Elad Gil began betting on AI before most of the world was on the spot. By the time investors began to understand what ChatGpt meant, Gil had already written seed checks for startups such as Perplexity, Charition.ai and Harvey. Now, as the early winners of AI Wave become more clear, the well-known “solo” VCs are increasingly focusing on new opportunities. Reinvent traditional business using AI and scale it through rollups.
The idea is to identify opportunities to buy mature people, such as law firms and other professional services companies, expand AI, use improved margins to acquire other such businesses, and repeat the process. He’s been working on it for three years.
“That seems so obvious,” Gill said on a Zoom call earlier this week. “This type of generation AI is very good at understanding languages, manipulating languages, manipulating text, creating text. It’s audio and video that includes coding, sales outreach, and various back-office processes.”
“We can effectively convert some of these repetitive tasks into software,” he said, “We can dramatically increase margins and create very different types of businesses.” Mathematics is particularly convincing when he owns a business entirely.
“If you own an asset, you can (convert) it much faster than if you were selling software as a vendor,” Gill said. “And that’s a big lift because you’re getting a total margin of, say, 10% to 40% of the company, so it’s a big lift. Suddenly, cash flow per business is increasing, so you can buy other companies at a higher price than other companies.
So far, GIL has supported two companies pursuing this strategy. According to the information, one is a year-old company called Enam Co., which focuses on worker productivity and is valued at over $300 million by supporters, including Andreessen Horowitz and Openai’s startup fund.
Gill says that it cannot be discussed in detail about private transactions, but suggests that this approach represents something new. “We once had these technology-enabled rollups 10 years ago, but most of them weren’t actually users of technology,” he says. “It was like a thin veneer drawn to increase the company’s valuation. I think that with AI, we can actually fundamentally change the cost structure of these things.”
It remains to be seen whether the approach has proven to be as advantageous as some of his other bets. Gill has supported many big brands that have created wealth for supporters, including Airbnb and Coinbase.
Part of the challenge with the rollup is finding the right team composition. Ideally, it would be to include powerful technicians along with people who are “very strong in PE”. He said he had met “20 of these teams” so far, and he had mostly passed because “they still need to sort out some things,” not because they were “not surprising.”
Gill, who has deep ties with businesses across Silicon Valley, may find that more costumes like Khosla Ventures are also more aggressively competing in roll-ups, as they place more emphasis on more costumes, whether or not they should pursue such a deal.
Either way, I feel that Gil is not in it at this point for money. He says the ability to find trends faster than most people will instead come from the heart. “I love technology, I love progress and I just get involved with people who are not only working on important and interesting things, but also on technology itself.”
For example, when the GPT-3 was launched, he said Gill was already experimenting with its predecessor. “When GPT-3 came out, it was a big leap from GPT-2, allowing us to extrapolate the technology curve. “Oh, if this continues to expand” – all the scaling rules are clear.
This practical approach brings together a small team of people with “people with very deep engineering backgrounds” who “play regularly with all AI front-end companies. One of my teams writes a lot of scripts, performs performances, and sees the tools.
That’s because Gill is constantly tinkering with seeing a clear winner appear after years of uncertainty in the AI market. “Even six months ago, I said that the market was so dynamic that I knew about AI, so little was there to me. Technology was very dynamic,” he said. “And I feel like in the last few months, perhaps in the last two quarters, a subset of the market has really crystallized.”
Legally, “We know who will probably have one or two major winners. That’s true for healthcare. That applies to customer success and support,” Gill said.
Some of these bets are reportedly in discussions to develop a large language model for law firms and internal legal teams and raise new funds at a $5 billion valuation. Abridge is a healthcare AI company aimed at improving physician clinical documentation workflows (a $250 million Series D round co-led by GIL in February). And Sierra AI, co-founded by renowned operator Bret Taylor, helps businesses implement AI agents for customer service. (The company was valued at billions of dollars from the gate.)
Still, Gill is careful not to declare the game. “I’m not going to draw a picture of the game being over or things being over. I think the two companies all look interesting.
In the meantime, it is clear in the conversation that this moment represents more than just another investment cycle for him. “There’s so much change going on, so I think it’s a really fun period, so there’s something to do,” he said.
He added that being at the intersection of two transformations where he bets on not only the future of AI, but also the future of how AI will reshape everything else, he adds.
Our conversation with GIL also touched on Guardrails, GateKeeping, and how companies can most skillfully integrate technology that they do business or destroy.