At the recent All In Summit, Eric Schmidt said that the AI revolution is fundamentally under-hyped. We are now poised for significant productivity gains, potentially reaching 3% or 4% growth annually, a rate unseen in decades. But at the same time, the talk about an AI bubble is intensifying. Which one is right?
The confluence of AI innovation and unprecedented capital deployment has rendered the traditional venture capital playbook obsolete. We are moving into an era defined by extreme growth velocity, massive sector displacement, and a necessity for concentrated conviction. For early-stage investors, the new market requires rethinking of diligence, valuation, and capital allocation.
AI’s Unprecedented Velocity
The massive valuation increases are underpinned by an inherently revolutionary shift in productivity. The speed of AI innovation is enabling growth rates faster than anything previously seen in the industry. Companies are hitting the $100 million Annual Recurring Revenue (ARR) run rate mark faster than even previous record holders.
This acceleration is happening because AI is set to outperform humans in almost all Keyboard-Video-Mouse (KVM) related jobs within the next 6 to 12 months. The scale of the opportunity is staggering: the total market potential for white-collar cognitive labor up for grabs is estimated to be around $10 trillion. Market forces will inevitably drive companies to adopt AI solutions that are fundamentally cheaper, faster, and better, translating into immense leverage for successful AI startups.
This velocity has completely invalidated old benchmarks. The growth metric “Triple Triple Double Double” (T3D2) is dead. AI companies exhibit growth rates far surpassing prior technology titans; for example, OpenAI’s 400% growth at $1 billion in revenue dwarfs Atlassian’s 30%. For venture outliers, the new expectation is hyper-growth, necessitating a trajectory that scales quickly from 1 to 15 to 20 to 100. From a financial perspective, the time value of money makes this velocity crucial; the sooner a startup reaches $1 billion in revenue, the more valuable it is.
In its State of AI 2025 Bessemer called these new type of hyper-growth companies defining them as Supernovas, for example Lovable, that famously reached $100M ARR in one year. In contrast, Shooting stars, look more like stellar SaaS companies, reaching the ~$3M ARR range within their first year of revenue while quadrupling in YoY growth with ~60% gross margins, and ~$164K ARR / FTE in their first years.
Another example of the old metrics being obsolete is the A16Z series A benchmarks in ‘What Working Means in the AI Era‘. If in the past getting to $1M ARR meant that the startup is ready for series A, now the median amount is more than double that at $2M ARR, raising series A just nine moths after starting monetisation. What was once considered “best in class”, ramping up from $0 to $1 million ARR is now on the lower end of growth in the AI era.
The gap between good and exceptional has never been bigger. Some AI companies are growing very fast very quickly. But rapid top-line revenue growth is not the only metric that matters, it’s also retention and margins.
Investing in the Next Century: Concentration is Alpha
In this hyper-competitive market, due diligence on hot AI deals is often skipped. Success is driven by the courage and conviction to move quickly. Alpha is achieved through extreme capital concentration in the outlier winners. When chasing a potentially transformative company, price sensitivity is secondary, as illustrated by the dictum of General Catalyst’s CEO, Hemant Taneja: “Price only hurts once”.
Founders are commanding a premium due to high dilution and cash burn, representing the greatest transfer of wealth from VCs to founding teams. Consequently, the VC strategy must involve constantly supporting and leaning into the best companies across subsequent funding rounds, recognising that concentration is the key driver of long-term venture returns.
So should VCs avoid investing in strong AI teams to prevent the risk of investing in a bubble? Most likely, the opposite is true. They will double down on the teams that are able to create that unprecedented growth.
He is a former General Partner at Google Ventures (GV) in Europe, former head of Google for Entrepreneurs in Europe, and founding head of Campus London, Google's first startup hub. Eze writes on Israeli tech, venture capital, artificial intelligence, and founder strategy.
He is also the founder of Techbikers, a nonprofit that brings together the startup ecosystem on cycling challenges in support of Room to Read.
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