Reporter鈥檚 Notebook: 3 Early-Stage AI Investors On How They鈥檙e Backing Startups With No Moats

Earlier this month I was in Las Vegas for , a new AI industry conference, alongside about 3,000 other attendees. I also moderated a panel on-stage with early-stage investors from three VC firms that have overwhelmingly been placing their bets lately on artificial intelligence: , and .

For these three firms, investments in AI-related companies reached an astonishing 80% to 90% of their new portfolio deals in 2024.

We discussed how AI is changing the terms of early-stage investing and chatted about the risks and rewards of investing in AI at the nascent stages. What follows are highlights from my conversation on stage with Kleiner’s , Bain鈥檚, and of Primary. (You can also watch the whole conversation below.)

The AI shakeup

AI has been 鈥渓ess predictable and straightforward than the past waves,” said Braswell of Kleiner.

However, 鈥渢he demand from consumers, from enterprises, for this technology and the amount of real proof points of the intelligence paradigm shift that’s happening is just unprecedented,鈥� she said.

Braswell said she has seen product-market fit with multiple startups going after opportunities in code-generation, AI developer tooling, customer support enabled with AI, sales, legal and medical scribes.

Kleiner Perkins is an investor in AI coding startup , AI corporate search engine , sales assistant and , an AI assistant for healthcare clinicians.

The question for investors is: 鈥淲hat are the nonobvious applications?鈥� asked Hilaly of Bain Capital Ventures. 鈥淭here’s still a huge number of those, mainly because the capabilities of models continue to advance. And so you have this shifting forward frontier, particularly around what’s called reasoning and the model’s ability to fully automate things and perform tasks.鈥�

Bain Capital Ventures is an early investor in edtech , customer support startup , and , a platform that provides IT service automation and was recently acquired by . AI advancements unlocked opportunities for all of those companies.

Head starts and moats

In an increasingly competitive startup environment, 鈥淚 love to ask founders 鈥� what is your head start?鈥� said Braswell.

Founders have to assume that their competition is rational and smart, Braswell said. So, founders have to ask themselves: 鈥淗ow long would it take, and how far could you be in front of them before they start to copy you?鈥�

Hilaly agreed: 鈥淭here are no moats, there is no defensibility, certainly at early-stage.鈥�

In that world, startups compete by bringing products to market faster and continually, he said, 鈥渂ecause customers and users will recognize that.鈥�

Bain Capital Ventures also looks for founders that have 鈥渁n intuition for their end user,鈥� he said.

Even when companies do see early adoption, that might not be sustainable over time.

鈥淭raction is a huge red herring right now,鈥� said Young of Primary Venture Partners. That further unsettles venture funding.

Young cited a recent report that as much as are coming from innovation and experimental budgets.

鈥淚 see churn red lights everywhere,鈥� she said. 鈥淪o even the head start makes me nervous.鈥�

Primary Ventures is an investor in supply chain company , , which makes photoreal avatars for go to market teams and , a mental health startup.

We have a term for AI founders: 鈥渘ext-level missionaries,鈥� Young said.

鈥淚 love that framing because I think it underscores the importance of customer obsession in the category they are building in,鈥� as well as needing to win in crowded spaces, she said.

AI companies need less capital because you can do more with smaller teams, said Hilaly, and given the amount of capital available, it makes investors’ lives harder. Companies often 鈥渃an grow revenue more aggressively early in the company’s life,鈥� he said.

Are agents really here to steal your job?

Agentic AI was a recurring theme throughout the three-day conference.

鈥淭here are definitely people on Twitter or that will tell you, 鈥榓gents are here, and they’re coming for your jobs. And you can hand off any task to an agent today.鈥� That’s wrong,鈥� Braswell said. 鈥淎gents don’t work in terms of, let’s automate every single end-to-end task.鈥�

AI tools are great at building software workflows. Braswell cited a portfolio company that used Windsurf from Codeium, a portfolio company, to build its own sales software tooling, and canceled contracts that cost hundreds of thousands of dollars.

鈥淓ventually the models will get so good at predicting your workflow and your personalized workflow that you won’t want to switch from one application to another, because this one knows you really well,鈥� said Braswell.

鈥淢odels will be good enough to really figure out what to do and take a series of actions, at which point everything we think of as a software application basically becomes an agent, because why would it not?鈥� said Hilaly.

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