Flybridge's Third Wave of AI Investing: A Future Woven with Intelligence
Over our 22-year history, Flybridge has always focused on investing in trends that will define business and society in the future. In fact, our name is a nod to the highest deck on a boat, offering an unobstructed view of the waters ahead. From this vantage point, we scout for opportunities and look for ways to partner with Founders who are pioneering and shaping the future.
The future we see today is a world permeated by Artificial Intelligence. There will be no such thing as an AI company, as every company will be an AI company. Our focus as a firm is solely to back ambitious Founders at the pre-seed and seed stages who are creating and building transformative companies for this AI-powered future.
We are not new to this space. Our first wave of AI and ML investments were in companies focused on using data to derive insights, allowing companies to improve decision-making. We told graduates to “Forget Plastics - it’s all about Machine Learning” in 2012, and we christened this cohort of companies as Full-Stack Analytics companies in 2014. Portfolio companies from this time include a 2010 seed investment in ZestAI, a pioneer in leveraging AI for Underwriting, and a 2011 pre-seed that we led in BitSight, an ML and data-powered pioneer in the Cybersecurity Risk Management market.
Our second wave of AI investments fell into the category of what we termed in 2019 as Applied AI companies. We noted that the application layer of AI ultimately drives the business value, but effectively doing so requires a deep understanding of the domain, the specific workflows that AI will seek to improve and optimize, and how best to incorporate AI into end-user experiences to engender trust and drive engagement. Portfolio companies operating within this thesis include Aiera, Bowery, Brighthire, Proscia, and Syrup.
Throughout both waves, we leveraged our long history of investing in infrastructure to back Founders building platforms to (1) manage and operationalize data and (2) make it easier for developers to build, deploy, and manage high-performance mission-critical applications. These investments include companies such as MongoDB, which we first backed in 2009 and which today is a leading company in the “AI Stack” with over $1.6B in annual recurring revenue, as well as other developer experience and “modern data stack” companies such as Firebase, FeatureLabs, Datalogue, and Stackdriver.
In the last 18 months, the capabilities of AI systems have taken a massive leap forward. A combination of technical advances drove this leap — the marriage of globally connected infrastructure, which created massive data sets upon which AI systems could train, exponential increases in computing power per dollar, and wildly sophisticated software techniques. These core foundations are joined with an unprecedented level of technical understanding, speed of advancement, and adoption by enterprises, developers, and consumers.
The future potential this creates exhilarates us, and, as a result, we no longer view AI as one of our investment sectors but rather our sole focus — the nucleus of the next industrial transformation.
Flybridge’s Investment Focus: Five Insights into the Future
We are looking to partner with ambitious founders building along one of five dimensions. While we believe every company will eventually become an AI company, in today's world, an AI-powered company means more than just using AI as a supplementary tool. It implies that AI is a core element of the company's value proposition and provides unique customer value. This integration means that AI is deeply embedded in the company's primary product or service, significantly influencing its strategy and operational processes.
In the enterprise market, every Global 2000 company (and even small and mid-sized companies) will invest massively to build AI application stacks to drive competitive advantage. Analysts estimate that 2.5% of all enterprise software spending today is on AI applications – a level it took the SaaS industry nearly ten years to reach – a percentage that will likely grow 10x in the next several years. Fully realizing the power of AI within an enterprise requires a deep understanding of the domain and the specific workflows that AI will seek to improve and optimize and how best to incorporate this understanding to drive significant business value. Startups that can seize on this extraordinary surge in spending will do so on three dimensions: Vertical SaaS that is AI Native, Horizontal Applications that are AI Native, and Data Infrastructure and Platforms for AI Application Builders and Operators.
Vertical SaaS that is AI native. By building and providing fully integrated solutions that are purpose-built for vertical-specific industries, a new generation of SaaS companies that are AI native have an opportunity to carve out massive market opportunities, building on top of the rapidly evolving horizontal tools offered by big tech, emerging AI platforms for builders and operators, and the open source community. As more traditional software capabilities commoditize (driven in large part by AI-powered co-pilots making it easier to develop applications), enduring and successful Vertical SaaS companies will not only streamline workflows but also will generate the outputs and insights these systems previously enabled humans to perform. As a result, we believe that over $1 trillion in vertical SaaS revenue is “up for grabs” in the coming decade and are excited to back Founders participating in this transformation. Some AI native Vertical SaaS companies in the extended Flybridge portfolio include Aiera, DayZero, Entr, Finkargo, Forcemetrics, H2Ok Innovations, Hansa, noetica, Porosity, Proscia, and Syrup.
Successful Founders in this market will need to deeply understand customer requirements, build quickly, develop self-reinforcing data moats, and create unique value for their customers through well-designed user experiences that build trust, drive usage, and create new experiences that make individual contributors and teams far more efficient and effective. Our colleagues Julia and Daniel expanded on this here and here.
Horizontal Applications that are AI native. Artificial Intelligence promises to improve decision-making, streamline operations, and generate outputs and insights, but realizing this promise requires building these capabilities into an application. By providing functional capabilities that bring AI practices to horizontal workflows that cut across industries, Founders can help companies realize the AI vision of operational efficiencies while tapping massive TAMs that disrupt existing non-AI-native incumbents. We believe the discontinuous innovation that AI can introduce into the Horizontal SaaS market — expanding the market dramatically through increased automation — puts over $3 trillion in revenue “up for grabs” over the next ten years. Some companies building AI-native horizontal applications in the extended Flybridge portfolio include Brighthire, MelodyArc, Meritic, Quilt, Tato, and Teal.
Data infrastructure and platforms for AI application builders and operators. As a team, we have seen significant success supporting Founders who are building developer data platforms. These companies have typically seized upon massive technical shifts, for example, the rise of the cloud, to create platforms purpose-built for the new architectures, use cases, and deployment patterns.
AI represents another such shift, and Founders creating solutions to make applications easier to build, run, manage, secure, and monitor will thrive. Not only will new applications emerge, but also the underlying models - especially if fine-tuned and open-source - and model infrastructure (vectors, knowledge graphs, etc) create a new part of the stack to be developed and managed. Further, as we know, AI models are only as good as their training data and how models apply inferences to data in a timely manner. As a result, for many customers, the AI journey begins at the data layer, and we believe companies building the “modern data stack” will see the same success in the coming AI application boom as those companies that make it easier to build, deploy, run, and manage these applications. Taken together, we believe these markets will exceed $200 billion in annual revenue within ten years. In addition to prior investments in companies such as MongoDB and Firebase, some of the companies building data infrastructure and platforms for AI application builders and operators in the extended Flybridge portfolio include Appwrite, Arcee, Avala, Blaze, FiveOneFour, 5x, Flojoy, Freeplay, Metaplane, Portkey, and Xata.
These first three areas will come to dominate the enterprise software market, disrupting incumbents who will race to keep pace with new capabilities and trends. Outside the traditional enterprise technology realm, we are excited about — and have actively been investing in companies — in two additional emerging areas.
AI-infused complex systems. In our Applied AI position paper published in early 2019 (here), we observed that in some cases, the best way to capture the value an AI-based system creates would be through selling a complete product or vertically integrated system. Each industry has different dynamics in this regard, but one example of the systems approach is Tesla selling autonomous EV automobiles versus providing autopilot or battery control systems to other OEMs. Given the dynamics of the auto industry and consumer preferences, a company could capture more value with a complete system (Tesla has a $780B market cap) versus being a vendor to the industry (Cruise was a billion-dollar acquisition). However, full systems companies in fields such as robotics have historically been challenging for seed-stage investors. They are complex — requiring multidisciplinary skills across engineering domains, hardware, software, and sophisticated AI, including adaptive control systems, vision, and perception systems - all of which make them more capital-intensive than we would like.
This category of new systems has begun and will continue to change as many underlying building blocks, components, and models mature, and AI makes it easier to develop software. Many of these advancements come from the autonomous vehicle space, and Founders with this experience will be exceptionally well-positioned to apply their learnings to other domains where the systems packaging approach is the best way to capture value and meet customers' needs. Some companies currently building AI Infused complex systems in the extended Flybridge portfolio include AeroVect, Alloy Enterprises, Agtonomy, BotBuilt, Bowery, Clockwork, DexAI, Glimpse, HaloBraid, Integral, and Intramotev.
AI native offerings. What are the out-of-the-box ideas for new products and services that don’t yet exist? In some ways, this question is the hardest one to answer — and yet represents exciting opportunities. Each new discontinuous platform shift enables creative Founders to build vertically integrated startups that have the potential to create entirely new industries. For example, Uber’s end-user value proposition could never be contemplated until virtually every potential customer had a GPS-enabled computer in their pocket or bag.
While enabling AI technology is advancing rapidly, translating this innovation into consumer value relies on human strengths - creativity, empathy, and intuition for user needs. Founders operating at this intersection of cutting-edge AI and human-centric design will thrive and create new categories and unforeseen applications we can not live without ten years from now. This intersection between advanced AI and insightful human design will lead Founders to redefine product utility, shifting existing paradigms to embrace new, more intuitive experiences. Some current companies in the Flybridge portfolio building to this future vision include BoldVoice, Decipad, Oasis, and Splice.
The step-change we have all witnessed in AI’s capabilities — from improving decision-making to achieving a level of cognition and task completion that rivals human benchmarks — is just the beginning. We are excited about the potential opportunities across all five dimensions in the coming decade. If you are a Founder building to this AI-powered future, don’t hesitate to reach out. We invest exclusively in AI startups from pre-seed to seed, typically leading rounds.
