All that glitters is not gold: Angel investor Christoph Janz on finding the right opportunities in AI - The Intercom Blog

Summary

Angel investor Christoph Janz of Point Nine Capital, an early backer of Zendesk and Clio, shares his mental map for generative AI investment opportunities, describing ChatGPT’s launch as a wake-up call that surprised even AI experts. He argues that incumbents like Microsoft dominate horizontal categories such as spreadsheets through bundling and zero pricing, requiring startups to deliver a 10x better and cheaper product to win. Janz recommends targeting vertical markets like dentistry, where direct customer acquisition via industry channels reduces competition, and new categories for previously unsolvable problems, avoiding broad horizontal markets. He notes that relying on GPT-4 may force startups to accept lower gross margins or negative margins temporarily while betting on future cost reductions. For vertical SaaS, he believes persistent 30-50% year-over-year growth over 15 years can yield sizeable businesses due to direct customer access and less competition from large players.

Takeaways

1. 1

   Incumbents in broad horizontal markets like spreadsheets benefit from bundling and zero pricing, forcing startups to deliver a 10x better product to compete.

2. 2

   Vertical markets offer a direct path to customers through industry channels and can sustain 30-50% annual growth for over a decade despite smaller total addressable markets.

3. 3

   Startups relying on expensive models like GPT-4 may need to accept lower or negative gross margins temporarily while betting on future cost reductions.

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