Full Stack Startups
YC recently put out a call for startups and the first entry was for something they’re calling “Full-stack AI Companies“. I’ve been thinking about this since last summer and I think it’s one of the most interesting areas of exploration for startups (and so far have funded 6 companies in this category and worked directly with 2). As I’ve dug into it more, I think it signals a structural shift in venture / alternative assets from creating net new things to improving existing things.
The question I’ve been asking myself is less about “will this work?“ - of course people can start law firms and accountants and be successful, they do it all of the time. What I’m asking is more “how does this fit into the venture model?“
Starting an accounting firm is fundamentally different than a software business:
Startup cost is low or zero (you just sell contracts if you can, and if you can’t maybe you shouldn’t start an accounting firm)
Revenue is repeatable and scalable, but grows slower than software because it’s mostly services
And now with AI margin is higher (maybe much higher)
The assumptions in software have always been about exit multiples, but one of the main open questions is can you package an AI accounting firm with the same multiples as a high-margin software business. Then beyond that, there’s an even deeper question if the founders classically that raise venture are the best people to do this, or if it’s more a problem for PE (the other, more popular alternative asset that VCs rarely talk about).
I’ve been investing so I definitely think so, but the lines are blurring between PE, VC etc, and I think that it will fundamentally change what we consider a software business. I also think we don’t quite know how this is going to play out and that’s exciting and fun.