AI Startups Face Worse Economics Than Software Peers Due to High Compute Costs
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AI startups often have worse economics than traditional software startups due to high compute costs for developing and running AI models.
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Anthropic, a leading AI startup, reportedly had gross margins of only 50-55% last December, underscoring the high costs of AI tech.
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Lower gross margins indicate lower revenue quality for AI startups compared to typical high-margin software companies.
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Investors have historically valued software startups highly based on a multiple of their pristine, high-margin revenue.
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Venture firm a16z predicted back in 2020 that AI startups would have lower gross margins due to heavy cloud usage and need for ongoing human support.