Investors will be Obsolete

Today's investors are like the dinosaurs of old, looking up at the sky and saying, "Hey, look at that bright shiny thing cruising right at us..."

Back then it was a meteor that created an extinction-level event for the T-Rex. Today those dinosaurs and their Patagonia vests are watching AI about to make them extinct. What it means to be a VC investor is about to change forever, not because of anything the VCs have done wrong, but because the need for them is quickly evaporating.

For a very long time, building a startup company was insanely expensive and risky. We had to pay for a ton of people, marketing, and infrastructure in hopes that the upfront investment would be worth it. But what happens when those costs plummet? What happens when we simply don't need that much capital anymore?

Why are Costs Plummeting?

To put it simply — AI is happening. What may be the single greatest business transformation since the dawn of the Internet is just getting started, and nearly every process and business will be affected. Any process that can be automated, any knowledge that can be re-packaged, and any time that can be saved — will be.

Need legal help to form a startup? An AI can answer most of your questions — for free. Need to learn to code? AI can write code from plain English requests. Need to ramp up a customer support team? AI is about to replace the people behind customer support forever.

All of those costs were the whole reason we were raising money, to begin with. Because these things were so insanely expensive, we had to turn to investors to foot the bill until the business itself could catch up. But as those massive costs sprint toward zero, the need for capital begins to evaporate.

"But Investors Offer More Than Money"

Not really. Sure, a few are fantastic at networking and making really valuable connections. But how much equity would you give up for that without the check that comes with it? Not 25% of our company, that's for sure.

The reality is that without the checkbook, most investors are just yet another person with an opinion and in many cases, very little real operational experience. There's a reason no one is pitching investors just for advice without capital.

Investors offered capital attached to risk — that's it. While some also pretended to offer Yoda-like guidance, the reality is that what little help they offered was typically offset 100x by how much they simply became a headache to service. Historically, we just dealt with it because we had no other choice. That's about to change.

The Paradox of Obsolescence

The whole paradox here is that the very same investors who are becoming obsolete are scrambling to fund the companies to build the tech that will cause them to be obsolete. This is the part where Morpheus says to Neo, "Fate, it seems, is not without a sense of irony."

For hundreds of years, the cost of building and scaling a business went exponentially up, and with that, the need for more capital. For the first time, we are about to see that trend reverse, with the cost of starting a business plummeting and potentially creating even more operating leverage as the startup grows (aka "profit").

Every new startup that builds on this new regime will contribute to its rate of change. Every startup that gets built without legal costs, without support teams, and without legions of high-priced engineers will force its competitors to do the same. The new normal will be a competition to get costs to zero, driven primarily by VCs, who, in the end, will be the last cost to be stripped from the startup books.

Don’t miss out on free credits from Google Cloud for Startups! It’s your chance to leverage powerful cloud solutions without the initial cost. Click here to get started and propel your startup forward.

In Case You Missed It

Raising Money is a One Way Street (podcast) There is a lot to think about before raising money. If we weigh out all the possibilities, we can be confident in choosing that path for our company.

Will Investors Want to Run My Company? If I take on investors, will they push me aside and run the company?

What Should I Never Say to an Investor? I'm going to be raising capital for the first time — I know what I want to tell investors, but what should I avoid saying altogether?