A hairy question is making the rounds of the startup world:
Can Artificial Intelligence (“AI”) make companies so productive that a startup with just one employee will be valued at $1 billion or more?
Today I’ll take a look at this question…
And show you how to use the answer to guide your investment strategy.
Sam’s Bet
Sam Altman, the founder of OpenAI, has a bet going with his CEO friends.
They’re betting on the year we’ll see the first “solo unicorn” — a one-person company that reaches a value of one billion dollars.
As you can see in this video, they’re not betting on whether a company can pull this off; they’re betting on when it’ll happen.
Until recently, the idea that a startup could reach a billion-dollar valuation with a single employee would have been unfathomable.
But in the age of AI, it’s time to rethink our assumptions.
Especially when we keep reading news stories like this one…
The Base44 Case Study
Maor Shlomo makes a compelling case for solo unicorns.
Maor is the founder of Base44, an AI-powered “vibe-coding” startup. (Vibe-coding refers to building software products, through text prompts, even if you don’t know how to code.)
Last week, Base44 was acquired by Wix for $80 million in cash.
To be fair, $80 million isn’t a billion dollars. And Shlomo wasn’t solo; he had eight employees. But in just six months, he leveraged AI to build a customer base of 250,000 users and reach profitability. Before the advent of AI, such traction would have been nearly impossible.
Will this become the new normal? Should we start investing in solo founders leveraging AI — and expect that they’ll sell their companies in months, for millions or even billions of dollars?
Not so fast…
Why a Strong Team Is Essential
Any company — private or public, AI-focused or not — will be more successful with a strong team. But for startups, a strong team is essential.
You see, few startups create significant revenues; most bring in no revenues at all. These are early-stage enterprises in search of a business model. So the biggest risk to a startup, the existential threat it faces every day, is that it runs out of capital.
That’s why we should aim to invest in startups that have a lower risk of running out of capital.
As it turns out, one of the best ways to mitigate this risk is to invest in a strong team.
A strong team has the following elements:
- More than one founder. Research has proven that teams with multiple founders make more progress, more quickly. In fact, “solo” founders take 3.6 times longer to reach scale compared to founding teams of 2. And being able to get more done more quickly equates to a lower risk of running out of capital.
- Significant domain experience. In other words, the founders already know all the ins and outs of their sector. This correlates to a lower risk of running out of capital.
- A strong team is “balanced.” Balanced teams have one founder who has a technical background, and one founder who has a business background. Balanced teams: 1) Raise 30% more money; 2) Have 2.9 times more user-growth; 3) Are 19% less likely to scale prematurely. Each of these factors correlates to a lower risk of running out of capital.
- A strong team is well-educated. Founders with college or advanced degrees are more likely to have critical-thinking skills to help them manage complex situations. Educated founders also tend to have other qualities associated with start-up survival, including commitment, discipline, and motivation. These factors improve the growth rate of new ventures, and higher growth is correlated to a lower risk of running out of capital.
Don’t Fall for this AI-Investment Trap
The moral of this story? Don’t fall for the myth of the solo unicorn.
Instead, stick to the stats.
While it’s tempting to believe AI changes everything, as an investor, your best bet is to follow the rules the professionals follow:
There will always be exceptions…
But if you’re looking to stack the odds in your favor, invest in startups that have a well-educated and balanced team — a team with multiple founders who have domain experience.
Happy Investing.
Best Regards,
Founder
Crowdability.com
