How AI is Reshaping Industries

Introduction
We are in a pivotal time where AI is transforming industries at a rapid pace. In a recent conversation with Jared S. Taylor, James Currier, General Partner at NFX discussed the challenges, opportunities, and strategies surrounding AI, offering a glimpse into the future of technology and venture capital.

Early AI Investments: Timing Is Everything

Currier’s involvement with AI began long before it reached mainstream attention. NFX’s first AI investments were meticulously planned after years of observation. By 2023, his firm had made 18 AI-related investments, spanning industries such as gaming, SaaS, biotech, and marketplaces. While the rush of AI startups in 2023 was overwhelming, Currier and his team stay disciplined, carefully filtering through to identify seed-stage companies with genuine potential.

He emphasizes that while the AI space is buzzing, many startups are unlikely to make a significant impact. For Currier, it is always about prioritizing quality over quantity when investing in AI.

No Need to Panic: AI Is Just Another Innovation Cycle

Rather than expressing concern over AI’s rapid rise, Currier views it as part of the natural cycle of technological evolution. Just as the internet boom of the 90s led to many startups failing, AI is expected to follow a similar trajectory. Though many AI-driven companies will ultimately not survive, Currier considers those future failures as a natural and necessary part of innovation.

He emphasizes the importance of investing in companies with defensible business models and value propositions. In his view, the abundance of startups should be seen as a phase in technological progress, not something to be overly concerned about.

AI and Industry Transformation: Legal and Coding Took the Lead

Currier identified legal tech and software coding as industries most ripe for transformation through generative AI. He explained that AI’s ability to process language and code positioned these sectors for significant disruption. In particular, the legal field, with its language-heavy tasks, is a natural fit for AI’s capabilities.

While there has been some resistance from within the legal profession, Currier believes that AI will eventually shift the industry from hourly billing to project-based work. This will streamline legal services and increase efficiency, while also allowing non-lawyers to manage more tasks independently with AI tools.

Investment Criteria: Discipline Amidst AI Hype

Despite the AI hype, Currier and his team at NFX maintain a consistent investment strategy. The firm continues to prioritize defensible companies with real potential, even as AI starts to permeate nearly every sector NFX invested in—whether it is fintech, proptech, or bio space.

NFX resists the temptation to chase trends and instead remains grounded in sound business fundamentals, much like they had during the crypto wave. For Currier, the focus is always on finding companies where AI adds real value, not just buzz.

Competing with Incumbents: Breaking the Mold

For startups aiming to challenge established players, Currier urges revolutionary thinking. He encourages founders to rethink entire industries instead of merely applying AI to improve existing processes. As he explained, many startups are trying to enhance outdated models, such as applicant tracking systems in recruitment, when they should be reimagining the entire process.

Currier also advises startups to disrupt traditional business models, for instance, by offering services that undercut incumbents’ pricing structures. By finding new customer bases or redefining how services are delivered, startups could compete even in crowded markets dominated by larger companies.

Smaller, More Frequent Exits Will Become the Norm

As the venture capital landscape evolves, Currier predicts an increase in smaller, quicker acquisitions by incumbents, particularly in the software space. With more players established in the industry, startups are finding themselves acquired faster, often with smaller exit deals.

However, Currier also believes that for those companies that can break through, the potential for growth is immense. The widespread adoption of software creates larger market opportunities than ever before, with AI playing a central role in enabling this scale.

Conclusion
James Currier’s perspective on AI provides a long-term view amidst the short-term hype. While the AI boom will lead to a surge in startups, the key to success lies in maintaining discipline and identifying companies with truly defensible models. AI, he believes, will touch every sector, from legal to coding, and those that harness its potential effectively will be at the forefront of industry transformation.

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