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3 Waves of Successful Generative AI Startups 

Every 14 years there’s a tech revolution.

Internet browsers in 1994. Smartphones in 2007-8. Then toward the end of 2022, we entered the Generative AI revolution.

It’s the fast-moving water after a pretty placid decade.

And we’re just in the first wave of it.

There are at least two more waves to come. Here, we aim to convince Founders to think harder about what you want to do with this short window of extreme opportunity.

It’s going to affect every industry.

Anything you’re interested in, anything you’re working on is going to be impacted by generative tech and generative AI. It’s not just that you’re going to be able to take what you’re doing and get some productivity gains – it’s that many areas will be completely rethought, and new things that weren’t done before will start happening.

In addition to the AI model companies, many unicorns and decacorns will be built, starting now. We’re already seeing three types of winners.

1st Wave: Wrappers Around AI models

I wrote in 2022 that Generative Tech would have unusual market dynamics because it is already consensus. There isn’t the level of skepticism we normally see with new technologies. That means everyone gets it and there is a flood of competition from other startups, incumbents, and all the huge platforms like Google and Microsoft.

In the first wave of generative tech, you get the fast movers. They are selling the benefits of AI and addressing the more consensus customer pain points. They are repackaging the AI into user interfaces.

Companies in this wave can win with speed, sales, knowing their customers, and service. Companies like Jasper are the poster children of this phase. They don’t focus on “having a better AI,” but rather they focus on having a better sales and onboarding process. They have been amazing at sales and marketing and have taken an early lead in this market. From that position, they have many options to build an enduring company as long as they bring excellence to all aspects of their business as larger competitors start to enter the market. This would be the template for nearly any company in this phase.

As you can see in the NFX Generative Tech market map, with over 500 companies now listed, we are firmly in the 1st wave right now. A lot of companies have similar ideas. Few have started looking around the corner to the second wave.

2nd Wave: Generative AI Inside

In the second wave are the companies that aren’t pitching AI, but rather using it inside their businesses to make them faster, cheaper, and higher quality than competitors.

They’ll use it to gain a competitive edge for totally normal businesses like renovating apartment buildings, doing security checks with software vendors, or exchanging legal contracts. In this wave, the customers don’t care that you’re using AI. You’re not selling the AI to them. You’re simply selling something better than other offerings.

3rd Wave: Visionary & Non-Obvious

The third wave will be the visionary stuff. The stuff that we can’t imagine yet. When you first saw the smartphone, you didn’t think: “That’s really gonna change the taxi industry.” It took a few years before we got some of the more revolutionary stuff like Sidecar, then Lyft and Uber.

3rd wave companies will be built by visionaries, people who aren’t afraid to reinvent something as native to AI. They will find new transactions that weren’t possible before. They will find new experiences in both consumer and in business settings that weren’t possible before.

We are all privileged to be here right now to see it… and build it.

This is a unique time that only happens about every 14 years. If you can wrap your mind around what is happening with these new capabilities and see the future better than others, there is no better time to build something huge.

If you can jump into Wave 2 or 3 type companies, you will have an advantage. Most companies are still focused on Wave 1 thinking, as you see in NFX’s open source map of 500+ new companies in the Generative AI space.

Typically, the wide-open times to create new startups only last a few years. This transition is a big deal, and we are privileged to be here. Not just to see it – but to build it.

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James Currier
General Partner
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