Contrary Research Rundown #55

Corporate AI and the extension of the cloud wars, plus updated memos on Zapier and more

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Research Rundown

Last week, Amazon announced plans to invest $4 billion in Anthropic. Shortly after, rumors began swirling that the company was in talks to raise $2 billion more of funding from investors, including Google, at a $20-30 billion valuation, and expected to hit $200 million in revenue by the end of 2023. In July 2023, Anthropic announced the release of its second large language model, Claude 2, and as of September 2023, the chatbot remains in an open beta.

The latest funding for Anthropic from the likes of Amazon and Google is the latest of a series of large, deeply entrenched technology companies proving that the current generative AI wave is less of a revolution for AI startups, and more an extension of the cloud computing wars. With Microsoft, Google, Meta, and now Amazon all competing in AI, it raises the question: are the advancements in AI most impactful to startups, or is this the next foundational layer of computing that is more relevant to the deeply entrenched technology players?

In the early 2000s, venture capital was dominated by ‘internet investors,’ investors that specifically targeted what they called ‘internet companies.’ While internet companies were a popular investment at the time, two decades later, the term ‘internet investor’ is almost laughable. Today, every company leverages the internet. The same is true of big data; every company leverages data.

Potentially reminiscent of the early 2000s internet investors, in 2023 we are seeing a rise in generative AI investors. Goldman Sachs projects that private investments in AI will increase from approximately $92 billion in 2022 to over $158 billion in 2025, a 72% increase over three years. But skeptics argue that the AI funding frenzy could be forming a bubble, with capital thrown at companies that lack earnings, founders with little expertise, and in some cases, companies that lack a product. For example, when Mistral AI raised a $113 million seed round at a $260 million valuation, the company didn’t have a working product; instead, Mistral AI had a vision to compete against OpenAI in the building, training, and application of generative AI models.

The notorious DotCom bubble led to a generation of “internet” startups failed to turn a profit, and startups abandoned fiscal responsibility and spent up to 90% of their budgets on advertising in an attempt to edge out competition without a proprietary product. But the internet became a foundational piece of every technology company rather than a differentiating factor between competing startups.

The rise of AI has similarities to the rise of internet companies in the early 2000s. The benefits of generative AI have largely been concentrated among the deeply entrenched technology players, with the stock prices of Microsoft, Meta, and Amazon skyrocketing. Shares of Nvidia, for example, have tripled this year largely because its GPUs are highly sought after for AI. Meanwhile, early-stage investors are underwriting startups without proprietary products with inflated valuations using these entrenched players as comparable companies despite many not having a clear path to profitability.

The FTC has taken note of the concentration of benefits of generative AI products, explaining the difficulties that nascent competitors will have against established incumbents. Like the internet, AI could become a foundational layer of technology companies with the most prominent benefits concentrated among the established players like Meta, Facebook, Google, and Amazon. Generative AI may not be a game for startups, but rather a foundational piece of every technology company of the future. In another decade, will we view ‘AI Investors’ in the same light as the ‘internet investors’ of the 1990s and 2000s?

Illumio is a cybersecurity company that employs microsegmentation, which is a way of granularly segmenting a network. To learn more, read our full memo here and check out some open roles below:

• Senior Sales Engineer - Sunnyvale

• Senior Software Engineer - Sunnyvale

Zapier is a central hub connecting triggers and actions, allowing any prosumer (professional consumer) to automate workflows without writing a single line of code. To learn more, read our full memo here and check out some open roles below:

• Director, Production Engineering - Remote

• Engineer, SRE - Remote

AMP Robotics is a robotics, AI and infrastructure company for the waste and recycling industry. To learn more, read our full memo here and check out some open roles below:

• Director, Commercial Origination & Business Development - Remote

• Robotic Field Engineer - Louisville (CO)

Check out some standout roles from this week.

• Hebbia | NYC - Recruiter, Product Designer,

• Hadrian | LA - Frontend SWE, Account Executive

• WHOOP | Boston (Hybrid) - Group PM, Senior Data Scientist (Sleep)

• Fidelity is cutting Plaid off from accessing its products in favor of its own homegrown data aggregator, Akoya. To learn more about Plaid, check out our memo.

• Bytedance, the parent company of TikTok, revealed the company generated $20 billion of operating profit last year.

• Jasper, a generative AI tool heavily dependent on OpenAI’s GPT, has cut its valuation internally by 20%. To learn more, you can check out our memos on both Jasper and OpenAI.

• Revolut has been granted a delay for the second year in a row in releasing its annual results as it pursues a UK banking license. To learn more about Revolut, check out our memo.

• Packy McCormick published his latest deep dive on Anduril, digging into the company’s history of acquisitions. To learn more about Anduril, check out our memo.

• Speaking of Anduril, the company was reported to be in talks with investors to raise $400-500 million in a note that converts in at a $10 billion valuation. That was up from the company’s previous Series E that valued that company at $8.5 billion.

• Google announced its shutting down its collaborative whiteboard product, Jamboard. You can learn more about competitive alternatives, like Miro, in our memo.

• Lenny Rachitsky published a breakdown of the first hires across 20 different top B2B companies including several we’ve written memos on such as Coda, Gong, Gusto, Hex, and more.

• Athelas and Commure announced the two companies were merging to become a $6 billion standalone healthcare company. Tribe Capital also published a white paper on the opportunity Athelas is tackling in healthcare.

• Runway, the company providing cutting-edge generative AI video, announced a partnership with Canva to bring its product into Canva’s video creation suite. You can learn more by reading our memos on both Runway and Canva.

• Lithic announced a move beyond just cards by adding accounts and ACH functionality to its product. To learn more about Lithic, check out our memo.