much of it is I gotta grow because I also have to raise my next round of financing. and how does that shift their attention, their focus and what kind of advice are you giving them Kyle Duffy: That's a really interesting question. I I'm sure anyone who follows kind of the funding rounds that's happening in venture, I mean, they're all over the board. I mean, you've got and it it is a little bit of a tale of two startups where you've got, you know, some startups with barely an idea on paper raising, you know, tens of millions of dollars from the start. And then you've got companies that are, you know, have been around for, you know, a couple of years and maybe the growth isn't quite what venture wants and You know, they have some revenue, but they're not nearly raising it kind of the the numbers that you would expect. So it is a little all over the board. so we're investing early stage and then, you know, I I think, you know, and and maybe this is a you know, biased view that I I think revenue cures a lot of bills. You know, if you do have revenue and you do have market traction and you're showing product market fit and then ideally some go-to-market fit by the time you go out to raise your series A or B, like I think you're going to be much better off. that said, we also do have companies that, you know, have have not, there's still pre-revenue at the series A. However, maybe they've got, you know, 50,000 stars on GitHub. Or maybe they've got some different like market traction that, you know, venture investors see that there's real potential here, even though they're pre-revenue, you know, there is, there is something there. the and the revenue will come. So it's a little it's it's a little bifurcated in in a way. Mm-hmm. Jamie Schneiderman: Well, no, and I what I hear from you, sorry, and and I don't mean to to interrupt you, but I this idea that traction doesn't necessarily mean revenue and call it straight go to market in a pure sense, in all cases, traction can mean a variety of different things and you have to demonstrate that you have enough. Now that's for raising, obvious that's obviously for raising versus just straight growth. I I would imagine. unless you've got plenty of money in the bank and you can just figure out a way to translate the other traction into dollars at some point fast. huh. Kyle Duffy: Right. Yeah. Yeah. Right. At the early stages, yeah, I th I think the founders and their their story can drive a lot of the fundraising. you know, in terms of how credentialed they are, you know, what their vision is, you know, how well kind of networked they are. so I I think like early stages that can that that that story can drive the fundraising. At the later stages, I still, you know, it holds true that you still need some revenue. Especially once you get to like series B, you know, that's when investors really start to look at at the metrics. And and these are the metrics that still matter in terms of, you know, high level revenue plus growth rate. And growth rate continues to be super crucial. And, you know, the the AI breakout companies have had incredible growth rates, you know, well beyond what we ever saw in the last generation of of SaaS companies. Jamie Schneiderman: Wow. But I so and and and to that one, the question I have for you is from what you're seeing, is it that there are is it still a matter of there's fewer bigger winners or how is the distribution look in terms of I don't mean it necessarily in your portfolio, but I'm I mean in more broadly as Kyle Duffy: Mm-hmm. Mm-hmm. Jamie Schneiderman: you see the market. Kyle Duffy: Overall I I think the denominator is bigger, meaning there's more companies being started. So if you look at an overall like percentage of winners, that may be the case. I I still think there's room for, you know, a number of winners and we'll see, you know, we'll see how it all plays out. each segment though is getting, you know, it is getting pretty crowded pretty quickly. and I tell founders You know, your moat may not, you know, technology may not be the moat now. I think I think the moat is really getting some distribution motion, you know, I think relevant to, you know, what you do with your customers. And then also how fast you can you can move on it and take advantage. Jamie Schneiderman: Interesting. Such a interesting way to to go and such good like good clear advice for how they do. What's the what's like I appreciate that every business is gonna be different. Do you do you have a like a time frame in your mind? Someone comes in, you're gonna invest, we expect that money to last approximately a certain amount of time. Kyle Duffy: It's been it's been changing. for a while, you know, it was pretty consistent that rounds are happening every twelve to eighteen months, especially in Zerp era. I think now it does depend a lot on the company and you know what their you know, what their funding needs are. I would I'd say s it's probably still in kind of like a eighteen month fundraising cycle. you know, what I have seen with companies is that they are doing more with less and you know, metric that you know, we and other investors look at today is you know, revenue per employee. And that wasn't looked at before. So it's, you know, how how much can you do with with less people? And I'm I'm seeing companies, even if they do fundraise, they're not always blowing all that money as quickly as maybe in the past. And I think part of the reason is because AI is changing so fast that I think this founders that are doing it right are Guess waiting a bit to really scale the business. even if they've got some early version of product market fit, they want to find that the revenue is durable before they really grow the business. And I think there's too many stories of the past, especially in Zerp era, of companies growing or hiring way too fast before they truly do have product market fit. You know, throwing people at the problem is not gonna solve the problem. If if you don't have product market bet. Jamie Schneiderman: And when you talk about also durability of revenue, is that like is it are you seeing the models, the revenue models shifting also as a function? like in and around AI, AI solutions? like I would you know, with token token model Kyle Duffy: Mm-hmm. Jamie Schneiderman: versus some other way to monetize. Is that shifting very rapidly as well? Kyle Duffy: That that is shifting and maybe I'll clarify durability a little bit in that, you Jamie Schneiderman: Sure. Yeah. Kyle Duffy: know, there might be product market fit today, but then Anthropic drops a new model, you know, like security Jamie Schneiderman: Mm-hmm. Kyle Duffy: is a great example where, you know, d they dropped capabilities within cybersecurity that suddenly, you know, companies that we have in the cybersecurity space were like, hmm, you know, now we're directly competitive with anthropic and they have a much bigger base and likely they're gonna win on that front. Therefore, you know, maybe it's not a complete pivot, but they need to need to Definitely evolve the company and kind of Jamie Schneiderman: Right. Kyle Duffy: refine their product market fit. So I think I think that's part of it, certainly in terms of durability. Jamie Schneiderman: And and by the way, to the point that you just made, Kyle Duffy: Mm-hmm. Jamie Schneiderman: the the LLMs have the capability, Anthropics doing it all over the place, Kyle Duffy: Mm. Jamie Schneiderman: to keep offering. Do you see that as the future that everything's or or do you see that as a primary path to most products through direct through the LLM? Or you really think that people will prefer a side targeted focused solution that doesn't sit specifically as a part of you know, like an anthrop Kyle Duffy: It's it's a tough one. And I feel like there's debate back and forth about this a lot. And it it what will the frontier labs own in the long term versus you know, what will continue to be I don't want to say just a point solution, but you know, what platforms can exist outside of the frontier labs. you know, I think the frontier labs will absorb a lot. the The other bet we're making though is that you know, the these LLMs, you know, especially anthropic, open AI, like They're very expensive to use. Jamie Schneiderman: Mm-hmm. Kyle Duffy: And I I think there's gonna be a lot of opportunity with open source models and building on open source models and fine-tuning, you know, models directly for your business. and that's you know, we're taking a lot of bets on that, you know, within our dev tooling space. So assuming that, you know, a a big enterprise is going to need, you know, they're gonna put Gen AI use cases in place and they're gonna need different solutions, especially around like data privacy and governance and integrations and you know, data, data context, things like that. So I I think there definitely are there's definitely room beyond the the frontier labs, but you know, it like you have to keep an eye on what they're doing for sure. Jamie Schneiderman: this is it's a it's a wild it's a wild space with so much going on. I I can't even imagine. Like I think about Kyle Duffy: It is. Yeah. Yeah. Jamie Schneiderman: trying to settle things down and stabilize and focus and you know things are changing on a weekly basis all around you, right? The the Kyle Duffy: Mm. Yeah. Jamie Schneiderman: foundations are shifting constantly. Kyle Duffy: Mm-hmm. Jamie Schneiderman: this is very this is awesome. and you know, would love to have you back at some point in the future to say we here's what's changed, right? Like in Kyle Duffy: Yeah. Jamie Schneiderman: Six months, twelve months. This is what's happened. so Kyle, how can how can folks find you, follow you or find you? Where where are the best places to reach you? Kyle Duffy: I'm sure my responses will be completely different in six to twelve months, Jamie. So yeah, would love to love to revisit. Jamie Schneiderman: Yeah, no, that'd be great. Kyle Duffy: Yeah, for sure. in terms of where to find me, LinkedIn is is kind of where I live these days. So Kyle Duffy is is my profile. Pretty pretty easy to find, hopefully. Jamie Schneiderman: Okay. No, and I will Kyle Duffy: Yeah. Jamie Schneiderman: we'll we'll put links I'll put links to to for that and to Gradient in the in the Kyle Duffy: Yeah. Jamie Schneiderman: in the description and but other than that no this is this has been this has been great. I really appreciate this fantastic and such interesting insight into not l both the venture side and and you know startups but also so much more so much more meat around what's really happening on AI and converting it into business and I find it fascinating. So lots of talk and lots of noise, but I thought you went way, way past that, which is which is amazing. So thank you so much for coming. Appreciate it. Kyle Duffy: Yeah, thanks for having me. Jamie Schneiderman: And to everyone who's watching, listening, thanks so much and until next time.