Do Revenue and Margins Still Matter in AI?

What It Covers

David George from Andreessen Horowitz explains how AI transforms growth investing, defending large fund sizes, evaluating AI companies with new metrics, and backing winners like OpenAI, Stripe, and Databricks.

Key Questions Answered

• •Large Fund Performance: A16z's best performing fund is $1 billion, with Databricks returning 7x the fund and Coinbase 5x, proving large funds can generate exceptional returns when capturing big winners.
• •AI Company Evaluation: Revenue growth means nothing without high retention and engagement metrics. AI companies must show organic customer acquisition and heavy product usage to justify rapid scaling and high valuations.
• •Investment Timing Strategy: 47% of IPO gains happen between Series A-B, while 53% occur Series C onward. Private markets now capture value creation that previously happened in public markets.
• •Competitive Analysis Framework: Avoid overweighting fear of theoretical future competition when evaluating investments. Focus on founder strengths rather than eliminating weaknesses - strength of strengths beats lack of weaknesses.
• •AI Margin Evolution: Give AI companies margin flexibility initially, but question any AI company claiming SaaS-level gross margins since it likely indicates low AI feature adoption among users.