Anish Acharya: AI app layer is real — top companies growing 0 to $80M ARR faster than anything seen before

mean, he says he's AI apps investing and then an electric boat company, but I've met the founders. Very, very cool company. Uh anyway, welcome to the stream, Anishh. How you doing? Hey, what's up, guys? How you doing? There we go. What's going on? Why are we not in person? I want to see the size. I know.

We're going to come see. We uh we just uh we just signed a lease today actually for a new space. Uh so next time you're in LA, we'll have to uh we'll have to have you over. And we do have a comically large gong that has not been shown.

Uh but it's about it's about the side it's it's at least I think like seven feet tall. So you can look forward to hitting that in person. Man, we used to get to hang out all the time and now we got to do this. I know. I know. I know. We both we both got busy. But it's great to see you. Thanks for making time today.

Uh there's so much so much to talk about. Uh I was telling John um before uh before you joined a little bit of uh your background, but why don't why don't you introduce yourself um and maybe give a quick overview on on your focus at the firm. Yeah. Yeah, for sure. It's great to see you, Jordy.

So, I'm focused on AI apps. I lead our consumer team. So, we do a lot in consumer. We do a lot in B2B. I've started two companies. I sold the first to Google, second to Credit Karma, which is why I've done a bunch of fintech investing as well. And this is great, man.

I built my first company in 2008 and this is the most excited I've been since 2008. Like everything is working and people that are more technical are winning. So, it's just like a fun time to be building or be around building. Did you always have conviction around the app layer?

There was a period over the last few years where people were kind of oscillating between, you know, uh there's no value in the app layer, these are all rappers to back to, uh, you know, just kind of back and forth. Uh, I'm guessing you never lost faith. I don't know, dude.

I think the rapper thing was such a midthought, you know, like for maybe for like two months rapper thing was a thing. But give me a am I allowed to swear on here or not? Uh, our kids are watching. Yeah, we keep it usually pretty clean. We're working on we're working on a bleep effect now.

But yeah, go go go swear swear with the people. I'll save it for a beer when we hang out in person.

But look, if you look at the kind of evolution of that comment in particular, sure there was a minute when it seemed like you had to either spend $100 million to train a foundation model or you had to be a quote unquote rapper.

But as soon as you started to see fine-tuning and then all the things that came after it and then of course open source, that stopped being a consideration. So anybody who tells me that there's this like rapper concern hasn't thought deeply enough about it, I think. Yeah.

I I also think there's an an effect there which is people that aren't seeing enough real data from companies at the application layer and seeing the growth rate of some of these companies where you're meeting with you're meeting with companies all the time that I'm sure you're that that are growing at at rates that would have shocked you in 2021 and that you're even passing on because it's maybe not even bestin-class now, right?

I don't I you know um and the top decile is not 0 to one in you know 12 months or 0 to2 in 12 months. It's like 0 to 10 0 to 15. We've seen 10 to 80 like bananas. What is Yeah. Yeah. Uh I mean uh talk about open source a little bit. Are you seeing that impact uh financials in any way?

Um you know obviously tokens can be expensive. I've we've talked to some early stage founders who are pre-launch and they're like, I need $500,000 of like OpenAI credits to just do the pre-work that I need to do to make my my my startup work. I haven't heard about that. I mean, we we were in the free AWS credits.

If you go to YC, you get a bunch. People would not burn through those. They're burning through tokens. Uh have you have you seen that as as a meaningful cost driver at the early stage? And has open source shaped that at all? Yeah, there there's actually two things to talk about here.

One is it's actually amazing that there are real costs because it forces companies to make money. So it forces them to charge real prices right away which forces them to deliver value that substantiates the prices they're charging.

So the business model quality is way better than it was 3 years ago because ironically because the underlying software has gotten more expensive. So we're seeing way better especially in consumer Jordy you know this right like so much of consumer was this field of dreams investing.

you know, we'll build it and someday we'll have ads, whatever that meant. And a lot of times didn't work. And now, like day zero, people are charging for subscriptions and they're making tons of money. And actually, strong willingness to pay because people have had such magical experiences on the consumer side.

People will be like, "Sure, I'll pay 50 bucks a month for this. " Right? Or more, you know? And this is why the most interesting question right now for builders is what is the thousand a month skew of your product? Right? It's not can I charge, it's what is the like insanely expensive thing.

And this is why I think for consumers like you're going to have food, you're going to have rent, and then you're going to have software. That's what the future consumer spend looks like.

On the open source question, John, I think what we're actually seeing is this routing layer emerge where companies are routing to different models based on capabilities and cost. So in some cases when you need something that an open source model can do or you kind of make the costbenefit trade-off, you do that.

Other times you might route to, you know, claude because you've got a coding thing that you need to generate or a long form writing. You know, OpenAI's got really good general purpose reasoning models.

So the routing layer is actually a very interesting thing and it only exists because there's so many models and because there's open source and that's changing the considerations for companies like OpenAI that are now moving up the stack. They bought Windsurf.

They're doing you know a bunch of things at the application layer because they're no longer the sole provider of the models. How are you thinking about the line between consumer proumer and bottoms up adoption in the enterprise?

Because I'm sure you've had this already where you make an investment into what looks like a proumer tool and then suddenly you see some Fortune 500 company adopting it in in you know different patches. But um yeah, it used to be those early stage startups would be like oh well one person from an atgoogle.

com email signed up so let me just put Google on my landing page. Now it's like, yeah, they're actually getting meaningful adoption in the enterprise just from the bottoms up perspective. But yeah, what are you seeing? I from my mindset, everybody's a consumer.

I think the greatest thing to ever happen to consumer software is giving people expense cards at companies. Oh yeah. Instead of it buying something, individuals are buying something.

And of course, and you're it's not like you've got this work, it's you know, like work brain and and personal brain like you bring your personal brain to work and you want to use consumer grade software. And we're seeing products like Korea, KRE, that's one of our best companies.

You know, they're like this this team is like cracked. They they like live to get every model.

They're so technical and the product has a sort of aesthetic and a sophistication that a regular IT buyer might not understand, but it's getting huge adoption in the enterprise because the people that are in those companies want to be using the best tools and this is what they look like.

How do you think about the gap between what's happening in these like super agile startups? It's a couple people, they ramp to hundred million in sales really quickly. They're in the enterprise. They're making a difference.

Consumer adoption versus like McKenzie is also making like billions of dollars selling like PowerPoint decks on AI adoption. Is there a world where someone closes that gap and builds like a McKenzie for as a startup or something?

Or is that is that a dynamic that's actually good and maybe Mckenzie's underrated in some weird way? I don't I mean I would argue that the main thing McKenzie Mackenzie knows how to do is sell to the enterprise. Sure. There is no product there. Their product is deep research or worse. Okay.

Everyone's a Mackenzie consultant now. No, you know. Yeah. Yeah. Because Yeah. Any CEO can first question they ask how should my company be using AI? And then they go and sign up for a bunch of stuff. Uh how are you thinking?

What what's your timeline around uh ubiquity of ads in consumer AI because we're in this interesting moment where a lot of people are paying for models.

Some people are using free version of models but ads aren't ubiquitous yet but the the movement from uh open AI uh you know coming from Instacart big ads business there.

My take on it I was debating with Jordy was that I love the world where every human being regardless of their economic condition has access to the smartest possible model. But I'd love to know your take on ads in AI products because it feels like it's coming but we haven't really seen it yet.

I mean I think that the more spiritual question for us is what is the front door to the internet you know and the front door to the internet has been Google so many years and it's really interesting actually because Google is sort of searchbased and intentionbased and the browse-based web that existed in the '9s we've kind of moved away from a lot of the browse-based behavior is now in Insta and Tik Tok and these other places we're still in the command line era of AI like you know chat GBT is a command line product essentially and I think it's going evolve in a really different direction and and wherever that terminal state of that direction is will define the monetization model.

I I'd be surprised if it's ads, maybe it will be. Um, so I don't know that we'll ever see ads in the way that we see them today in the AI ecosystem. What about uh what's happening with the hyperscalers broadly?

Obviously, they're all investing insane amounts of money in capex, but they've been by most reports lagging on the product side. Is this something where their monopolies are so strong they're just going to wait it out and develop the products internally? Is there a wave of M&A coming in AI apps?

Um, are they going to try and build or buy or what do you how do you think all this plays out in the big tech world? I mean, probably all the above.

You know, number one, I think when you have a new technology, the existing companies do a good job of extending their lead in their existing markets with the new technology. So, I think a bunch of that will happen.

You know, Microsoft will get better at delivering the word processor they've always delivered and Google will get better at delivering the search results they've always delivered. The real issue for Google is not somebody builds them on search, but that there's a new front door to the internet.

So, the new categories are where the upstarts will dominate. And that's where I think we'll see a lot of the M&A activity. But it's probably all the above. The one most surprising thing for me, not just for sort of incumbents, but often for incumbents, is just that people aren't using the products.

Like I talked to VCs, you should test investors on this. like give me the five things that you're actually using every day. And if the answer is chat GPT, come on. You know, there's such an opportunity to build intuition by actually just using the products and yet so few people do it.

It's like this alpha that's hiding in plain sight. Well, that's great. Thank you so much for coming on the show. We'll definitely have you back. Come back on. It took us too long to do this. You're not in person. I want to ring the gong. Oh, yeah. Well, we have a soundbar now. We'll talk to you soon. Thank you so much.

And next up we have Mark Andre, the founder of Andre Horowitz coming. Why is nobody talking about Mark Andre? Why no one really knows about him? And I I think what we need is just one more Twitter thread breaking his This was something that probably made us laugh.

It was a top three laugh last month was somebody posted a somebody posted a thread on Twitter. Yeah. And said, "Why is nobody talking about really good job there? " Uh I think that was probably entirely chatbt generated but uh shouldn't need much of an introduction. No but big day for him.

So uh we're we're glad to bring him in and uh ask him about open source what he's learning from the dot boom uh American dynamism geopolitics uh raising a huge fund.